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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
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COMMISSION FILE NUMBER 1-11239
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COLUMBIA/HCA HEALTHCARE CORPORATION
(Exact Name of Registrant as Specified in its Charter)
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DELAWARE 75-2497104
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
ONE PARK PLAZA 37203
NASHVILLE, TENNESSEE (Zip Code)
(Address of Principal Executive Offices)
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Registrant's Telephone Number, Including Area Code: (615) 344-9551
Securities Registered Pursuant to Section 12(b) of the Act:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, $.01 Par Value New York Stock Exchange
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Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 15, 1999, there were outstanding 621,233,662 shares of the
Registrant's Voting Common Stock and 21,000,000 shares of the Registrant's
Nonvoting Common Stock. As of March 15, 1999 the aggregate market value of the
Common Stock held by non-affiliates was approximately $9,110,186,000. For
purposes of the foregoing calculation only, the Registrant's directors,
executive officers, The Columbia/HCA Healthcare Corporation Stock Bonus Plan,
The Columbia/HCA Healthcare Corporation Salary Deferral Plan and the San Leandro
Retirement and Savings Plan have been deemed to be affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for its 1999 Annual
Meeting of Stockholders are incorporated by reference into Part III hereof.
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INDEX
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PAGE
REFERENCE
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PART I
Item 1. Business.................................................... 3
Item 2. Properties.................................................. 21
Item 3. Legal Proceedings........................................... 22
Item 4. Submission of Matters to a Vote of Security Holders......... 32
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters......................................... 33
Item 6. Selected Financial Data..................................... 34
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 36
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 52
Item 8. Financial Statements and Supplementary Data................. 52
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 52
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 53
Item 11. Executive Compensation...................................... 53
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 53
Item 13. Certain Relationships and Related Transactions.............. 53
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 54
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PART I
ITEM 1. BUSINESS
GENERAL
Columbia/HCA Healthcare Corporation is one of the leading health care
services companies in the United States. At December 31, 1998, the Company
operated 266 general, acute care hospitals and 15 psychiatric hospitals. In
addition, as part of its comprehensive health care networks, the Company
operated 102 outpatient surgery centers and provided extensive outpatient and
ancillary services. Affiliates of the Company are also partners in several joint
ventures that collectively own and operate 22 general, acute care hospitals, 2
psychiatric hospitals and 5 outpatient surgery centers which are accounted for
using the equity method. The Company and its affiliates are located in 32
states, England and Switzerland. The term the "Company" or "Columbia/HCA" as
used herein refers to Columbia/HCA Healthcare Corporation and its affiliates
unless otherwise stated or indicated by context. The term "affiliates" means
direct and indirect subsidiaries of Columbia/HCA Healthcare Corporation and
partnerships and joint ventures in which such subsidiaries are partners.
The Company's primary objective is to provide the communities it serves a
comprehensive array of quality health care services in the most cost effective
manner possible. The Company's general, acute care hospitals usually provide a
full range of services commonly available in hospitals to accommodate such
medical specialties as internal medicine, general surgery, cardiology, oncology,
neurosurgery, orthopedics and obstetrics, as well as diagnostic and emergency
services. Outpatient and ancillary health care services are provided by the
Company's general, acute care hospitals, as well as at freestanding facilities
operated by the Company, including outpatient surgery and diagnostic centers,
rehabilitation facilities and other facilities. In addition, the Company
operates psychiatric hospitals which generally provide a full range of mental
health care services in inpatient, partial hospitalization and outpatient
settings. The Company also operates preferred provider organizations in 46
states.
During 1998, the Company completed the sale of 36 hospitals, which included
the sale of 21 hospitals to a consortium of not-for-profit entities. The Company
also sold 36 ambulatory surgery centers. Throughout the year, the Company
acquired six hospitals and completed construction on three hospitals. In the
third and fourth quarters of 1998, the Company substantially completed the sale
of its home health business. During the second and third quarters of 1998, the
Company completed the sale of three of the four units acquired when the Company
acquired Value Health, Inc. ("Value Health"). The Company acquired Value Health
in August 1997 in a merger accounted for as a purchase (the "Value Health
Merger"). During April 1995, the Company acquired Healthtrust, Inc. -- The
Hospital Company ("Healthtrust") in a merger transaction accounted for as a
pooling of interests (the "Healthtrust Merger"). Healthtrust began operations
through the acquisition of a group of hospitals and related assets from Hospital
Corporation of America (the predecessor to HCA) in September 1987. During May
1994, Healthtrust acquired EPIC Holdings, Inc. ("EPIC") in a transaction
accounted for as a purchase. During September 1994, the Company acquired Medical
Care America, Inc. ("MCA") in a transaction accounted for as a purchase. During
February 1994, the Company acquired HCA-Hospital Corporation of America ("HCA")
in a merger transaction accounted for as a pooling of interests. Effective
September 1993, the Company acquired Galen Health Care, Inc. ("Galen") in a
merger transaction accounted for as a pooling of interests. Galen began
operations as an independent publicly held corporation upon the distribution of
all of its common stock by its then 100% owner, Humana Inc., in March 1993.
The Company, through various predecessor entities, began operations on July
1, 1988. The Company was incorporated in Nevada in January 1990 and
reincorporated in Delaware in September 1993. The Company's principal executive
offices are located at One Park Plaza, Nashville, Tennessee 37203, and its
telephone number at such address is (615) 344-9551.
BUSINESS STRATEGY
The Company's business strategy is to be a comprehensive provider of
quality health care services in select communities. The Company maintains and
replaces equipment, renovates and constructs replacement
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facilities and adds new services to increase the attractiveness of its hospitals
and other facilities to patients and local physicians. By developing a
comprehensive health care network with a broad range of health care services
located throughout a market area, the Company believes it is better able to
attract and serve patients and physicians. The Company believes it is also able
to reduce operating costs by sharing certain services among several facilities
in the same area and is better positioned to work with health maintenance
organizations ("HMOs"), preferred provider organizations ("PPOs") and employers.
The Company generally seeks to operate each of its facilities as part of a
network with other health care facilities that it owns or operates within the
same region. The Company is concentrating on those communities where the Company
is a leader or has a reasonable expectation of becoming a leader. By narrowing
its focus to these communities, the Company seeks to take advantage of the
synergies that come from economies of scale. In instances where assets within a
particular community do not fit within the Company's business strategy and where
acquisitions of additional facilities in the area are not possible or practical,
the Company may seek to joint venture or partner with other local facilities or,
alternatively, may seek to divest those assets. See Note 16 -- Segment and
Geographic Information in the Notes to Consolidated Financial Statements.
As a part of its business strategy, the Company continues to reevaluate and
restructure its operations to create a smaller, more focused company. This
strategy will allow Company management to concentrate their efforts on the
Company's strategic locations, which are typically located in urban areas that
are characterized by highly integrated health care facility networks. During
1999, the Company sold 36 hospitals and 36 surgery centers in non-strategic
locations, substantially all of its home health care operations and various
other assets.
The Company also plans to spin-off the Company's Pacific (38 hospitals and
17 surgery centers) and America (23 hospitals) operating groups into two
independent, publicly traded companies named Triad Hospitals and LifePoint
Hospitals, respectively. Management believes that by separating the groups into
two smaller, focused public companies, whose facilities are located outside the
Company's strategic markets, the performance and profitability of the facilities
in these groups should be enhanced. Management also believes that the new
companies will have more focused management, have more effective operating
structures based on local conditions and will be better able to tailor
compensation incentives for employees to each group's performance. The spin-offs
are anticipated to be completed in the second quarter of 1999, subject to
receipt of a favorable ruling from the Internal Revenue Service (the "IRS"),
certain regulatory approvals and financing.
The Company will continually reassess and refine its business strategy
throughout 1999.
CHALLENGES, RESTRUCTURING AND PROGRESS
While the Company continued to encounter significant legal and operational
challenges and changes during 1998, the Company also made significant progress
in the implementation of the business plan and strategy developed and initiated
during 1997.
The Company made significant strides in 1998 in refining its business plan
and strategy. The Company is restructuring its operations to create a smaller
and more focused company. The restructuring includes divestitures of certain
non-strategic hospitals, surgery centers and various other assets. The Company
also has substantially implemented the action plan developed in August 1997, to
return the Company's emphasis to its primary goal of local, community-focused
care and to redefine its approach to certain business practices that may have
led to the investigations by certain government agencies. The Company has
instituted a values based culture to insure patient care is our primary focus
and to strive to deliver high quality, cost-effective, community based health
care. The Company has solid leadership, enhanced policies and procedures and a
preeminent compliance program. The Company has substantially completed the sale
of its home care units and the repurchase of physician interests in hospitals.
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While management believes the reorganization and other plans are in the
best interest of the Company and its shareholders, management is not currently
able to predict what effect such actions might have on the Company's financial
position or results of operations.
The Company remains the subject of several Federal investigations into its
business practices, as well as governmental investigations by numerous states.
The Company is working closely with the appropriate governmental authorities to
resolve these matters. The Company is also named in other various legal
proceedings, which include qui tam actions, shareholder derivative and class
action suits filed in Federal court, shareholder derivative actions filed in
state courts, patient/payer actions and general liability claims. The Company is
defending these actions vigorously. See Item 3 -- "Legal Proceedings."
It is too early to predict the outcome or quantify the effects that the
ongoing investigations and litigation, the initiation of additional
investigations or litigation, if any, and the related media coverage will have
on the Company's financial condition or results of operations in future periods.
Were the Company to be found in violation of Federal or state laws relating to
Medicare, Medicaid or similar programs, the Company could be subject to
substantial monetary fines, civil and criminal penalties and exclusion from
participation in the Medicare and Medicaid programs. Any such sanctions could
have a material adverse effect on the Company's financial position and results
of operations.
HEALTH CARE FACILITIES
The Company currently owns, manages or operates hospitals, ambulatory
surgery centers, diagnostic centers, cardiac rehabilitation centers, physical
therapy centers, radiation oncology centers, comprehensive outpatient
rehabilitation centers and various other programs.
At December 31, 1998, the Company, either directly or through joint
ventures, operated 288 general, acute care hospitals with 57,865 licensed beds.
Most of the Company's general, acute care hospitals provide medical and surgical
services, including inpatient care, intensive and cardiac care, diagnostic
services and emergency services. The general, acute care hospitals also provide
outpatient services such as outpatient surgery, laboratory, radiology,
respiratory therapy, cardiology and physical therapy. A local advisory board,
which usually includes members of the hospital's medical staff, generally makes
recommendations concerning the medical, professional and ethical practices at
each hospital and monitors such practices. However, the hospital is ultimately
responsible for ensuring that these practices conform to established standards.
When the Company acquires a hospital, it establishes quality assurance programs
to support and monitor quality of care standards and to meet accreditation and
regulatory requirements. Patient care evaluations and other quality of care
assessment activities are monitored on a continuing basis.
Like most hospitals, the Company's hospitals do not engage in extensive
medical research and medical education programs. However, some of the Company's
hospitals have an affiliation with medical schools, including the clinical
rotation of medical students.
At December 31, 1998, the Company either directly or through joint
ventures, operated 17 psychiatric hospitals with 1,843 licensed beds. The
Company's psychiatric hospitals provide therapeutic programs tailored to child
psychiatric, adolescent psychiatric, adult psychiatric, adolescent alcohol or
drug abuse and adult alcohol or drug abuse patients. The hospitals use the
"treatment team" concept whereby the admitting physician, team psychologist,
social workers, nurses, therapists and counselors coordinate each phase of
therapy. Services provided by this team include crisis intervention, individual
psychotherapy, group and family therapy, social services, chemical dependency
counseling, behavioral modification and physical therapy. Family aftercare plans
are actively promoted from the time of admission, through hospitalization and
after discharge. An aftercare plan measures each patient's post-program progress
and utilizes one or more self-help groups. Program procedures are designed to
ensure that quality standards are achieved and maintained. Certain of the
Company's general, acute care hospitals also have a limited number of licensed
psychiatric beds.
Other outpatient or related health care services operated by the Company
include ambulatory surgery centers, diagnostic centers, outpatient physical
therapy/rehabilitation centers, outpatient radiation therapy
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centers, cardiac rehabilitation centers and skilled nursing services. These
outpatient and related services are an integral component of the Company's
strategy to develop a comprehensive health care network in each of its target
markets.
In addition to providing capital resources, the Company makes available a
variety of management services to its health care facilities, most
significantly: ethics and compliance programs; national supply and equipment
purchasing and leasing contracts; accounting, financial and clinical systems;
governmental reimbursement assistance; construction planning and coordination;
information systems; legal counsel; personnel management and internal audit.
SOURCES OF REVENUE
Hospital revenues depend upon inpatient occupancy levels, the ancillary
services and therapy programs ordered by physicians and provided to patients,
the volume of outpatient procedures and the charges or negotiated payment rates
for such services. Charges and reimbursement rates for inpatient routine
services vary significantly depending on the type of service (e.g.,
medical/surgical, intensive care or psychiatric) and the geographic location of
the hospital. The Company has experienced an increase in the percentage of
patient revenues attributable to outpatient services. This increase is primarily
the result of advances in technology (which allow more services to be provided
on an outpatient basis), acquisitions of additional outpatient facilities and
increased pressures from Medicare, Medicaid, HMOs, PPOs, employers and insurers
to reduce hospital stays and provide services, where possible, on a less
expensive outpatient basis.
The Company receives payment for patient services from the Federal
government primarily under the Medicare program, state governments under their
respective Medicaid programs, HMOs, PPOs and other private insurers as well as
directly from patients. The approximate percentages of patient revenues from
continuing operations of the Company's facilities from such sources during the
periods specified below were as follows:
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YEARS ENDED
DECEMBER 31,
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1998 1997 1996
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Medicare.................................................... 30% 34% 35%
Medicaid.................................................... 6% 6% 6%
Managed care................................................ 32% 28% 25%
Other sources............................................... 32% 32% 34%
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Total............................................. 100% 100% 100%
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Medicare is a Federal program that provides certain hospital and medical
insurance benefits to persons age 65 and over, some disabled persons and persons
with end-stage renal disease. Medicaid is a Federal-state program administered
by the states which provides hospital benefits to qualifying individuals who are
unable to afford care. Substantially all of the Company's hospitals are
certified as providers of Medicare and Medicaid services. Amounts received under
the Medicare and Medicaid programs are generally significantly less than the
hospital's customary charges for the services provided.
To attract additional volume, most of the Company's hospitals offer
discounts from established charges to certain large group purchasers of health
care services, including Blue Cross, other private insurance companies,
employers, HMOs, PPOs and other managed care plans. Blue Cross is a private
health care program that funds hospital benefits through independent plans that
vary in each state. These discount programs limit the Company's ability to
increase charges in response to increasing costs. See "Competition." Patients
are generally not responsible for any difference between customary hospital
charges and amounts reimbursed for such services under Medicare, Medicaid, some
Blue Cross plans, HMOs or PPOs, but are responsible to the extent of any
exclusions, deductibles or co-insurance features of their coverage. The amount
of such exclusions, deductibles and co-insurance has generally been increasing
each year. Collection of amounts due from individuals is typically more
difficult than from governmental or business payers.
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Medicare
Under the Medicare program the Company receives reimbursement under a
prospective payment system ("PPS") for inpatient hospital services. Psychiatric,
long-term care, rehabilitation, specially designated children's hospitals and
certain designated cancer research hospitals, as well as psychiatric or
rehabilitation units that are distinct parts of a hospital and meet Health Care
Financing Administration ("HCFA") criteria for exemption, are currently exempt
from PPS and are reimbursed on a cost based system, subject to certain cost
limits (known as TEFRA limits).
Under PPS, fixed payment amounts per inpatient discharge are established
based on the patient's assigned diagnosis related group ("DRG"). DRGs classify
treatments for illnesses according to the estimated intensity of hospital
resources necessary to furnish care for each principal diagnosis. DRG rates have
been established for each hospital participating in the Medicare program and are
based upon a statistically normal distribution of severity. When treatments for
certain patients fall well outside the normal distribution, providers receive
additional payments (outliers). DRG payments do not consider a specific
hospital's cost, but are adjusted for area wage differentials. The majority of
capital costs for acute care facilities are reimbursed on a prospective payment
system based on DRG weights multiplied by a Federal rate adjusted for a
geographic rate.
DRG rates are updated and recalibrated annually and have been affected by
several recent Federal enactments. The index used to adjust the DRG rates (the
"market basket") gives consideration to the inflation experienced by hospitals
(within the hospital market basket) in purchasing goods and services. However,
for several years the percentage increases to the DRG rates have been lower than
the percentage increases in the costs of goods and services purchased by
hospitals. The DRG rates are adjusted each Federal fiscal year, which begins on
October 1. The historical DRG rate increases were 1.1% 1.5% and 2.0% for Federal
fiscal years 1995, 1996 and 1997, respectively. For Federal fiscal year 1998,
there was no increase. The budgeted updates for Federal fiscal years 1999
through 2002 are market basket minus 1.9%, 1.8%, 1.1% and 1.1% respectively. The
Company anticipates that future legislation may decrease the rate of increase
for DRG payments in the future, but is not able to predict the amount of the
reduction.
Outpatient services provided at general, acute care hospitals typically are
reimbursed by Medicare at the lower of customary charges or approximately 82% of
actual cost, subject to additional limits on the reimbursement of certain
outpatient services. The Balanced Budget Act of 1997 ("BBA-97"), enacted August
5, 1997, contains provisions that affect outpatient services, including a
requirement that HCFA adopt a prospective payment system for outpatient hospital
services to begin January 1, 1999. However, implementation of the PPS will be
delayed because of Year 2000 systems concerns. The outpatient PPS will be
implemented as soon as possible after January 1, 2000. At such time as PPS is
implemented, the rates will be based on the rates that would have been in effect
January 1, 1999, updated by the rate of increase in the hospital market basket
minus one percentage point. The Company is not able to predict the effect, if
any, that the new payment system will have on its financial results. After the
fee schedule is established for this new PPS system, the fee schedule is to be
updated by the market basket minus 1.0% for each of Federal fiscal years 2000
through 2002. Similarly, effective January 1, 1999, therapy services rendered by
hospitals to outpatients and inpatients not covered under a Part A stay are
reimbursed according to the Medicare physician fee schedule.
Payments to PPS-exempt hospitals and units, (i.e., inpatient psychiatric,
rehabilitation and long-term hospital services), are based upon reasonable cost,
subject to a cost per discharge target. These limits are updated annually by a
market basket index. For Federal fiscal years 1995, 1996 and 1997, the market
basket rate of increase was 3.7%, 3.4%, and 2.5% respectively. For Federal
fiscal years 1994 through 1997, the market basket is reduced by the lesser of 1%
or the percentage difference between 10% and the percentage by which the
hospital's allowable operating costs exceed the target amount in Federal fiscal
year 1990. For Federal fiscal year 1998, there was no increase. For Federal
fiscal year 1999, the market basket index is projected to be 2.4%. The update
for cost reporting periods October 1, 1998 to September 30, 1999 is the market
basket less a percentage point between 0% and 2.4% depending on the hospital's
or unit's costs in relation to the ceiling (target). Furthermore, limits have
been established for the cost per discharge target at the 75th percentile for
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each category of PPS-exempt hospitals and hospital units. For Federal fiscal
year 1998, these limits are $10,534, $19,104, and $37,688 per discharge
respectively. For Federal fiscal year 1999, these new limits are $10,787,
$19,562 and $38,593 per discharge respectively. In addition the cost per
discharge for new hospitals/hospital units cannot exceed 110% of the national
median target rate for hospitals in the same category. For Federal fiscal year
1998 these amounts were $8,517, $16,738, and $18,947 per discharge for inpatient
psychiatric, rehabilitation and long-term hospital services, respectively, and
are wage adjusted. For Federal fiscal year 1999, these amounts are $8,686,
$17,077 and $22,010 per discharge for inpatient psychiatric, rehabilitation and
long-term hospital services, respectively.
Skilled nursing facilities ("SNF") have historically been reimbursed by
Medicare on the basis of actual costs, subject to certain limits. The BBA-97
requires the establishment of a prospective payment system for Medicare skilled
nursing facilities under which facilities will be paid a Federal per diem rate
for virtually all covered services. The new payment system will be phased in
over three cost reporting periods, starting with cost reporting periods
beginning on or after July 1, 1998. The law also institutes consolidated billing
for skilled nursing facility services, under which payments for most
non-physician Part B services for beneficiaries no longer eligible for Part A
skilled nursing facility care will be made to the facility, regardless of
whether the item or service was furnished by the facility, by others under
arrangement, or under any other contracting or consulting arrangement.
Consolidated billing is being implemented on a transition basis due to HCFA's
delays in modifying the systems.
BBA-97 also requires the United States Department of Health and Human
Services ("HHS") to establish a PPS for home health services, to be implemented
beginning October 1, 1999. Prior to implementation, the BBA-97 establishes
certain interim payment reforms for cost reporting periods beginning on or after
October 1, 1997, including reduced per visit costs limits, and agency-specific
per beneficiary annual limits on an agency's costs. Effective for cost reporting
periods beginning on or after October 1, 1997, home health agencies are paid the
lower of (i) their reasonable costs, (ii) per visit limits or (iii) blended
agency specific per beneficiary limits based on 98% of 1994 base year costs.
Currently, physicians are paid by Medicare on a physician fee schedule.
However, physicians working in rural health clinics, such as those maintained by
the Company, are reimbursed for their professional and administrative services
through the rural health clinic at cost subject to per visit limits unless the
rural health clinic is based at a rural hospital with less than 50 beds.
Medicare has special payment provisions for "sole community hospitals." A
sole community hospital is generally the only hospital in at least a 35-mile
radius. Thirteen of the Company's facilities qualify as sole community hospitals
under Medicare regulations. Special payment provisions related to sole community
hospitals include a higher reimbursement rate, which is based on a blend of
hospital-specific costs and the national DRG rate, and a 90% payment "floor" for
capital costs which guarantees the sole community hospital capital reimbursement
equal to 90% of capital cost. In addition, the CHAMPUS program has special
payment provisions for hospitals recognized as sole community hospitals for
Medicare purposes (i.e., exempt from CHAMPUS DRG-based payment system).
BBA-97 mandates a prospective payment system for skilled nursing facility
services for Medicare cost reporting periods commencing after June 30, 1998,
hospital outpatient services beginning January 1, 1999, home health services for
Medicare cost reporting periods beginning after September 30, 1999, and
inpatient rehabilitation hospital services for Medicare cost reporting periods
beginning after September 30, 2000. Prior to the commencement of the prospective
payment systems, payment constraints will be applied to PPS-exempt hospitals and
units for Medicare cost reporting periods beginning on or after October 1, 1997.
As of December 31, 1998, the Company had 87 rehabilitation hospitals/units, 163
skilled nursing facility units, 3 long term care hospitals and 48 psychiatric
hospitals/units.
Medicaid
Most state Medicaid payments are made under a prospective payment system or
under programs which negotiate payment levels with individual hospitals.
Medicaid reimbursement is often less than a hospital's cost of services.
Medicaid is currently funded jointly by the states and Federal government. The
amount of the
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Federal government's portion is at least 50% of the state's qualifying costs.
The Federal government and many states are currently considering significant
reductions in the level of Medicaid funding while at the same time expanding
Medicaid benefits, which could adversely affect future levels of Medicaid
reimbursement received by the Company's hospitals.
On November 27, 1991, Congress enacted the Medicaid Voluntary Contribution
and Provider-Specific Tax Amendments of 1991 which limit the amount of voluntary
contributions and provider-specific taxes that can be used by states to fund
Medicaid and require the use of broad-based taxes for such funding. As a result
of enactment of these amendments, certain states in which the Company operates
have adopted broad-based provider taxes to fund their Medicaid programs. The
impact of these new taxes upon the Company has not been materially adverse.
However, the Company is unable to predict whether any additional broad-based
provider taxes will be adopted by the states in which it operates and,
accordingly, is unable to assess the effect of such additional taxes on its
results of operations or financial position.
Annual Cost Reports
All hospitals participating in the Medicare program, whether paid on a
reasonable cost basis or under PPS, are required to meet certain financial
reporting requirements. Federal regulations require the submission of annual
cost reports covering the revenue, costs and expenses associated with the
services provided by each hospital to Medicare beneficiaries.
Annual cost reports required under the Medicare and Medicaid programs are
subject to routine audits, which may result in adjustments to the amounts
ultimately determined to be due to the Company under these reimbursement
programs. These audits often require several years to reach the final
determination of amounts earned under the programs. Providers also have rights
of appeal, and it is common to contest issues raised in audits of prior years'
reports. The Company believes that adequate provisions have been made in its
financial statements for any material retroactive adjustments that might result
from such audits and that final resolution of the contested issues will not have
a material adverse effect upon its results of operations or financial position.
Reviews of previously submitted annual cost reports and the cost report
preparation process are areas included in the ongoing government investigations
of the Company. It is too early to predict the outcome of these investigations,
but if the Company or any of its facilities were found to be in violation of
Federal or state laws relating to Medicare, Medicaid or similar programs, the
Company could be subject to substantial monetary fines, civil and criminal
penalties and exclusion from participation in the Medicare and Medicaid
programs. Any such sanctions could have a material adverse effect on the
financial position and results of operations of the Company. See Item
3 -- "Legal Proceedings."
Managed Care
Pressures to control the costs of health care have resulted in increases to
the percentage of admissions and net revenues attributable to managed care
payers. The percentage of the Company's admissions attributable to managed care
payers increased from 35.2% for the year ended December 31, 1997 to 38.7% for
the year ended December 31, 1998. The percentage of the Company's net revenue
from continuing operations attributable to managed care payers increased from
28.4% for the year ended December 31, 1997 to 31.7% for the year ended December
31, 1998. The Company expects that the trend toward increasing percentages
related to managed care payers will continue in the future. The Company
generally receives lower payments from managed care payers than from traditional
commercial/indemnity insurers.
Commercial Insurance
The Company's hospitals provide services to individuals covered by private
health care insurance. Private insurance carriers make direct payments to such
hospitals or, in some cases, reimburse their policyholders based upon the
particular hospital's established charges and the particular coverage provided
in the insurance policy.
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Commercial insurers are continuing efforts to limit the costs of hospital
services by adopting discounted payment mechanisms, including prospective
payment or DRG-based payment systems for more inpatient and outpatient services.
To the extent that such efforts are successful and reduce the insurers'
reimbursement to hospitals for the costs of providing services to their
beneficiaries, such reduced levels of reimbursement may have a negative impact
on the operating results of the Company's hospitals.
HOSPITAL UTILIZATION
The Company believes that the two most important factors relating to the
overall utilization of a hospital are the quality and market position of the
hospital and the number and quality of physicians providing patient care within
the facility. Generally, the Company believes that the ability of a hospital to
be a market leader is determined by its breadth of services, level of
technology, emphasis on quality of care and convenience for patients and
physicians. Other factors which impact utilization include the growth in local
population, local economic conditions and market penetration of managed care
programs.
The following table sets forth certain operating statistics for hospitals
owned by the Company for each of the most recent five years. Medical/surgical
hospital operations are subject to certain seasonal fluctuations, including
decreases in patient utilization during holiday periods and increases in the
cold weather months. Psychiatric hospital operations are also subject to certain
seasonal fluctuations, including decreases in patient occupancy during the
summer months and holiday periods.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Number of hospitals at end of period(a)... 281 309 319 319 311
Number of licensed beds at end of
period(b)............................... 53,693 60,643 61,931 61,347 59,595
Weighted average licensed beds(c)......... 59,104 61,096 62,708 61,617 57,517
Admissions(d)............................. 1,888,800 1,915,100 1,895,400 1,774,800 1,565,500
Equivalent admissions(e).................. 2,870,900 2,901,400 2,826,000 2,598,300 2,202,600
Average length of stay (days)(f).......... 5.0 5.0 5.1 5.3 5.6
Average daily census(g)................... 25,675 26,006 26,583 25,917 23,841
Occupancy rate(h)......................... 43% 43% 42% 42% 41%
</TABLE>
- ---------------
(a) Excludes 24 facilities in 1998, 27 facilities in 1997, 22 facilities in 1996
and 19 facilities in 1995 that are not consolidated (accounted for using the
equity method) for financial reporting purposes.
(b) Licensed beds are those beds for which a facility has been granted approval
to operate from the applicable state licensing agency.
(c) Represents the average number of licensed beds, weighted based on periods
owned.
(d) Represents the total number of patients admitted (in the facility for a
period in excess of 23 hours) to the Company's hospitals and is used by
management and certain investors as a general measure of inpatient volume.
(e) Equivalent admissions are used by management and certain investors as a
general measure of combined inpatient and outpatient volume. Equivalent
admissions are computed by multiplying admissions (inpatient volume) by the
sum of gross inpatient revenue and gross outpatient revenue and then
dividing the resulting amount by gross inpatient revenue. The equivalent
admissions computation "equates" outpatient revenue to the volume measure
(admissions) used to measure inpatient volume resulting in a general measure
of combined inpatient and outpatient volume.
(f) Represents the average number of days admitted patients stay in the
Company's hospitals.
(g) Represents the average number of patients in the Company's hospital beds
each day.
(h) Represents the percentage of hospital licensed beds occupied by patients.
Both average daily census and occupancy rate provide measures of the
utilization of inpatient rooms.
Hospitals have experienced significant shifts from inpatient to outpatient
care as well as decreases in average lengths of inpatient stay, primarily as a
result of improvements in technology and clinical practices and hospital payment
changes by Medicare, insurance carriers, managed care programs and self-insured
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<PAGE> 11
employers. These changes generally encourage the utilization of outpatient,
rather than inpatient, services whenever possible, and shorter lengths of stay
for inpatient care.
COMPETITION
Generally, other hospitals in the local markets served by most of the
Company's hospitals provide similar services that are offered by the Company's
hospitals. Additionally, in the past several years the number of freestanding
outpatient surgery and diagnostic centers in the geographic areas in which the
Company operates has increased significantly. As a result, most of the Company's
hospitals operate in an increasingly competitive environment. The rates charged
by the Company's hospitals are intended to be competitive with those charged by
other local hospitals for similar services. In some cases, competing hospitals
are more established than the Company's hospitals. Some competing hospitals are
owned by tax-supported government agencies and many others by not-for-profit
entities which may be supported by endowments and charitable contributions and
are exempt from sales, property and income taxes. Such exemptions and support
are not available to the Company's hospitals. In addition, in certain localities
served by the Company there are large teaching hospitals which provide highly
specialized facilities, equipment and services which may not be available at
most of the Company's hospitals. Psychiatric hospitals frequently attract
patients from areas outside their immediate locale and, therefore, the Company's
psychiatric hospitals compete with both local and regional hospitals, including
the psychiatric units of general, acute care hospitals.
The Company believes that its hospitals compete within local markets on the
basis of many factors, including the quality of care, ability to attract and
retain quality physicians, location, breadth of services, technology offered and
prices charged. The competition among hospitals and other health care providers
has intensified in recent years as hospital occupancy rates have declined. The
Company's strategies are designed, and management believes that its hospitals
are positioned, to be competitive under these changing circumstances.
One of the most significant factors in the competitive position of a
hospital is the number and quality of physicians affiliated with the hospital.
Although physicians may at any time terminate their affiliation with a hospital
operated by the Company, the Company's hospitals seek to retain physicians of
varied specialties on the hospitals' medical staffs and to attract other
qualified physicians. The Company believes that physicians refer patients to a
hospital primarily on the basis of the quality of services it renders to
patients and physicians, the quality of other physicians on the medical staff,
the location of the hospital and the quality of the hospital's facilities,
equipment and employees. Accordingly, the Company strives to maintain high
ethical and professional standards and quality facilities, equipment, employees
and services for physicians and their patients.
Another major factor in the competitive position of a hospital is
management's ability to negotiate service contracts with purchasers of group
health care services. HMOs and PPOs attempt to direct and control the use of
hospital services through managed care programs and to obtain discounts from
hospitals' established charges. In addition, employers and traditional health
insurers are increasingly interested in containing costs through negotiations
with hospitals for managed care programs and discounts from established charges.
Generally, hospitals compete for service contracts with group health care
service purchasers on the basis of price, market reputation, geographic
location, quality and range of services, quality of the medical staff and
convenience. The importance of obtaining contracts with managed care
organizations varies from market to market depending on the market strength of
such organizations.
State certificate of need ("CON") laws, which place limitations on a
hospital's ability to expand hospital services and add new equipment, may also
have the effect of restricting competition. The application process for approval
of covered services, facilities, changes in operations and capital expenditures
is, therefore, highly competitive. In those states which have no CON laws or
which set relatively high levels of expenditures before they become reviewable
by state authorities, competition in the form of new services, facilities and
capital spending is more prevalent. The Company has not experienced, and does
not expect to experience, any material adverse effects from state CON
requirements or from the imposition, elimination or relaxation of such
requirements. See "Regulation and Other Factors."
11
<PAGE> 12
The Company, and the health care industry as a whole, face the challenge of
continuing to provide quality patient care while dealing with rising costs,
strong competition for patients and a general reduction of reimbursement rates
by both private and government payers. As both private and government payers
reduce the scope of what may be reimbursed and reduce reimbursement levels for
what is covered, Federal and state efforts to reform the United States health
care system may further impact reimbursement rates. Changes in medical
technology, existing and future legislation, regulations and interpretations and
competitive contracting for provider services by private and government payers
may require changes in the Company's facilities, equipment, personnel, rates
and/or services in the future.
The hospital industry and the Company's hospitals continue to have
significant unused capacity. Inpatient utilization, average lengths of stay and
average occupancy rates continue to be negatively affected by payer-required
pre-admission authorization, utilization review and by payer pressure to
maximize outpatient and alternative health care delivery services for less
acutely ill patients. Increased competition, admissions constraints and payer
pressures are expected to continue. To meet these challenges, the Company
expands many of its facilities to include outpatient centers, offers discounts
to private payer groups, enters into capitation contracts in some service areas,
upgrades facilities and equipment and offers new programs and services.
REGULATION AND OTHER FACTORS
Licensure, Certification and Accreditation
Health care facility construction and operation is subject to Federal,
state and local regulations relating to the adequacy of medical care, equipment,
personnel, operating policies and procedures, fire prevention, rate-setting and
compliance with building codes and environmental protection laws. Facilities are
subject to periodic inspection by governmental and other authorities to assure
continued compliance with the various standards necessary for licensing and
accreditation. The Company's health care facilities are properly licensed under
appropriate state laws. Substantially all of the Company's general, acute care
hospitals are certified under the Medicare program or are accredited by the
Joint Commission on Accreditation of Healthcare Organizations ("Joint
Commission"), the effect of which is to permit the facilities to participate in
the Medicare and Medicaid programs. Certain of the Company's psychiatric
hospitals do not participate in these programs. Should any facility lose its
Joint Commission accreditation, or otherwise lose its certification under the
Medicare program, the facility would be unable to receive reimbursement from the
Medicare and Medicaid programs. Management believes that the Company's
facilities are in substantial compliance with current applicable Federal, state,
local and independent review body regulations and standards. The requirements
for licensure, certification and accreditation are subject to change and, in
order to remain qualified, it may be necessary for the Company to effect changes
in its facilities, equipment, personnel and services.
Certificates of Need
The construction of new facilities, the acquisition of existing facilities
and the addition of new beds or services may be subject to review by state
regulatory agencies under a CON program. The Company operates hospitals in some
states that require approval under a CON program. Such laws generally require
appropriate state agency determination of public need and approval prior to the
addition of beds or services or certain other capital expenditures. Failure to
obtain necessary state approval can result in the inability to expand
facilities, complete an acquisition or change ownership. Further, violation may
result in the imposition of civil or, in some cases, criminal sanctions, the
denial of Medicare or Medicaid reimbursement or the revocation of a facility's
license.
State Rate Review
Some states in which the Company owns hospitals have adopted legislation
mandating rate or budget review for hospitals or have adopted taxes on hospital
revenues, assessments or licensure fees to fund indigent health care within the
state.
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<PAGE> 13
In the aggregate, state rate or budget review and indigent tax provisions
have not materially adversely affected the Company's results of operations. The
Company is unable to predict whether any additional state rate or budget review
or indigent tax provisions will be adopted and, accordingly, is unable to assess
the effect thereof on its results of operations or financial condition.
Utilization Review
Federal law contains numerous provisions designed to ensure that services
rendered by hospitals to Medicare and Medicaid patients meet professionally
recognized standards, are medically necessary and that claims for reimbursement
are properly filed. These provisions include a requirement that a sampling of
admissions of Medicare and Medicaid patients must be reviewed by peer review
organizations ("PROs"), which review the appropriateness of Medicare and
Medicaid patient admissions and discharges, the quality of care provided, the
validity of DRG classifications and the appropriateness of cases of
extraordinary length of stay or cost. PROs may deny payment for services
provided, may assess fines and also have the authority to recommend to the HHS
that a provider which is in substantial noncompliance with the standards of the
PROs be excluded from participating in the Medicare program. Utilization review
is also a requirement of most non-governmental managed care organizations.
Medicare Regulations and Fraud and Abuse
Participation in the Medicare program is heavily regulated by Federal
statute and regulation. If a hospital provider fails substantially to comply
with the numerous conditions of participation in the Medicare program or
performs certain prohibited acts (e.g., (i) making false claims to Medicare for
services not rendered or misrepresenting actual services rendered in order to
obtain higher reimbursement; (ii) paying remuneration for Medicare referrals (so
called "fraud and abuse" which is prohibited by the "anti-kickback" provisions
of the Social Security Act, hereinafter the "Anti-Fraud Amendments"); (iii)
failing to stabilize all individuals who come to its emergency room who have an
"emergency medical condition," whether or not any such individual is eligible
for Medicare; (iv) transferring any stabilized patient to another health care
facility before such other facility has agreed to the transfer of such patient,
while such other facility does not have sufficient room and staff to treat the
patient, without the patient's emergency department medical records, or without
appropriate life support equipment; and (v) transferring any unstabilized
patient (except those transferred at the patient's request or with physician
certification that the medical risks from the transfer are less harmful than
continued treatment at the transferring facility), such hospital's participation
in the Medicare program may be terminated or civil or criminal penalties may be
imposed upon such hospital under certain provisions of the Social Security Act.
Moreover, HHS and the courts have interpreted the Anti-Fraud Amendments
broadly to include the intentional offer, payment, solicitation or receipt of
anything of value if one purpose of the payment is to induce the referral of
Medicare business. Health care providers generally are concerned that many
relatively innocuous, or even beneficial, commercial arrangements with their
physicians (or others that provide referrals) may technically violate this
strict interpretation of the Anti-Fraud Amendments.
In 1976 Congress established the Office of Inspector General ("OIG") at HHS
to identify and eliminate fraud, abuse and waste in HHS programs and to promote
efficiency and economy in HHS departmental operations. The OIG carries out this
mission through a nationwide program of audits, investigations and inspections.
In order to provide guidance to health care providers on ways to engage in
legitimate business practices and avoid scrutiny under the Anti-Fraud
Amendments, the OIG has from time to time issued "fraud alerts" identifying
features of transactions, which, if present, may indicate that the transaction
violates the fraud and abuse law. The OIG has identified the following incentive
arrangements as potential violations: (a) payment of any sort of incentive by
the hospital each time a physician refers a patient to the hospital, (b) the use
of free or significantly discounted office space or equipment (in facilities
usually located close to the hospital), (c) provision of free or significantly
discounted billing, nursing or other staff services, (d) free training for a
physician's office staff in areas such as management techniques and laboratory
techniques, (e) guarantees which provide that, if the physician's income fails
to reach a predetermined level, the hospital will supplement the remainder up to
a certain amount, (f) low-interest or interest-free loans, or loans which
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<PAGE> 14
may be forgiven if a physician refers patients (or some number of patients) to
the hospital, (g) payment of the costs of a physician's travel and expenses for
conferences, (h) coverage on the hospital's group health insurance plans at an
inappropriately low cost to the physician or (i) payment for services (which may
include consultations at the hospital) which require few, if any, substantive
duties by the physician, or payment for services in excess of the fair market
value of services rendered. The OIG has encouraged persons having information
about hospitals who offer the above types of incentives to physicians to report
such information to the OIG.
In addition, in July 1991, the OIG issued final regulations outlining
certain "safe harbors" for practices, which, although potentially capable of
inducing prohibited referrals of business under Medicare or state health
programs, would not be subject to enforcement action under the Anti-Fraud
Amendments. The practices protected by the regulations include certain physician
joint venture transactions, rental of space and equipment, personal services and
management contracts, sales of physician practices, referral services,
warranties, discounts, payments to employees, group purchasing organizations and
waivers of beneficiary deductibles and co-payments. Certain of the Company's
current arrangements with physicians, including joint ventures, do not qualify
for the current safe harbor exemptions and, as a result, such arrangements risk
scrutiny by the OIG and may be subject to enforcement action. The failure of
these arrangements to satisfy all of the conditions of the applicable safe
harbor criteria does not mean that the arrangements are illegal. Nevertheless,
certain of the Company's current financial arrangements with physicians,
including joint ventures, and the Company's future financial arrangements with
physicians, could be adversely affected by the failure of such arrangements to
comply with the safe harbor regulations, or the future adoption of other
legislation or regulation in these areas.
Section 1877 of the Social Security Act (commonly known as the "Stark Law")
prohibits referrals of Medicare and Medicaid patients by physicians to entities
with which the physician has a financial relationship and which provide certain
"designated health services" which are reimbursable by Medicare or Medicaid.
"Designated health services" include among other things, clinical laboratory
services, physical and occupational therapy services, radiology services,
durable medical equipment, home health, and inpatient and outpatient hospital
services. Sanctions for violating the Stark Law include civil monetary penalties
up to $15,000 per prohibited service provided, assessments equal to twice the
dollar value of each such service provided and exclusion from the Medicare and
Medicaid programs. There are certain exceptions to the self-referral
prohibition, including an exception if the physician has an ownership interest
in the entire hospital. Proposed regulations implementing the Stark Law, as
amended, have not been implemented. The Company cannot predict the final form
that such regulations will take or the effect that the Stark Law or the
regulations promulgated thereunder will have on the Company.
Many states in which the Company operates also have laws that prohibit
payments to physicians for patient referrals with statutory language similar to
the Anti-Fraud Amendments, but with broader effect since they apply regardless
of the source of payment for care. These statutes typically provide criminal and
civil penalties as well as loss of licensure. Many states also have passed
legislation similar to the Stark Law, but with broader effect, since the
legislation applies regardless of the source of payment for care. The scope of
these state laws is broad, and little precedent exists for their interpretation
or enforcement.
The Health Insurance Portability and Accountability Act of 1996 ("HIPAA"),
which became effective January 1, 1997, amends, among other things, Title XI (42
U.S.C. & 1301 et seq.), to broaden the scope of certain fraud and abuse laws to
include all health care services whether or not they are reimbursed under a
Federal program, and creates new enforcement mechanisms to combat fraud and
abuse, including an incentive program under which individuals can receive up to
$1,000 for providing information on Medicare fraud and abuse that leads to the
recovery of at least $100 of Medicare funds. Under HIPAA, health care fraud, now
defined as knowingly and willfully executing or attempting to execute a "scheme
or device" to defraud any health care benefit program, is made a Federal
criminal offense. In addition, for the first time, Federal enforcement officials
will have the ability to exclude from Medicare and Medicaid any investors,
officers and managing employees associated with business entities that have
committed health care fraud, even if the investor, officer or employee had no
knowledge of the fraud. HIPAA also establishes a new violation for the
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<PAGE> 15
payment of inducements to Medicare or Medicaid beneficiaries in order to
influence those beneficiaries to order or receive services from a particular
provider or practitioner.
HIPAA was followed by BBA-97 which was enacted by Congress on August 5,
1997. BBA-97 contains a significant number of new fraud and abuse provisions.
Civil monetary penalties ("CMP") may now be imposed for violations of the
anti-kickback provisions of the Medicare and Medicaid statute (previously,
exclusion or criminal prosecution were the only actions under the anti-kickback
statute) as well as contracting with an individual or entity that the provider
knows or should know is excluded from a federal health care program. BBA-97
provides for a CMP of $50,000 and damages of not more than three times the
amount of remuneration in the prohibited activity. In addition, BBA-97 also has
important discharge planning and reimbursement provisions as well as surety bond
requirements for home health agencies.
The Social Security Act also imposes criminal and civil penalties for
making false claims to Medicare and Medicaid for services not rendered or for
misrepresenting actual services rendered in order to obtain higher
reimbursement. Like the Anti-Fraud Amendments, this statute is very broad.
Careful and accurate coding of claims for reimbursement must be performed to
avoid liability under the false claims statutes.
Certain of the Company's current financial arrangements with physicians,
including joint ventures, and the Company's future development of joint ventures
and other financial arrangements with physicians, could be adversely affected by
the failure of such arrangements to comply with the Anti-Fraud Amendments, the
Stark Law, current state laws or other legislation or regulation in these areas
adopted in the future. The Company is unable to predict the effect of such
regulations, whether other legislation or regulations at the Federal or state
level in any of these areas will be adopted, what form such legislation or
regulations may take or their impact on the Company. The Company is continuing
to enter into new financial arrangements with physicians and other providers in
a manner structured to comply in all material respects with these laws. There
can be no assurance, however, that (i) governmental officials charged with the
responsibility for enforcing these laws will not assert that the Company is in
violation thereof or (ii) such statutes will ultimately be interpreted by the
courts in a manner consistent with the Company's interpretation.
The Federal Medicaid regulations also prohibit fraudulent and abusive
practices and authorize the exclusion from such program of providers in
violation of such regulations.
Medicare Regulations and Fraud and Abuse are areas included in the
government investigation of the Company. See Item 3 -- "Legal Proceedings."
State Legislation
Some of the states in which the Company operates have laws that prohibit
corporations and other entities from employing physicians and practicing
medicine for a profit or that prohibit certain direct and indirect payments or
fee-splitting arrangements between health care providers that are designed to
induce or encourage the referral of patients to, or the recommendation of,
particular providers for medical products and services. In addition, some states
restrict certain business relationships between physicians and pharmacies.
Possible sanctions for violation of these restrictions include loss of license
and civil and criminal penalties. These statutes vary from state to state, are
often vague and have seldom been interpreted by the courts or regulatory
agencies. Although the Company exercises care in an effort to structure its
arrangements with health care providers to comply with the relevant state
statutes, and although management believes that the Company is in substantial
compliance with these laws, there can be no assurance that (i) governmental
officials charged with responsibility for enforcing these laws will not assert
that the Company or certain transactions in which it is involved are in
violation of such laws and (ii) such state laws will ultimately be interpreted
by the courts in a manner consistent with the practices of the Company.
Health Care Reform
Health care, as one of the largest industries in the United States,
continues to attract much legislative interest and public attention. In recent
years, an increasing number of legislative proposals have been introduced or
proposed in Congress and in some state legislatures that would effect major
changes in the
15
<PAGE> 16
health care system, either nationally or at the state level. Among the proposals
under consideration are cost controls on hospitals, insurance market reforms to
increase the availability of group health insurance to small businesses,
requirements that all businesses offer health insurance coverage to their
employees and the creation of a single government health insurance plan that
would cover all citizens. The costs of certain proposals would be funded in
significant part by reductions in payments by governmental programs, including
Medicare and Medicaid, to health care providers such as hospitals. There can be
no assurance that future health care legislation or other changes in the
administration or interpretation of governmental health care programs will not
have a material adverse effect on the Company's business, financial condition or
results of operations.
Conversion Legislation
Many states have enacted or are considering enacting laws affecting the
conversion or sale of not-for-profit hospitals. These laws, in general, include
provisions relating to attorney general approval, advance notification and
community involvement. In addition, state attorneys general in states without
specific conversion legislation may exercise authority over these transactions
based upon existing law. In many states there has been an increased interest in
the oversight of not-for-profit conversions. The adoption of conversion
legislation and the increased review of not-for-profit hospital conversions may
limit the Company's ability to grow through acquisitions of not-for-profit
hospitals.
Revenue Ruling 98-15
In March 1998, the IRS issued guidance regarding the tax consequences of
joint ventures between for-profit and not-for-profit hospitals. The Company is
continuing to review the impact of the tax ruling on its existing joint
ventures, or the development of future ventures, and is consulting with its
joint venture partners and tax advisers to develop an appropriate course of
action. The tax ruling could limit joint venture development with not-for-profit
hospitals, require the restructuring of certain existing joint ventures with
not-for-profits and influence the exercise of "put agreements" (that require the
Company to purchase the partner's interest in the joint venture) by certain
existing joint venture partners.
ENVIRONMENTAL MATTERS
The Company is subject to various Federal, state and local statutes and
ordinances regulating the discharge of materials into the environment.
Management does not believe that the Company will be required to expend any
material amounts in order to comply with these laws and regulations or that
compliance will materially affect its capital expenditures, earnings or
competitive position.
INSURANCE
As is typical in the health care industry, the Company is subject to claims
and legal actions by patients in the ordinary course of business. Through a
wholly-owned insurance subsidiary, the Company insures a substantial portion of
its professional and general liability risks. The Company's health care
facilities are insured by the insurance subsidiary for losses of up to $25
million per occurrence, a portion of which is reinsured with unrelated
commercial carriers. The Company also maintains professional and general
liability insurance with unrelated commercial carriers for losses in excess of
amounts insured by its insurance subsidiary.
The Company and its insurance subsidiary maintain allowances for loss for
professional and general liability risks which totalled $1.4 billion at December
31, 1998. Management considers such allowances, which are based on actuarially
determined estimates, to be adequate for such liability risks. Any losses
incurred in excess of the established allowances for loss will be reflected as a
charge to earnings of the Company. Any losses incurred in excess of amounts
funded and maintained with commercial excess liability insurance carriers will
be funded from the Company's working capital. While the Company's cash flow has
been adequate to provide for professional and general liability claims in the
past, there can be no assurance that such amounts will continue to be adequate.
If payments for professional and general liabilities exceed
16
<PAGE> 17
anticipated losses, the results of operations and financial condition of the
Company could be adversely affected.
EMPLOYEES AND MEDICAL STAFFS
At December 31, 1998 the Company had approximately 260,000 employees,
including approximately 61,000 part-time employees. Employees at 11 hospitals
are represented by various labor unions. The Company considers its employee
relations to be satisfactory. While the Company's hospitals experience union
organizational activity from time to time, the Company does not expect such
efforts to materially affect its future operations. The Company's hospitals,
like most hospitals, have experienced labor costs rising faster than the general
inflation rate. In recent years, the Company generally has not experienced
material difficulty in recruiting and retaining employees, including nurses and
professional staff members, primarily as a result of staff retention programs
and general economic conditions. There can be no assurance as to future
availability and cost of qualified medical personnel. References herein to
"employees" refer to employees of affiliates of the Company.
The Company's hospitals are staffed by licensed physicians who have been
admitted to the medical staff of individual hospitals. With certain exceptions,
physicians generally are not employees of the Company's hospitals. However, some
physicians provide services in the Company's hospitals under contracts, which
generally describe a term of service, provide and establish the duties and
obligations of such physicians, require the maintenance of certain performance
criteria and fix compensation for such services. Any licensed physician may
apply to be admitted to the medical staff of any of the Company's hospitals, but
admission to the staff must be approved by the hospital's medical staff and the
appropriate governing board of the hospital in accordance with established
credentialling criteria. Members of the medical staffs of the Company's
hospitals often also serve on the medical staffs of other hospitals and may
terminate their affiliation with a hospital at any time.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company as of March 15, 1999, were as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
Thomas F. Frist, Jr., M.D. .......... 60 Chairman of the Board and Chief Executive
Officer
Jack O. Bovender, Jr. ............... 53 President and Chief Operating Officer
David G. Anderson.................... 51 Vice President -- Finance and Treasurer
Richard M. Bracken................... 46 President -- Western Group
Victor L. Campbell................... 52 Senior Vice President
Kenneth C. Donahey................... 48 Senior Vice President and Chief Financial
Officer -- America Group
W. Leon Drennan...................... 43 Senior Vice President
Rosalyn S. Elton..................... 37 Vice President -- Operations Finance
James A. Fitzgerald, Jr. ............ 44 Vice President -- Contracts and Operations
Support
James M. Fleetwood, Jr. ............. 51 President and Chief Operating Officer -- America
Group
V. Carl George....................... 55 Vice President -- Development
Jay F. Grinney....................... 48 President -- Eastern Group
Neil D. Hemphill..................... 45 Senior Vice President -- Administration and
Human Resources -- America Group
Frank M. Houser, M.D. ............... 58 Senior Vice President -- Quality and Medical
Director
R. Milton Johnson.................... 42 Vice President & Controller
Patricia T. Lindler.................. 51 Vice President -- Reimbursement
Scott L. Mercy....................... 37 Chief Executive Officer -- America Group
A. Bruce Moore, Jr. ................. 39 Vice President -- Operations Administration
Philip R. Patton..................... 46 Senior Vice President -- Human Resources
James D. Shelton..................... 45 President -- Pacific Group
Joseph N. Steakley................... 44 Vice President -- Internal Audit & Consulting
Services
Robert A. Waterman................... 45 Senior Vice President and General Counsel
Noel Brown Williams.................. 44 Senior Vice President and Chief Information
Officer
Alan R. Yuspeh....................... 49 Senior Vice President -- Ethics, Compliance and
Corporate Responsibility
</TABLE>
Thomas F. Frist, Jr., M.D. has served as Chairman of the Board and Chief
Executive Officer since July 1997. Previously, he served as Vice Chairman of the
Board of the Company from April 1995 until July 1997. From February 1994 to
April 1995, he was Chairman of the Board of the Company. Dr. Frist was Chairman
of the Board, President and Chief Executive Officer of HCA -- Hospital
Corporation of America ("HCA") from 1988 to February 1994.
Jack O. Bovender, Jr. has served as President and Chief Operating Officer
of the Company since August 1997. From April 1994 to August 1997, he was retired
after serving as Chief Operating Officer of HCA from 1992 until 1994. Prior to
1992, Mr. Bovender held several senior level positions with HCA.
David G. Anderson has served as Vice President -- Finance of the Company
since September 1993 and was elected to the additional position of Treasurer in
November 1996. From March 1993 until September 1993, Mr. Anderson served as Vice
President -- Finance and Treasurer of Galen Health Care, Inc. From July 1988 to
March 1993, Mr. Anderson served as Vice President -- Finance and Treasurer of
Humana Inc.
Richard M. Bracken has served as President -- Western Group of the Company
since August 1997. From January 1995 to August 1997, Mr. Bracken served as
President of the Pacific Division of the Company. From July 1993 to December
1994, he served as President of Nashville Healthcare Network, Inc. From December
1981 to June 1993, he served in various hospital Chief Executive Officer and
Administrator positions with HCA.
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<PAGE> 19
Victor L. Campbell has served as Senior Vice President of the Company since
February 1994. Prior to that time, Mr. Campbell served as HCA's Vice President
for Investor, Corporate and Government Relations. Mr. Campbell joined HCA in
1972. Mr. Campbell is currently a director of the Federation of American Health
Systems and the American Hospital Association.
Kenneth C. Donahey has served as Senior Vice President and Chief Financial
Officer -- America Group of the Company since November 1998. Prior to that time,
Mr. Donahey served as Senior Vice President and Controller of the Company from
April 1995 to November 1998. Mr. Donahey served as Senior Vice President and
Controller of Healthtrust from April 1993 to April 1995. Mr. Donahey served as
Vice President and Controller of Healthtrust from 1987 to 1993.
W. Leon Drennan has served as President -- Physician Services for the
Company since January 1998. Mr. Drennan served as Senior Vice
President -- Internal Audit of the Company from February 1995 to December 1997.
From February 1994 to January 1995, Mr. Drennan served as Vice
President -- Internal Audit of the Company. Mr. Drennan served as Vice
President -- Internal Audit for HCA from 1987 until 1994.
Rosalyn S. Elton has served as Vice President -- Operations Finance of the
Company since August 1993. From October 1990 to August 1993, Ms. Elton served as
Vice President -- Financial Planning and Treasury.
James A. Fitzgerald, Jr. has served as Vice President -- Contracts and
Operations Support of the Company since 1994. From 1993 to 1994, he served as
the Vice President of Operations Support for HCA. From July 1981 to 1993,
Mr.Fitzgerald served as Director of Internal Audit for HCA.
James M. Fleetwood, Jr. has served as President -- America Group of the
Company since January 1998. Mr. Fleetwood served as President -- Florida Group
of the Company from May 1996 to January 1998. Mr. Fleetwood served as President
of the Company's North Florida Division from April 1995 to May 1996. From August
1992 to April 1995, Mr. Fleetwood was a Regional Vice President of Healthtrust.
V. Carl George has served as Vice President -- Development of the Company
since April 1995. From September 1987 to April 1995, Mr. George served as
Director of Development for Healthtrust.
Jay F. Grinney has served as President -- Eastern Group of the Company
since May 1996. From October 1993 to May 1996, Mr. Grinney served as President
of the Greater Houston Division of the Company. From November 1992 to October
1993, Mr. Grinney served as Chief Operating Officer of the Houston Region of the
Company.
Neil D. Hemphill has served as Senior Vice President -- Administration and
Human Resources -- America Group of the Company since September 1998. Prior to
that time, Mr. Hemphill served as Senior Vice President--Human Resources of the
Company from February 1994 to August 1998. Mr. Hemphill served as Vice
President -- Human Resources of the Company from June 1992 to February 1994.
Frank M. Houser, M.D. has served as Senior Vice President -- Quality and
Medical Director of the Company since November 1997. Dr. Houser served as
President -- Physician Management Services of the Company from May 1996 to
November 1997. Dr. Houser served as President of the Georgia Division of the
Company from December 1994 to May 1996. From May 1993 to December 1994, Dr.
Houser served as the Medical Director of External Operations at The Emory
Clinic, Inc. in Atlanta, Georgia. Dr. Houser served as State Public Health
Director, Georgia Department of Human Resources, from July 1991 to May 1993.
R. Milton Johnson has served as Vice President and Controller of the
Company since November 1998. Prior to that time, Mr. Johnson served as Vice
President -- Tax of the Company from May 1995 to October 1998. Prior to that
time, Mr. Johnson served as Director of Tax of Healthtrust from September 1987
to April 1995.
Patricia T. Lindler has served as Vice President -- Reimbursement of the
Company since September 1998. Prior to that time, Ms. Lindler was the President
of Health Financial Directions, Inc. from March 1995 to September 1998. From
January 1993 to February 1995, Ms. Lindler served as Director of Reimbursement
of the Company's Florida Group.
19
<PAGE> 20
Scott L. Mercy has served as Chief Executive Officer of the America Group
of the Company since September 1998. From April 1996 to August 1998, Mr. Mercy
served as President and Chief Executive Officer of American Service Group, Inc.
where he has also served as Chairman of the Board since September 1998. From
February 1994 to February 1995, Mr. Mercy was Senior Vice President -- Financial
Operations of the Company, and prior to that time was Vice
President -- Financial Operations and Director -- Financial Operations Support
of HCA.
A. Bruce Moore, Jr. has served as Vice President -- Operations
Administration of the Company since September 1997. From October 1996 to
September 1997 Mr. Moore served as Vice President -- Benefits of the Company.
Mr. Moore served as Vice President of Compensation of the Company from March
1995 until October 1996. From February 1994 to March 1995, Mr. Moore served as
Director -- Compensation of the Company. Mr. Moore also served as
Director -- Compensation for HCA from November 1987 until February 1994.
Philip R. Patton has served as Senior Vice President -- Human Resources of
the Company since September 1998. Previously, Mr. Patton served as Vice
President of Human Resources of Quorum Health Group, Inc. from 1996 to August
1998. From 1994 to 1996, Mr. Patton was retired after serving as Senior Vice
President of Human Resources of HCA from 1979 to 1994.
James D. Shelton has served as President -- Pacific Group of the Company
since January 1, 1998. Mr. Shelton served as President -- Central Group of the
Company from June 1994 until January 1998. From May 1993 to June 1994, Mr.
Shelton was employed by National Medical Enterprises, Inc. ("NME") (presently
called Tenet Healthcare Corporation) as Executive Vice President of the Central
Division. Mr. Shelton served as Senior Vice President of Operations for NME from
August 1986 until May 1993.
Joseph N. Steakley has served as Vice President -- Internal Audit and
Consulting Services since November 1997. From December 1975 until October 1997,
Mr. Steakley worked for Ernst & Young LLP where he served as a partner from
October 1989.
Robert A. Waterman has served as Senior Vice President and General Counsel
of the Company since November 1997. Mr. Waterman served as a partner in the law
firm of Latham & Watkins from September 1993 to October 1997; he was also Chair
of the firm's healthcare group during 1997. Prior to September 1993, Mr.
Waterman was a partner in the law firm of McCutchen, Doyle, Brown & Enersen.
Noel Brown Williams has served as Senior Vice President and Chief
Information Officer of the Company since October 1997. From October 1996 to
September 1997, Ms. Williams served as Chief Information Officer for American
Service Group/Prison Health Services, Inc. From September 1995 to September
1996, Ms. Williams worked as an independent consultant. From June 1993 to June
1995, Ms. Williams served as Vice President, Information Services for
Columbia/HCA Information Services. From February 1979 to June 1993, she held
various positions with HCA Information Services.
Alan R. Yuspeh has served as Senior Vice President -- Ethics, Compliance
and Corporate Responsibility of the Company since October 1997. From September
1991 until October 1997, Mr. Yuspeh was a partner with the law firm of Howrey &
Simon. As a part of his law practice, Mr. Yuspeh served from 1987 to 1997 as
Coordinator of the Defense Industry Initiative on Business Ethics and Conduct.
20
<PAGE> 21
ITEM 2. PROPERTIES
The following table lists, by state, the number of hospitals (general,
acute care and psychiatric) owned, managed or operated by the Company as of
December 31, 1998:
<TABLE>
<CAPTION>
LICENSED
STATE HOSPITALS BEDS
----- --------- --------
<S> <C> <C>
Alabama..................................................... 2 221
Alaska...................................................... 1 254
Arizona..................................................... 5 792
Arkansas.................................................... 3 573
California.................................................. 14 2,759
Colorado.................................................... 8 2,119
Florida..................................................... 52 12,034
Georgia..................................................... 20 3,327
Idaho....................................................... 2 462
Illinois.................................................... 6 1,252
Indiana..................................................... 2 460
Kansas...................................................... 4 1,407
Kentucky.................................................... 9 1,409
Louisiana................................................... 19 2,725
Massachusetts............................................... 2 475
Mississippi................................................. 1 130
Missouri.................................................... 2 466
Nevada...................................................... 2 808
New Hampshire............................................... 2 295
New Mexico.................................................. 2 385
North Carolina.............................................. 2 193
Ohio........................................................ 4 1,617
Oklahoma.................................................... 8 1,359
Oregon...................................................... 2 198
South Carolina.............................................. 5 950
Tennessee................................................... 22 3,261
Texas....................................................... 67 13,051
Utah........................................................ 8 1,001
Virginia.................................................... 15 3,512
Washington.................................................. 1 119
West Virginia............................................... 6 1,282
Wyoming..................................................... 1 70
INTERNATIONAL
- ------------------------------------------------------------
Switzerland................................................. 2 225
United Kingdom.............................................. 4 517
--- ------
305 59,708
=== ======
</TABLE>
In addition to the hospitals listed in the above table, the Company
operates 107 outpatient surgery centers. The Company also operates medical
office buildings in conjunction with its hospitals. These office buildings are
primarily occupied by physicians who practice at the Company's hospitals.
The Company owns and maintains its headquarters in approximately 580,000
square feet of space in five office buildings in Nashville, Tennessee.
The Company's headquarters, hospitals and other facilities are suitable for
their respective uses and are, in general, adequate for the Company's present
needs.
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<PAGE> 22
ITEM 3. LEGAL PROCEEDINGS
The Company is facing significant legal challenges. The Company is the
subject of various Federal and state investigations, qui tam actions,
shareholder derivative and class action suits filed in Federal court,
shareholder derivative actions filed in state courts, patient/payer actions and
general liability claims.
FEDERAL AND STATE INVESTIGATIONS
In March 1997, various facilities of the Company's El Paso, Texas
operations were searched by Federal authorities pursuant to search warrants, and
the government removed various records and documents. In February 1998, an
additional warrant was executed and a single computer was seized.
In July 1997, various Company affiliated facilities and offices were
searched pursuant to search warrants issued by the United States District Court
in several states. During July, September and November 1997, the Company was
also served with subpoenas requesting records and documents related to
laboratory billing and DRG coding in various states and home health operations
in various jurisdictions, including, but not limited to, Florida. In January
1998, the Company received a subpoena which requested records and documents
relating to physician relationships.
Also, in July 1997, the United States District Court for the Middle
District of Florida, in Fort Myers, issued an indictment against three employees
of a subsidiary of the Company. The indictment relates to the alleged false
characterization of interest payments on certain debt resulting in Medicare and
CHAMPUS overpayments since 1986 to Fawcett Memorial Hospital, a Port Charlotte,
Florida hospital that was acquired by the Company in 1992. The Company has been
served with subpoenas for various records and documents. A fourth employee of a
subsidiary of the Company was indicted in July 1998 by a superseding indictment.
In addition, several hospital facilities affiliated with the Company in
various states have received individual Federal and/or state government
inquiries, both informal and formal, requesting information related to
reimbursement from government programs.
In general, the Company believes that the United States Department of
Justice and other Federal and state governmental authorities are investigating
certain acts, practices or omissions alleged to have been engaged in by the
Company with respect to Medicare, Medicaid and CHAMPUS patients regarding (a)
allegedly improper DRG coding (commonly referred to as "upcoding") relating to
bills submitted for medical services, (b) allegedly improper outpatient
laboratory billing (e.g., unbundling of services and medically unnecessary
tests), (c) inclusion of allegedly improper items in cost reports submitted as a
basis for reimbursement under Medicare, Medicaid and similar government
programs, (d) arrangements with physicians and other parties that allegedly
violate certain Federal and state laws governing fraud and abuse, anti-kickback
and "Stark" laws and (e) allegedly improper acquisitions of home health care
agencies and allegedly excessive billing for home health care services.
The Company is cooperating in these investigations and understands, through
written notice and other means, that it is a target in these investigations.
Given the scope of the ongoing investigations, the Company expects additional
subpoenas and other investigative and prosecutorial activity to occur in these
and other jurisdictions in the future.
The Company is also the subject of a formal order of investigation by the
Securities and Exchange Commission. The Company understands that the
investigation relates to the anti-fraud, insider trading, periodic reporting and
internal accounting control provisions of the federal securities laws.
While it is too early to predict the outcome of any of the ongoing
investigations or the initiation of any additional investigations, were the
Company to be found in violation of Federal or state laws relating to Medicare,
Medicaid or similar programs, the Company could be subject to substantial
monetary fines, civil and criminal penalties and exclusion from participation in
the Medicare and Medicaid programs. Any such sanctions could have a material
adverse effect on the Company's financial position and results of operations.
(See Note 2-Investigations and Note 12-Contingencies of the Notes to
Consolidated Financial Statements.)
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<PAGE> 23
LAWSUITS
Qui Tam Actions
Several qui tam actions have been brought by private parties ("relators")
on behalf of the United States of America and have been unsealed and served on
the Company. With the exception of two cases discussed below, the government has
declined to intervene in the qui tam actions unsealed to date. To the best of
the Company's knowledge, the actions allege, in general, that the Company and
certain subsidiaries and/or affiliated partnerships violated the False Claims
Act, 31 U.S.C. sec.3729 et seq., for improper claims submitted to the government
for reimbursement. The lawsuits seek damages of three times the amount of all
Medicare or Medicaid claims (involving false claims) presented by the defendants
to the Federal government, civil penalties of not less than $5,000 nor more than
$10,000 for each such Medicare or Medicaid claim, attorneys' fees and costs. The
Company is aware of additional qui tam actions that remain under seal and
believes that there are other sealed qui tam cases of which it is unaware.
On February 12, 1999, the United States filed a Motion before the Judicial
Panel on Multidistrict Litigation ("MDL Panel") seeking to transfer and
consolidate all qui tam actions against the Company, including those that are
sealed and unsealed, for purposes of discovery and pretrial matters, to the
District Court for the District of Columbia. The MDL Panel denied the Motion on
procedural grounds relating to notice but granted leave to refile.
On October 5, 1998, the matter of United States of America ex rel. James F.
Alderson v. Columbia/HCA Healthcare Corp., Healthtrust-The Hospital Company and
Quorum Health Group, et al., Case No. 97-2035-CIV-T-23E, in the Middle District
of Florida, Tampa Division, was unsealed. The government intervened in this
action on October 1, 1998. The Complaint was originally filed in Montana in 1993
but was later transferred to Florida. The Complaint alleges that defendants made
false statements in annual Medicare cost reports over a period of ten years. The
Complaint further alleges that defendants engaged in a scheme of filing improper
reimbursement claims while keeping a "secret" set of books which were known as
"reserve cost reports" and concealing these books from Medicare auditors. The
Government filed an Amended Complaint. The Government has not yet served an
Amended Complaint on the Columbia/HCA defendants.
The matter of United States of America ex rel. Sara Ortega v. Columbia/HCA
Healthcare Corp., et al., No. EP95-CA-259H, was filed on July 31, 1998 in the
Western District of Texas, El Paso Division. The Complaint alleges that
defendants submitted false statements to the Joint Commission on Accreditation
of Healthcare Organizations in order to be eligible for Medicare payments,
thereby rendering false defendants' claims for Medicare reimbursement. The
Complaint also alleges that defendants engaged in fraudulent accounting
practices. Defendants have moved to dismiss the Complaint and that motion is
pending.
The matter of United States of America, ex rel. Scott Pogue v. Diabetes
Treatment Centers of America, Inc., et al., Civil Action No. 3-94-0515, was
filed under seal on June 23, 1994 in the United States District Court for the
Middle District of Tennessee. On February 6, 1995, the United States filed its
Notice of Non-Intervention and on that same date, the District Court ordered the
complaint unsealed. In general, the relator contends that sums paid to
physicians by the Diabetes Treatment Centers of America, who served as Medical
Directors at a hospital affiliated with the Company, were unlawful payments for
the referrals of their patients. Plaintiffs have filed a motion for partial
summary judgment which is pending.
In December 1998, the matter of United States of America ex rel. John W.
Schilling v. Columbia/HCA Healthcare Corporation, et al., Civil Action No.
96-1264-CIV-T-23B, in the Middle District of Florida, was unsealed. The
Government has intervened in this action. The Complaint alleges that defendants
made false statements in annual Medicare cost reports. The Complaint further
alleges, as in Alderson, that Columbia kept "reserve cost reports." The
Government has not yet served the Complaint on Defendants.
A lawsuit captioned United States of America ex rel. James Thompson v.
Columbia/HCA Healthcare Corporation, et al. was filed on March 10, 1995 in the
United States District Court for the Southern District of Texas, Corpus Christi
Division (Civil Action No. C-95-110). In general, the relator claims that the
defendants (the Company and certain subsidiaries and affiliated partnerships)
engaged in a widespread strategy to pay physicians money for referrals and
engaged in other conduct to induce referrals, such as:
23
<PAGE> 24
(i) offering physicians equity interests in hospitals; (ii) offering loans to
physicians; (iii) paying money under the guise of "consultation fees" to
physicians to guarantee their capital investment; (iv) paying consultation fees,
rent or other monies to physicians; (v) providing office space for free or
reduced rent; (vi) providing free or reduced rate vacations and trips; (vii)
providing free or reduced rate opportunities for additional medical training;
(viii) providing income guarantees; and (ix) granting physicians exclusive
rights to perform procedures in particular fields of practice. The defendants
filed a Motion to Dismiss the Second Amended Complaint in November 1995 which
was granted by the Court in July 1996. In August 1996, the relator appealed to
the United States Court of Appeals for the Fifth Circuit, and in October 1997,
the Fifth Circuit affirmed in part and vacated and remanded in part the Trial
Court's rulings. Defendants filed a Second Amended Motion to Dismiss which was
denied on August 18, 1998. On August 21, 1998, relator filed a Third Amended
Complaint. Discovery has begun and defendants are in the process of producing
documents at this time.
On December 21, 1995, a matter entitled United States of America ex rel.
Roy Meidinger vs. Lee Memorial Health System, et al., Case No. 95-423-FTM-99D,
was filed in the United States District Court for the Middle District of
Florida, Fort Myers Division. This case was brought against approximately 2,500
health care providers and insurance companies, including Columbia Southwest
Florida Regional Medical Center, and generally concerns misrepresentation of
customary charges to HCFA. In December 1996, the United States declined to
intervene. On September 29, 1998, Plaintiff filed a Fifth Amended Complaint that
sought no relief from the Company.
The matter of United States of America ex rel. Sandra Russell; and Sandra
Russell, in her own right v. EPIC Healthcare Management Group, et al., No.
H-95-99151, was filed on January 18, 1995 in the United States District Court
for the Southern District of Texas, Houston Division. The complaint alleges that
the defendants submitted claims, records and/or statements for Medicare
reimbursement in connection with home health services which were false. The
defendants moved to dismiss in May 1997. The Court granted defendants' motion
but allowed the relator the right to replead. Relator filed an amended
complaint. Defendants filed a second motion to dismiss which was granted on June
25, 1998. Relator filed an Appeal which is pending before the Fifth Circuit.
The matter of Mary Ann Wisz, Individually, and ex rel. United States of
America v. C/HCA Development, Inc. d/b/a Columbia-Olympia Fields Osteopathic
Hospital and Medical Center, Inc., et al., Case No. 97-C-2646, was filed on
April 16, 1997, in the United States District Court for the Northern District of
Illinois, Eastern Division. An amended complaint was filed on February 17, 1998,
and on May 15, 1998, plaintiff was permitted leave to file its Second Amended
Complaint. In addition to adding Midwestern University as a party defendant, the
Second Amended Complaint contained allegations that Olympia Fields Osteopathic
Hospital and Medical Center and/or the Chicago Osteopathic Hospital changed
dates on out-patient surgical procedures. That portion of the Second Amended
Complaint has been answered and discovery is ongoing. The Second Amended
Complaint also alleges that one or both hospitals directed surgical nurses to
misdesignate the severity of surgeries. That portion of the Second Amended
Complaint was subject to a partial motion to dismiss, which motion was fully
briefed and was granted.
The Company intends to pursue the defense of the qui tam actions
vigorously.
Shareholder Derivative and Class Action Complaints Filed in the U.S. District
Courts
Since April 1997, numerous securities class action and derivative lawsuits
have been filed in the United States District Court for the Middle District of
Tennessee against the Company and a number of its current and former directors,
officers and/or employees.
On October 10, 1997, the Court entered an order consolidating all of the
above-mentioned securities class action claims into a single-captioned case,
Morse, Sidney, et al. v. R. Clayton McWhorter, et al., Case No. 3-97-0370. All
of the other individual securities class action lawsuits were administratively
closed by the Court. The consolidated Morse lawsuit is a purported class action
seeking the certification of a class of persons or entities who acquired the
Company's common stock from April 9, 1994 to September 9, 1997. The consolidated
lawsuit was brought against the Company, Richard Scott, David Vandewater, Thomas
Frist, Jr.,
24
<PAGE> 25
R. Clayton McWhorter, Carl E. Reichardt, Magdalena Averhoff, M.D., T. Michael
Long and Donald S. MacNaughton. The lawsuit alleges, among other things, that
the defendants committed violations of the Federal securities laws by materially
inflating the Company's revenues and earnings through a number of practices,
including upcoding, maintaining reserve cost reports, disseminating false and
misleading statements, cost shifting, illegal reimbursements, improper billing,
unbundling and violating various Medicare laws. The lawsuit seeks damages, costs
and expenses. Plaintiffs filed their Motion for Class Certification in February
1998, and defendants filed responsive briefs. No ruling has been made on class
certification.
On October 10, 1997, the Court entered an order consolidating the
above-mentioned derivative law claims into a single-captioned case, McCall, H.
Carl, as Comptroller of the State of New York and as Trustee of the New York
State Common Retirement Fund, derivatively on behalf of Columbia/HCA Healthcare
Corporation v. Richard L. Scott, et al., No. 3-97-0838. All of the other
derivative lawsuits were administratively closed by the Court. The consolidated
McCall lawsuit was brought against the Company, Thomas Frist, Jr., Richard L.
Scott, David T. Vandewater, R. Clayton McWhorter, Magdalena Averhoff, M.D.,
Frank S. Royal, M.D., T. Michael Long, William T. Young and Donald S.
MacNaughton. The lawsuit alleges, among other things, derivative claims against
the individual defendants that they intentionally or negligently breached their
fiduciary duties to the Company by authorizing, permitting or failing to prevent
the Company from engaging in various schemes to improperly increase revenue,
upcoding, improper cost reporting, improper referrals, improper acquisition
practices and overbilling. In addition, the lawsuit asserts a derivative claim
against some of the individual defendants for breaching their fiduciary duties
by allegedly engaging in improper insider trading. The lawsuit seeks
restitution, damages, recoupment of fines or penalties paid by the Company,
restitution and pre-judgment interest against the alleged insider trading
defendants, and costs and expenses. In addition, the lawsuit seeks orders: (i)
prohibiting the Company from paying individual defendants employment benefits;
(ii) terminating all improper business relationships with individual defendants;
and (iii) requiring the Company to implement effective corporate governance and
internal control mechanisms designed to monitor compliance with federal and
state laws and ensure reports to the Board of material violations.
The defendants filed motions to dismiss in both the Morse and McCall
lawsuits. These motions were referred to the Magistrate Judge for consideration.
In June 1998, the Magistrate Judge recommended that the Court grant the motions
to dismiss in both cases. Plaintiffs in both cases have filed objections to the
Magistrate's recommendations with the District Court, and defendants have filed
responsive pleadings.
Shareholder Derivative Actions Filed in State Courts
Several derivative actions have been filed in state court by certain
purported stockholders of the Company against certain of the Company's current
and former officers and directors alleging breach of fiduciary duty, and failure
to take reasonable steps to ensure that the Company did not engage in illegal
practices thereby exposing the Company to significant damages.
Two purported derivative actions entitled Barron, Evelyn, et al. v.
Magdelena Averhoff, et al., (Civil Action No. 15822NC), filed on July 22, 1997,
and Kovalchick, John E. v. Magdelena Averhoff, et al., Civil Action No. 15829NC,
filed on July 29, 1997, have been filed in the Court of Chancery of the State of
Delaware in and for New Castle County. The actions were brought on behalf of the
Company by certain purported shareholders of the Company against certain of the
Company's current and former officers and directors. The suits seek damages,
attorneys' fees and costs. In the Barron lawsuit, plaintiffs also seek an Order
(i) requiring individual defendants to return to the Company all salaries or
remunerations paid them by the Company, together with proceeds of the sale of
Columbia/HCA stock made in breach of their fiduciary duties; (ii) prohibiting
the Company from paying any individual defendant any benefits pursuant to the
terms of employment, consulting or partnership agreements; and (iii) terminating
all improper business relationships between the Company and any individual
defendant. In the Kovalchick lawsuit, plaintiffs also seek an Order (i)
requiring individual defendants to return to the Company all salaries or
remunerations paid to them by the Company and all proceeds from the sale of
Columbia/HCA stock made in breach of their fiduciary duties; (ii) requiring that
an impartial Compliance Committee be appointed to meet regularly; and (iii)
requiring that the Company be prohibited from paying any director/defendant any
benefits pursuant to terms of
25
<PAGE> 26
employment, consulting or partnership agreements. Plaintiffs in both Barron and
Kovalchick have granted the defendants an indefinite extension of time to
respond to the Complaint. On August 14, 1997, a similar purported derivative
action entitled State Board of Administration of Florida, the public pension
fund of the State of Florida in behalf of itself and in behalf of all other
stockholders of Columbia/HCA Healthcare Corporation derivatively in behalf of
Columbia/HCA Healthcare Corporation vs. Magdalena Averhoff, et al., (No.
97-2729), was filed in the Circuit Court in Davidson County, Tennessee on behalf
of the Company by certain purported shareholders of the Company against certain
of the Company's current and former directors and officers. These lawsuits seek
damages and costs as well as orders (i) enjoining the Company from paying
benefits to individual defendants; (ii) requiring termination of all improper
business relationships with individual defendants; (iii) requiring the Company
to provide for "independent public directors;" and (iv) requiring the Company to
put in place proper mechanisms of corporate governance. The Court has entered an
Order temporarily staying the lawsuit. That order recently expired and the
defendants have filed a motion to extend the duration of the stay.
The matter of Louisiana State Employees Retirement System, a public pension
fund of the State of Louisiana, in behalf of itself and in behalf of all other
stockholders of Columbia/HCA Healthcare Corporation derivatively in behalf of
Columbia/HCA Healthcare Corporation v. Magdalena Averhoff, et al., another
derivative action, was filed on March 19, 1998 in the Circuit Court of the
Eleventh Judicial Circuit, Dade County, Florida, General Jurisdiction Division
(Case No. 98-6050 CA04) and the defendants removed it to the United States
District Court, Southern District of Florida (Case No. 98-814-CIV). The
Louisiana State Employees Retirement System is the public pension fund of the
State of Louisiana. The suit alleges, among other things, breach of fiduciary
duties resulting in damage to the Company. The lawsuit seeks damages from the
individual defendants to be paid to the Company and attorneys' fees, costs and
expenses. In addition, the lawsuit seeks orders (i) requiring the individual
defendants to pay to the Company all benefits received by them from the Company;
(ii) enjoining the Company from paying any benefits to individual defendants;
(iii) requiring that defendants terminate all improper business relationships
with the Company and any individual defendants; (iv) requiring that the Company
provide for appointment of a majority of "independent public directors;" and (v)
requiring that the Company put in place proper mechanisms of corporate
governance. On August 10, 1998, the Court transferred this case to the Middle
District of Tennessee. By agreement of the parties, the case has been
administratively closed pending the outcome of the Court's ruling on the
defendants' motions to dismiss the McCall action referred to above.
The Company intends to pursue the defense of these Federal and state
Shareholder Derivative and Class Action Complaints vigorously.
Patient/Payer Actions and Other Class Actions
The Company is a party to several purported class action lawsuits which
have been filed by patients and/or payers against the Company and/or certain of
its current and/or former officers and/or directors alleging, in general,
improper and fraudulent billing, overcharging, coding and physician referrals,
as well as other violations of law. Certain of the lawsuits have been
conditionally certified as class actions.
The matter of Boyson, Cordula, on behalf of herself and all others
similarly situated v. Columbia/HCA Healthcare Corporation was filed on September
8, 1997 in the United States District Court for the Middle District of
Tennessee, Nashville Division (Civil Action No. 3-97-0936). The original
complaint, which sought certification of a national class comprised of all
persons or entities who have paid for medical services provided by the Company,
alleges, among other things, that the Company has engaged in a pattern and
practice of (i) inflating diagnosis and medical treatments of its patients to
receive larger payments from the purported class members; (ii) providing
unnecessary medical care; and (iii) billing for services never rendered. This
lawsuit seeks injunctive relief requiring the Company to perform an accounting
to identify and disgorge medical bill overcharges. It also seeks damages,
attorneys' fees, interest and costs. In an Order entered on June 11, 1998 by the
MDL Panel, other lawsuits against the Company were consolidated with the Boyson
case in the Middle District of Tennessee. The amended complaint in Boyson was
withdrawn and superseded by the Coordinated Class Action Complaint filed in the
MDL proceeding on September 21, 1998. (See In re: Columbia/HCA Healthcare
Corporation Billing Practices Litigation, below.)
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<PAGE> 27
The matter of Brown, Nancy, individually and on behalf of all others
similarly situated v. Columbia/ HCA Healthcare Corporation was filed on November
16, 1995, in the Fifteenth Judicial Circuit Court in and for Palm Beach County,
Florida, Case No. 95-9102 AD. The suit alleges that Palms West Hospital charged
excessive amounts for goods and services associated with patient care and
treatment, including items such as pharmaceuticals, medical supplies, laboratory
tests, medical equipment and related medical services such as x-rays. The suit
seeks the certification of a nationwide class, and damages for patients who have
paid bills for the allegedly unreasonable portion of the charges as well as
interest, attorneys' fees and costs. In response to defendant's amended motion
to dismiss filed in January 1996, plaintiff amended the Complaint and defendant
subsequently filed an answer and defenses in June 1996. On October 15, 1997,
Harald Jackson moved to intervene in the lawsuit (see case below). The court
denied Jackson's motion on December 19, 1997. To date, discovery is proceeding
and no class has been certified.
In October 1997, Colville, Douglas et al. v. Columbia/Palm Drive Hospital,
et al. was filed in the Sonoma County Superior Court, California, Case No.
217646. The suit seeks certification of a class comprised of uninsured patients
treated at the Company's hospitals and entities in California who have been
treated and charged different fees than any other patient. The suit alleges,
among other things, that the Company fraudulently overcharged the plaintiffs and
that it unlawfully charged uninsured patients at a higher rate for the same
services, compared to patients with insurance or Medicare. This lawsuit sought
damages, attorneys' fees and costs, restitution and injunctive relief. In March
1998, the Company filed a Demurrer Motion. The Demurrer was granted in part and
denied in part. Plaintiff filed an Amended Complaint and the defendants filed a
Second Demurrer Motion in June 1998. The Court granted the Demurrer as to all
causes of action. Plaintiff filed a Third Amended Complaint and the Company's
response was filed on or about November 2, 1998. Following a settlement reached
by the parties, the Court entered an order dismissing the lawsuit on December
18, 1998.
Jane Doe and her husband, John Doe, on their own behalf, and on behalf of
all other persons similarly situated vs. HCA Health Services of Tennessee, Inc.,
d/b/a HCA Donelson Hospital n/k/a Summit Medical Center is a class action suit
filed on August 17, 1992 in the First Circuit Court for Davidson County,
Tennessee, Case No. 92C-2041. The suit principally alleges that Summit Medical
Center's charges for hospital services and supplies for medical services (a
hysterectomy in the plaintiff's case) exceeded the reasonable costs of its goods
and services, that the overcharges constitute a breach of contract and an unfair
or deceptive trade practice as well as a breach of the duty of good faith and
fair dealing. This suit seeks damages, costs and attorneys' fees. In addition,
the suit seeks a declaratory judgment recognizing plaintiffs' rights to be free
from predatory billing and collection practices and an Order (i) requiring
defendants to notify plaintiff class members of entry of declaratory judgment
and (ii) enjoining defendants from further efforts to collect charges from the
plaintiffs. In 1997, this case was certified as a class action consisting of all
past, present and future patients at Summit Medical Center. In July 1997, Summit
filed a Motion for Summary Judgment. In March 1998, the Court denied the Motion
for Summary Judgment and ordered the parties into mediation. In June 1998, the
Court of Appeals denied defendant's application for permission to appeal the
trial court's denial of the summary judgment motion. Summit has filed an
application for permission to appeal to the Supreme Court of Tennessee, which
the Supreme Court granted on November 9, 1998, and remanded the case to the
Court of Appeals for review on the merits. The case is set for oral argument
before the Court of Appeals on June 8, 1999. The trial court withdrew the order
for mediation pending defendant's appeal of the summary judgment denial.
Ferguson, Charles, on behalf of himself and all other similarly situated v.
Columbia/HCA Healthcare Corporation, et al. was filed on September 16, 1997 in
the Circuit Court for Washington County, Tennessee, Civil Action No. 18679. This
lawsuit seeks certification of a national class comprised of all individuals and
entities who paid or were responsible for payment of any portion of a bill for
medical care or treatment provided by the Company and alleges, among other
things, that the Company engaged in billing fraud by excessively billing
patients for services rendered, billing patients for services not rendered or
not medically necessary, uniformly using improper codes to report patient
diagnosis, and improperly and illegally recruiting doctors to refer patients to
the Company's hospitals. The proposed class is broad enough to encompass all
private payers, including individuals, insurers and health and welfare plans.
The suit seeks damages, interest,
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<PAGE> 28
attorneys' fees, costs and expenses. In addition, the suit seeks an Order (i)
requiring defendants to provide an accounting of plaintiffs and class members
who overpaid or were obligated to overpay; and (ii) requiring defendants to
disgorge all monies illegally collected from plaintiffs and the class. Plaintiff
filed a Motion for Class Certification in September 1997 which has not been
ruled on. In December 1997, the Company filed a Motion for Summary Judgment
which was denied. In January 1998, plaintiff filed a Motion for Leave to File a
Second Amended Class Action Complaint to Add an Additional Class Representative
which was granted but the Court dismissed the claims asserted by the additional
plaintiff. In June 1998, plaintiff filed a Motion for Leave of Court to File a
Third Amended Class Action Complaint, and in October 1998, plaintiff filed a
Motion for Leave of Court to File a Fourth Amended Class Action Complaint. Both
proposed Amended Complaints seek to add new named plaintiffs to represent the
proposed class. Both seek to add additional allegations of billing fraud,
including improper billing for laboratory tests, inducing doctors to perform
unnecessary medical procedures, improperly admitting patients from emergency
rooms and maximizing patients' lengths of stay as inpatients in order to
increase charges, and improperly inducing doctors to refer patients to the
Company's home healthcare units or psychiatric hospitals. Both seek an
additional order that the Company's contracts with plaintiffs and all class
members are rescinded and that the Company must repay all monies received from
plaintiffs and the class members. The Court has not ruled on either Motion for
Leave to Amend. Discovery is underway in the case. The Company in September 1998
filed another Motion for Summary Judgment contesting the standing of the named
plaintiffs to bring the alleged claims. That motion has not been ruled on by the
Court.
The matter of The United Paper Workers International Union, et al. v.
Columbia/HCA Healthcare Corporation, et al., was filed on September 3, 1998 in
the Circuit Court for Washington County, Tennessee, Civil Action No. 19350. The
lawsuit contains billing fraud allegations similar to those in the Ferguson case
and seeks certification of a national class comprised of all self-insured
employers who paid or were obligated to pay any portion of a bill for, among
other things, pharmaceuticals, medical supplies or medical services. The suit
seeks declaratory relief, damages, interest, attorneys' fees and other
litigation costs. In addition, the suit seeks an Order (i) requiring defendants
to provide an accounting to plaintiffs and class members who overpaid or were
obligated to overpay, (ii) requiring defendants to disgorge all monies illegally
collected from plaintiffs and the class, and (iii) rescinding all contracts of
defendants with plaintiffs and all class members. The complaint has not been
served formally on the Company.
The matter of Douglas, Cheryl, individually, and on behalf of all others
similarly situated v. Columbia/ HCA Healthcare Corporation, et al. is a
purported class action filed on March 5, 1998 in the Circuit Court of Cook
County, Illinois, County Department, Chancery Division, Case No. 98 CH 2942. The
suit generally alleges that defendants were involved in fraudulent and deceptive
acts including wrongful billing, unnecessary treatment and wrongful diagnosis of
patients with illnesses that necessitate higher medical fees for financial gain.
The suit seeks damages, costs and expenses. On September 18, 1998, the Company's
motion to dismiss was granted and plaintiff's complaint was dismissed without
prejudice. Plaintiff has filed an Amended Complaint with substantially the same
claims as the original complaint and the Company has moved to dismiss the
Amended Complaint. That motion is presently being briefed and is set for hearing
on April 14, 1999.
The matter of Hoop, Kemp, et al. v. Columbia/HCA Health Corporation, et al.
was filed on August 18, 1997 in the District Court of Johnson County, Texas,
Civil Action No. 249-171-97. This suit seeks certification of a Texas class
comprised of persons who paid for any portion of an improper or fraudulent bill
for medical services rendered by any Texas facility owned or operated by the
Company. The suit seeks damages, attorneys' fees, costs and expenses, as well as
restitution to plaintiffs and the class in the amount by which defendants have
been unjustly enriched and equitable and injunctive relief. The lawsuit
principally alleges that the Company perpetrated a fraudulent scheme that
consisted of systematic and routine overbilling through false and inaccurate
bills, including padding, billing for services never provided, and exaggerating
the seriousness of patients' illnesses. The lawsuit also alleges that the
Company systematically entered into illegal kickback schemes with doctors for
patient referrals. The Company filed its answer in November 1997 denying the
claims. Plaintiffs have recently sought to commence discovery.
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<PAGE> 29
The matter of Jackson, Harald F., individually and on behalf of all others
similarly situated v. Columbia/HCA Healthcare Corporation was initially filed as
a motion to intervene in the Brown matter in October 1997 in the Fifteenth
Judicial Circuit Court in and for Palm Beach County, Florida. The Court denied
Jackson's motion on December 19, 1997, and Jackson subsequently filed a
Complaint in the same state court on December 23, 1997, Case No. 97-011419-AI.
This suit seeks certification of a national class of persons or entities who
were allegedly overcharged for medical services by the Company through an
alleged practice of systematically and unlawfully inflating prices, concealing
its practice of inflating prices, and engaging in, and concealing, a uniform
practice of overbilling. The proposed class is broad enough to encompass all
private payers, including individuals, insurers and health and welfare plans.
This suit seeks damages on behalf of the plaintiff and individual members of the
class as well as interest, attorneys' fees and costs. In January 1998, the case
was removed to the United States District Court, Southern District of Florida,
Case No. 98-CIV-8050. In February 1998, Jackson filed an amended complaint, and
the case was remanded to state court. The Company has filed motions in response
to the amended complaint which are pending. Jackson has moved to transfer the
case to the judge handling the Brown case which is also pending. Discovery has
commenced.
The matter of Johnson, Bruce A., et al. v. Plantation General Hospital,
Limited Partnership was filed on March 9, 1992 in the Circuit Court for the
Seventeenth Judicial Circuit, State of Florida, Broward County, Case No.
92-06823 Division 2. In general, the suit alleges that the hospital charged
excessive amounts for pharmaceuticals, medical supplies and laboratory tests.
The suit sought certification of a class. Count I sought a price reduction on
all outstanding bills in the amount of the allegedly excessive portion of the
charges. Counts II and III sought damages for patients who have paid bills
containing allegedly excessive amounts for the alleged unreasonable portion of
the charges. Plaintiffs' Complaint claimed fees from any recovery or benefit in
the action. In September 1995, the trial court certified a class and the Fourth
District Court of Appeals affirmed. In October 1996, the hospital filed a Motion
for Summary Judgment on Counts II and III on the basis of the voluntary payment
defense. The Court granted the motion in November 1997. In April 1998, following
the hospital's statement that it would deem the six to eleven year old
outstanding debt of class members to be fully satisfied, summary judgment was
granted to the class on Count I on the ground of mootness. No monetary judgment
was recovered. In September 1998, the Court entered an order denying plaintiffs'
motion for attorneys' fees and granting their motion for costs. Both parties
have appealed the September 1998 orders. Those appeals are pending. There have
been no appeals of the final judgments.
The matter of Operating Engineers Local No. 312 Health & Welfare Fund, on
behalf of itself and as representative of a class of those similarly situated v.
Columbia/HCA Healthcare Corporation was filed on August 6, 1997 in the United
States District Court for the Eastern District of Texas, Civil Action No.
597CV203. The original complaint alleged violations of the Racketeering
Influenced and Corrupt Organization Act ("RICO") based on allegations that the
defendant has employed one or more schemes or artifices to defraud the plaintiff
and purported class members through fraudulent billing for services not
performed, fraudulent overcharging in excess of correct rates and fraudulent
concealment and misrepresentation. In October 1997, the Company filed a motion
to transfer venue and to dismiss the lawsuit on jurisdiction and venue grounds
because the RICO claims are deficient. The motion to transfer was denied on
January 23, 1998. The motion to dismiss was also denied. In February 1998,
defendant filed a petition with the MDL Panel to consolidate this case with
Boyson for pretrial proceedings in the Middle District of Tennessee. During the
pendency of the motion to consolidate, plaintiff amended its Complaint to add
allegations under the Employee Retirement Income Security Act of 1974 ("ERISA")
as well as state law claims. The amended complaint seeks damages, attorneys'
fees and costs, as well as disgorgement and injunctive relief. The MDL Panel
granted defendant's motion to consolidate in June 1998, and this action was
transferred to the Middle District of Tennessee. The amended complaint in
Operating Engineers was withdrawn and superseded by the Coordinated Class Action
Complaint filed in the MDL proceeding on September 21, 1998.
On April 24, 1998, two matters, Board of Trustees of the Carpenters &
Millwrights of Houston & Vicinity Welfare Trust Fund v. Columbia/HCA Healthcare
Corporation, Case No. 598CV157, and Board of Trustees of the Texas Ironworkers'
Health Benefit Plan v. Columbia/HCA Healthcare Corporation, Case No. 598CV158,
were filed in the United States District Court for the Eastern District of
Texas. The original
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<PAGE> 30
Complaint in these suits alleged violations of RICO only. Plaintiffs in both
cases principally alleged that in order to inflate its revenues and profits,
defendant engaged in fraudulent billing for services not performed, fraudulent
overcharging in excess of correct rates and fraudulent concealment and
misrepresentation. These suits seek damages, attorneys' fees and costs, as well
as disgorgement and injunctive relief. Plaintiffs subsequently amended their
complaint to add allegations under ERISA as well as state law claims. These
suits have been consolidated by the MDL Panel with Boyson and transferred to the
Middle District of Tennessee for pretrial proceedings. The amended complaints in
these suits were withdrawn and superseded by the Coordinated Class Action
Complaint filed in the MDL proceeding on September 21, 1998.
The matter of Tennessee Laborers Health and Welfare Fund, on behalf of
itself and all others similarly situated vs. Columbia/HCA Healthcare
Corporation, Case No. 3-98-0437, was filed in the United States District Court
of the Middle District of Tennessee, Nashville Division, on May 14, 1998. The
lawsuit seeks certification of a national class comprised of all employee
welfare benefit plans that have paid for medical services provided by the
Company. This case involves allegations under ERISA, as well as state law claims
which are similar to those alleged in Boyson. Plaintiff, an Employee Welfare
Benefit Plan, alleges that defendant violated the terms of the Plan documents by
overbilling the Plans, including but not limited to, exaggerating the severity
of illnesses, providing unnecessary treatment, billing for services not rendered
and other methods of overbilling and further violated the terms of the Plan
documents by taking Plan assets in payment of such improper bills. Plaintiff
further alleges that defendant intentionally concealed or suppressed the true
nature of its patients' illnesses, and the actual treatment provided to those
patients, and its improper billing. The suit seeks injunctive relief in the form
of an accounting, damages, attorneys' fees, interest and costs. This suit has
been consolidated by the Court with Boyson and the other cases transferred by
the MDL Panel to the Middle District of Tennessee. The complaint in Tennessee
Laborers was withdrawn and superseded with the filing of the Coordinated Class
Action Complaint in the MDL proceeding on September 21, 1998.
The matter of In re: Columbia/HCA Healthcare Corporation Billing Practices
Litigation, Master File No. MDL 1227, was commenced by Order of the MDL Panel
entered on June 11, 1998 granting the Company's petition to consolidate the
Boyson and Operating Engineers cases for pretrial purposes in the Middle
District of Tennessee pursuant to 28 U.S.C. sec. 1407. Three other cases that
have been consolidated with Boyson and Operating Engineers in the MDL proceeding
are (i) Board of Trustees of the Carpenters & Millwrights of Houston & Vicinity
Welfare Trust Fund, (ii) Board of Trustees of the Texas Ironworkers' Health
Benefit Plan, and (iii) Tennessee Laborers Health and Welfare Fund. On September
21, 1998, the plaintiffs in five consolidated cases filed a Coordinated Class
Action Complaint, which the Company answered on October 13, 1998. The plaintiffs
seek certification of two proposed classes including all private individuals and
all employee welfare benefit plans that have paid for health-related goods or
services provided by the Company. The plaintiffs allege, among other things,
that the Company has engaged in a pattern and practice of inflating charges,
concealing the true nature of patients' illnesses, providing unnecessary medical
care, and billing for services never rendered. The plaintiffs seek damages,
attorneys' fees and costs, as well as disgorgement and injunctive relief. A
scheduling order has been entered that provides for class certification motions
to be filed by February 22, 1999 and for discovery to be completed by June 30,
1999. The parties are currently engaged in discovery and plaintiffs recently
filed a motion to extend the time periods in the scheduling order.
The Company intends to pursue the defense of these class actions
vigorously.
While it is premature to predict the outcome of the qui tam, shareholder
derivative and class action lawsuits, the amounts claimed are substantial. It is
possible that an adverse resolution, individually or in the aggregate, could
have a material adverse impact on the Company's liquidity, financial position
and results of operations. See Note 2 -- Investigations and 12 -- Contingencies
of the Notes to Consolidated Financial Statements.
The Company believes the ongoing investigations, qui tam, shareholder
cases, class action cases and related media coverage are having a negative
effect on the Company's financial position and results of operations. However,
the Company is unable to measure the effect or predict the magnitude that these
matters
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<PAGE> 31
and the related media coverage could have on the Company's future results of
operations and financial position.
General Liability and Other Claims
The matter of Landgraff, Anne M. and Gina Magarian, on behalf of the
Columbia/HCA Stock Bonus Plan v. Columbia/HCA Healthcare Corporation of America,
et al. was originally filed on November 7, 1997 in the United States District
Court for the Northern District of Georgia, Atlanta Division, Civil Action No.
97-CV-3381 and transferred by agreement of the parties to the United States
District Court for the Middle District of Tennessee, Civil Action No. 3-98-0090.
The plaintiffs filed a second amended complaint on April 24, 1998 against the
Company and certain members of the Company's Retirement Committee during 1997
alleging breach of fiduciary duty owing to the participants in the Stock Bonus
Plan by failing to sell the Plan's holdings of Company stock based upon
knowledge of material public and non-public adverse information and by failing
to act solely in the interests and for the benefit of the participants. The suit
generally alleges that the defendants fraudulently concealed information from
the public and fraudulently inflated the Company's stock price through billing
fraud, overcharges, inaccurate Medicare cost reports and illegal kickbacks for
physician referrals. The suit seeks an order allowing the plaintiffs to proceed
on behalf of the Plan as in a derivative action, a judgment for compensatory and
restitutionary damages for the losses allegedly experienced by the Plan because
of breaches of fiduciary duty, an order transferring management of the Plan to a
competent, neutral third-party, and an award of pre-judgment interest,
reasonable attorneys fees and costs. The parties are currently engaged in
discovery. A trial date of June 1999 has been set.
A class action styled Mary Forsyth, et al. v. Humana, Inc., et al., Case
No. CV-S-89-249-DWH, was filed on March 29, 1989, in the United States District
Court for the District of Nevada. Plaintiffs are two classes of individuals who
paid for, or received coverage under, group insurance policies sold in the State
of Nevada by Humana Insurance. They allege violations of antitrust laws, ERISA
and RICO which arise from the sale of the policies and from incentives provided
under the policies for insureds to use Humana Sunrise Hospital in Las Vegas, a
facility now owned by the Company. The suit seeks attorneys' fees and costs, as
well as injunctive relief and insurance benefits for plaintiffs. In 1993, the
United States District Court granted summary judgment dismissing most of
plaintiffs' claims but granted plaintiffs judgment on one claim. Plaintiffs
appealed to the United States Court of Appeals for the Ninth Circuit which, in
May 1997, affirmed the judgment on the ERISA claims; reversed as to the
antitrust claims; and reversed in part as to the RICO claims, but affirmed the
District Court's grant of summary judgment limiting RICO damages to three times
the ERISA damages. In their current complaint, plaintiffs claim approximately
$133 million in antitrust damages that is subject to statutory trebling.
However, in their most recent expert report, plaintiffs' expert claims antitrust
damages of approximately $13-$21 million. Humana Inc. ("Humana") has petitioned
the United States Supreme Court for a Writ of Certiorari on the RICO claims
which was granted. On January 20, 1999, the Supreme Court affirmed the Ninth
Circuit's decision that the plaintiffs could proceed with their RICO claims. The
Supreme Court did not address the amount of damages that plaintiffs could seek
on their claim. The entire case is now back in the Nevada district court, where
Humana has filed several motions seeking dismissal of the antitrust claims. A
trial is expected to be scheduled before the end of the year.
On December 4, 1997, a lawsuit captioned Florida Software Systems, Inc., a
Florida corporation v. Columbia/HCA Healthcare Corporation, a Delaware
corporation was filed in the United States District Court for the Middle
District of Florida (Civil Action No. 97-2866-C.V.-T-17b). The lawsuit alleges
that the defendant breached an agreement under which Florida Software Systems,
Inc. was allegedly granted the exclusive right to provide medical claims
management for certain claims made by the Company for payment to any third party
payers in connection with the rendering of medical care or services. The lawsuit
alleges claims for fraud, breach of implied contract and breach of contract. The
lawsuit seeks damages, attorneys' fees and costs, as well as injunctive relief.
On October 15, 1998, the Company filed a counterclaim and third party complaint
against Florida Software Systems, Inc., Receivable Dynamics Inc., Nevada
Communications Corporation, Norman R. Dobiesz, Maureen Donovan Dobiesz, Stuart
M. Lopata, and Samuel A. Greco (a
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<PAGE> 32
former senior officer at the Company). The counterclaim alleges racketeering,
conspiracy, breach of fiduciary duty, and breach of contract. Defendants have
filed a motion to dismiss the counterclaim.
The Company intends to pursue the defense of these actions and prosecution
of its counterclaims and third party claims vigorously.
The Company is also subject to claims and suits arising in the ordinary
course of business, including claims for personal injuries or for wrongful
restriction of, or interference with, physicians' staff privileges. In certain
of these actions the claimants have asked for punitive damages against the
Company, which are usually not covered by insurance. In the opinion of
management, the ultimate resolution of these pending claims and legal
proceedings will not have a material adverse effect on the Company's results of
operations or financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of 1998.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the New York Stock Exchange, Inc.
(the "NYSE") (symbol "COL"). The table below sets forth, for the calendar
quarters indicated, the high and low sales prices per share reported on the NYSE
Composite Tape for the Company's Common Stock.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1998
First Quarter............................................. $32.50 $24.13
Second Quarter............................................ 34.63 27.75
Third Quarter............................................. 32.44 19.88
Fourth Quarter............................................ 27.25 17.00
1997
First Quarter............................................. $44.88 $31.25
Second Quarter............................................ 40.00 30.38
Third Quarter............................................. 40.44 26.63
Fourth Quarter............................................ 32.13 25.75
</TABLE>
At the close of business on March 15, 1999, there were approximately 16,500
holders of record of the Company's Common Stock and one holder of record of the
Company's Nonvoting Common Stock.
The Company currently pays a regular quarterly dividend of $.02 per share.
While it is the present intention of the Company's Board of Directors to
continue paying a quarterly dividend of $.02 per share, the declaration and
payment of future dividends by the Company will depend upon many factors,
including the Company's earnings, financial condition, business needs, capital
and surplus and regulatory considerations.
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<PAGE> 34
ITEM 6. SELECTED FINANCIAL DATA
COLUMBIA/HCA HEALTHCARE CORPORATION
SELECTED FINANCIAL DATA
AS OF AND FOR THE YEARS ENDED DECEMBER 31
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Revenues.............................................. $ 18,681 $ 18,819 $ 18,786 $ 17,132 $ 14,543
Salaries and benefits................................. 7,811 7,631 7,205 6,779 5,963
Supplies.............................................. 2,901 2,722 2,655 2,536 2,144
Other operating expenses.............................. 3,771 4,263 3,689 3,203 2,661
Provision for doubtful accounts....................... 1,442 1,420 1,196 994 853
Depreciation and amortization......................... 1,247 1,238 1,143 976 804
Interest expense...................................... 561 493 488 458 387
Equity in earnings of affiliates...................... (112) (68) (173) (28) (8)
Gains on sales of facilities.......................... (744) -- -- -- --
Impairment of long-lived assets....................... 542 442 -- -- --
Restructuring of operations and investigation related
costs............................................... 111 140 -- -- --
Merger, facility consolidation and other costs........ -- -- -- 387 159
---------- ---------- ---------- ---------- ----------
17,530 18,281 16,203 15,305 12,963
---------- ---------- ---------- ---------- ----------
Income from continuing operations before minority
interests and income taxes.......................... 1,151 538 2,583 1,827 1,580
Minority interests in earnings of consolidated
entities............................................ 70 150 141 113 40
---------- ---------- ---------- ---------- ----------
Income from continuing operations before income
taxes............................................... 1,081 388 2,442 1,714 1,540
Provision for income taxes............................ 549 206 981 689 611
---------- ---------- ---------- ---------- ----------
Income from continuing operations..................... 532 182 1,461 1,025 929
Discontinued operations:
Income (loss) from operations of discontinued
businesses, net of income taxes (benefits)........ (80) 12 44 39 --
Losses on disposals of discontinued businesses, net
of income tax benefits............................ (73) (443) -- -- --
Extraordinary charges on extinguishments of debt, net
of income tax benefits.............................. -- -- -- (103) (115)
Cumulative effect of accounting change, net of income
tax benefit......................................... -- (56) -- -- --
---------- ---------- ---------- ---------- ----------
Net income (loss)............................. $ 379 $ (305) $ 1,505 $ 961 $ 814
========== ========== ========== ========== ==========
Basic earnings (loss) per share:
Income from continuing operations................... $ .82 $ .28 $ 2.17 $ 1.54 $ 1.46
Discontinued operations:
Income (loss) from operations of discontinued
businesses...................................... (.12) .02 .07 .06 --
Losses on disposals of discontinued businesses.... (.11) (.67) -- -- --
Extraordinary charges on extinguishments of debt.... -- -- -- (.16) (.18)
Cumulative effect of accounting change.............. -- (.09) -- -- --
---------- ---------- ---------- ---------- ----------
Net income (loss)............................. $ .59 $ (.46) $ 2.24 $ 1.44 $ 1.28
========== ========== ========== ========== ==========
Shares used in computing basic earnings (loss) per
share (in thousands)................................ 643,719 657,931 670,774 665,407 634,837
</TABLE>
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<PAGE> 35
COLUMBIA/HCA HEALTHCARE CORPORATION
SELECTED FINANCIAL DATA
AS OF AND FOR THE YEARS ENDED DECEMBER 31 -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Diluted earnings (loss) per share:
Income from continuing operations................... $ .82 $ .27 $ 2.15 $ 1.52 $ 1.44
Discontinued operations:
Income (loss) from operations of discontinued
businesses...................................... (.12) .02 .07 .06 --
Losses on disposals of discontinued businesses.... (.11) (.67) -- -- --
Extraordinary charges on extinguishments of debt.... -- -- -- (.15) (.18)
Cumulative effect of accounting change.............. -- (.08) -- -- --
---------- ---------- ---------- ---------- ----------
Net income (loss)............................. $ .59 $ (.46) $ 2.22 $ 1.43 $ 1.26
========== ========== ========== ========== ==========
Shares used in computing diluted earnings (loss) per
share (in thousands)................................ 646,649 663,090 677,886 673,071 643,943
Cash dividends per common share....................... $ .08 $ .07 $ .08 $ .08 $ .08
Redemption of preferred stock purchase rights......... -- $ .01 -- -- --
FINANCIAL POSITION:
Assets............................................ $ 19,429 $ 22,002 $ 21,116 $ 19,805 $ 16,278
Working capital................................... 304 1,650 1,389 1,409 1,092
Net assets of discontinued operations............. -- 841 212 142 --
Long-term debt, including amounts due within one
year............................................ 6,753 9,408 6,982 7,380 5,672
Minority interests in equity of consolidated
entities........................................ 765 836 836 722 278
Stockholders' equity.............................. 7,581 7,250 8,609 7,129 6,090
CASH FLOW DATA:
Cash provided by operating activities............. $ 1,916 $ 1,483 $ 2,589 $ 2,264 $ 1,747
Cash provided by (used in) investing activities... 970 (2,746) (2,219) (3,610) (1,946)
Cash provided by (used in) financing activities... (2,699) 1,260 (489) 1,510 (81)
OPERATING DATA:
Number of hospitals at end of period(a)........... 281 309 319 319 311
Number of licensed beds at end of period(b)....... 53,693 60,643 61,931 61,347 59,595
Weighted average licensed beds(c)................. 59,104 61,096 62,708 61,617 57,517
Admissions(d)..................................... 1,888,800 1,915,100 1,895,400 1,774,800 1,565,500
Equivalent admissions(e).......................... 2,870,900 2,901,400 2,826,000 2,598,300 2,202,600
Average length of stay (days)(f).................. 5.0 5.0 5.1 5.3 5.6
Average daily census(g)........................... 25,675 26,006 26,538 25,917 23,841
Occupancy(h)...................................... 43% 43% 42% 42% 41%
</TABLE>
- ---------------
(a) Excludes 24 facilities in 1998, 27 facilities in 1997, 22 facilities in 1996
and 19 facilities in 1995 that are not consolidated (accounted for using the
equity method) for financial reporting purposes.
(b) Licensed beds are those beds for which a facility has been granted approval
to operate from the applicable state licensing agency.
(c) Weighted average licensed beds represents the average number of licensed
beds, weighted based on periods owned.
(d) Represents the total number of patients admitted (in the facility for a
period in excess of 23 hours) to the Company's hospitals and is used by
management and certain investors as a general measure of inpatient volume.
(e) Equivalent admissions are used by management and certain investors as a
general measure of combined inpatient and outpatient volume. Equivalent
admissions are computed by multiplying admissions (inpatient volume) by the
sum of gross inpatient revenue and gross outpatient revenue and then
dividing the resulting amount by gross inpatient revenue. The equivalent
admissions computation "equates" outpatient revenue to the volume measure
(admissions) used to measure inpatient volume resulting in a general measure
of combined inpatient and outpatient volume.
(f) Represents the average number of days admitted patients stay in the
Company's hospitals. Average length of stay has declined due to the
continuing pressures from managed care and other payers to restrict
admissions and reduce the number of days that are covered by the payers for
certain procedures, and by technological and pharmaceutical improvements.
(g) Represents the average number of patients in the Company's hospital beds
each day.
(h) Represents the percentage of hospital licensed beds occupied by patients.
Both average daily census and occupancy rate provide measures of the
utilization of inpatient rooms.
35
<PAGE> 36
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
COLUMBIA/HCA HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Selected Financial Data and the accompanying consolidated financial
statements set forth certain information with respect to the financial position,
results of operations and cash flows of Columbia/HCA Healthcare Corporation
which should be read in conjunction with the following discussion and analysis.
The term the "Company" or "Columbia/HCA" as used herein refers to Columbia/HCA
Healthcare Corporation and its affiliates unless otherwise stated or indicated
by context. The term "affiliates" means direct and indirect subsidiaries of
Columbia/HCA Healthcare Corporation and partnerships and joint ventures in which
such subsidiaries are partners.
FORWARD-LOOKING STATEMENTS
This "Management's Discussion and Analysis of Financial Condition and
Results of Operations" contains disclosures which are "forward-looking
statements." Forward-looking statements include all statements that do not
relate solely to historical or current facts, and can be identified by the use
of words such as "may," "believe," "will," "expect," "project," "estimate,"
"anticipate," "plan" or "continue." These forward-looking statements are based
on the current plans and expectations of the Company and are subject to a number
of uncertainties and risks that could significantly affect current plans and
expectations and the future financial condition and results. These factors
include, but are not limited to, (i) the outcome of the known and unknown
governmental investigations and litigation involving the Company's business
practices, (ii) the highly competitive nature of the health care business, (iii)
the efforts of insurers, health care providers and others to contain health care
costs, (iv) possible changes in the Medicare program that may further limit
reimbursements to health care providers and insurers, (v) changes in Federal,
state or local regulation affecting the health care industry, (vi) the possible
enactment of Federal or state health care reform, (vii) the ability to attract
and retain qualified management and personnel, including physicians, (viii)
liabilities and other claims asserted against the Company, (ix) fluctuations in
the market value of the Company's common stock, (x) ability to complete the
share repurchase program, (xi) changes in accounting practices, (xii) changes in
general economic conditions, (xiii) future divestitures which may result in
additional charges, (xiv) the complexity of integrated computer systems and the
success and expense of the remediation efforts of the Company and relevant third
parties in achieving Year 2000 readiness, (xv) the ability to enter into managed
care provider arrangements on acceptable terms, (xvi) the availability and terms
of capital to fund the expansion of the Company's business, (xvii) changes in
business strategy or development plans, (xviii) slowness of reimbursement, and
(xix) other risk factors described above. As a consequence, current plans,
anticipated actions and future financial condition and results may materially
differ from those expressed in any forward-looking statements made by or on
behalf of the Company. You are cautioned not to unduly rely on such
forward-looking statements when evaluating the information presented in this
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
INVESTIGATIONS
The Company is currently the subject of several Federal investigations into
certain of its business practices, as well as governmental investigations by
various states. The Company is cooperating in these investigations and
understands, through written notice and other means, that it is a target in
these investigations. Given the breadth of the ongoing investigations, the
Company expects additional subpoenas and other investigative and prosecutorial
activity to occur in these and other jurisdictions in the future. The Company is
the subject of a formal order of investigation by the Securities and Exchange
Commission ("SEC"). The Company understands that the SEC investigation includes
the anti-fraud, periodic reporting and internal accounting control provisions of
the Federal securities laws.
The Company cannot predict the outcome or quantify effects that the ongoing
investigations, the initiation of additional investigations, if any, and the
related media coverage will have on the Company's
36
<PAGE> 37
COLUMBIA/HCA HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- (CONTINUED)
INVESTIGATIONS (CONTINUED)
financial condition or results of operations in future periods. Were the Company
to be found in violation of Federal or state laws relating to Medicare, Medicaid
or similar programs, the Company could be subject to substantial monetary fines,
civil and criminal penalties and exclusion from participation in the Medicare
and Medicaid programs. Any such sanctions could have a material adverse effect
on the Company's financial position and results of operations. (See Note
12 -- Contingencies in the Notes to Consolidated Financial Statements.)
BUSINESS STRATEGY
Columbia/HCA's primary objective is to provide the communities it serves
with a comprehensive array of quality health care services in the most cost
effective manner possible. The Company's general, acute care hospitals usually
provide a full range of services commonly available in hospitals, such as
internal medicine, general surgery, cardiology, oncology, neurosurgery,
orthopedics and obstetrics, as well as diagnostic and emergency services.
Outpatient and ancillary health care services are provided by the Company's
general, acute care hospitals, as well as at freestanding facilities operated by
the Company, including outpatient surgery centers, diagnostic centers,
rehabilitation facilities and other facilities. In addition, Columbia/HCA
operates psychiatric hospitals which generally provide a full range of mental
health care services in inpatient, partial hospitalization and outpatient
settings. The Company also operates preferred provider organizations in 46
states.
In November 1997, Columbia/HCA reorganized its operations into five
divisions. Columbia/HCA is currently in the process of establishing two of those
divisions, America Group and Pacific Group, as independent, publicly-traded
companies through tax-free spin-offs of these companies to Columbia/HCA
stockholders. America's hospitals are located in non-urban areas where, in
almost every case, America's hospital is the only hospital in the community.
Approximately three-quarters of Pacific's hospitals are located in small cities,
generally in the Southern, Western and Southwestern United States, where
Pacific's hospital is usually either the only hospital or one of two hospitals
in the community, and the remainder of Pacific's hospitals are located in larger
urban areas.
Management believes that separating the America and Pacific Groups into two
smaller, strategically focused public companies will have positive effects on
the performance and profitability of the facilities in these groups by enabling
more focused management attention, more effective operating strategies based on
local market conditions, and compensation incentives for employees that are more
closely tied to group performance.
During the third quarter of 1997, management implemented plans to divest
the Company's home health businesses and three of the four Value Health business
units (Value Health was a provider of specialty managed care benefit programs).
The divestitures of the three Value Health business units and the home health
operations were completed during 1998. The results of operations of these
divested businesses are reflected in the consolidated statements of operations
as discontinued operations.
The divestiture of the home health operations and the Value Health business
units and the spin-offs of the America and Pacific Groups, will allow
Columbia/HCA management to focus their efforts on the Company's core markets,
which are typically located in urban areas that are characterized by highly
integrated health care facility networks.
The Company's strategy in these select communities is to be a comprehensive
provider of quality health care services. The Company maintains and replaces
equipment, renovates and constructs replacement facilities and adds new services
to increase the attractiveness of its hospitals and other facilities to patients
and physicians. By developing a comprehensive health care network with a broad
range of health care services
37
<PAGE> 38
COLUMBIA/HCA HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- (CONTINUED)
BUSINESS STRATEGY (CONTINUED)
located throughout a market area, the Company believes it achieves greater
visibility and is better able to attract and serve patients and physicians. The
Company believes it is also able to reduce operating costs by sharing certain
services among several facilities in the same market and is better positioned to
work with health maintenance organizations ("HMOs"), preferred provider
organizations ("PPOs") and employers.
The Company generally seeks to operate each of its facilities as part of a
network with other health care facilities that it owns or operates within the
same region. In instances where acquisitions of additional facilities in the
area are not possible or practical, the Company may seek joint ventures or
partnership arrangements with other local facilities or alternatively, may seek
to divest those assets.
RESULTS OF OPERATIONS
Revenue/Volume Trends
During the past year, the Company has experienced declines in revenue and
volume growth rates as well as operational deficiencies. Management believes
three primary factors have contributed to the declines in revenue and volume
growth rates: the impact of reductions in Medicare payments mandated by the
Balanced Budget Act of 1997 ("BBA-97"), the continuing trend toward the
conversion of more services to an outpatient basis and the impact of the
government investigations.
The Company's revenues continue to be affected by an increasing proportion
of revenue being derived from fixed payment, higher discount sources, including
Medicare, Medicaid and managed care plans. In addition, insurance companies,
government programs (other than Medicare) and employers purchasing health care
services for their employees are negotiating discounted amounts that they will
pay health care providers rather than paying standard prices. The Company
expects patient volumes from Medicare and Medicaid to continue to increase due
to the general aging of the population and expansion of state Medicaid programs.
However, under BBA-97, the Company's reimbursement from the Medicare and
Medicaid programs was reduced and will be further reduced as some reductions
will be phased in over the next two years. BBA-97 has accelerated a shift, by
certain Medicare beneficiaries, from traditional Medicare coverage to medical
coverage that is provided under managed care plans. The Company generally
receives lower payments per patient under managed care plans than under
traditional indemnity insurance plans. With an increasing proportion of services
being reimbursed based upon fixed payment amounts (where the payment is based
upon the diagnosis, regardless of the cost incurred or level of service
provided), revenues, earnings and cash flows are being significantly reduced.
Admissions related to Medicare, Medicaid and managed care plan patients were
89.5%, 88.3% and 86.0% of total admissions in 1998, 1997 and 1996, respectively.
Revenues from capitation arrangements (prepaid health service agreements) are
less than 1% of consolidated revenues.
The Company's revenues also continue to be affected by the trend toward
certain services being performed more frequently on an outpatient basis. The
growth in outpatient services is expected to continue in the health care
industry as procedures performed on an inpatient basis are converted to
outpatient procedures through continuing advances in pharmaceutical and medical
technologies. The redirection of certain procedures to an outpatient basis is
also influenced by pressures from payers to direct certain procedures from
inpatient care to outpatient care. Generally, the payments received for an
outpatient procedure are less than those received for a similar procedure
performed in an inpatient setting. Outpatient revenues grew to 39% of net
patient revenues in 1998 from 37% in 1997 and 36% in 1996.
Management believes that the impact of the ongoing governmental
investigations of certain of the Company's business practices and the related
media coverage, combined with the restructuring of operations (including the
spin-offs, the divestiture of the home health operations and the announced
divestitures of several facilities) have created uncertainties with physicians,
patients and payers in certain markets.
38
<PAGE> 39
COLUMBIA/HCA HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Revenue/Volume Trends (Continued)
Reductions in the rate of increase in Medicare and Medicaid reimbursement,
increasing percentages of patient volume being related to patients participating
in managed care plans and continuing trends toward more services being performed
on an outpatient basis are expected to present an ongoing challenge to the
Company. The challenges presented by these trends are enhanced in that the
Company does not have the ability to control these trends and the associated
risks. To maintain and improve its operating margins in future periods, the
Company must increase patient volumes while controlling the cost of providing
services. If the Company is not able to achieve reductions in the cost of
providing services through operational efficiencies, and the trend of declining
reimbursements and payments continue, results of operations and cash flow will
deteriorate.
Management believes that the proper response to these challenges includes
the delivery of a broad range of quality health care services to physicians and
patients with operating decisions being made by the local management teams and
local physicians.
39
<PAGE> 40
COLUMBIA/HCA HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Revenue/Volume Trends (Continued)
The following are comparative summaries of results from continuing
operations for the years ended December 31, 1998, 1997 and 1996 (dollars in
millions, except per share amounts):
<TABLE>
<CAPTION>
1998 1997 1996
-------------- --------------- ---------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Revenues.................................................... $18,681 100.0 $18,819 100.0 $18,786 100.0
Salaries and benefits....................................... 7,811 41.8 7,631 40.6 7,205 38.4
Supplies.................................................... 2,901 15.5 2,722 14.5 2,655 14.1
Other operating expenses.................................... 3,771 20.2 4,263 22.6 3,689 19.6
Provision for doubtful accounts............................. 1,442 7.7 1,420 7.5 1,196 6.4
Depreciation and amortization............................... 1,247 6.7 1,238 6.6 1,143 6.1
Interest expense............................................ 561 3.0 493 2.6 488 2.6
Equity in earnings of affiliates............................ (112) (0.6) (68) (0.4) (173) (0.9)
Gains on sales of facilities................................ (744) (4.0) -- -- -- --
Impairment of long-lived assets............................. 542 2.9 442 2.4 -- --
Restructuring of operations and investigation related
costs..................................................... 111 0.6 140 0.7 -- --
------- ----- ------- ----- ------- -----
17,530 93.8 18,281 97.1 16,203 86.3
------- ----- ------- ----- ------- -----
Income from continuing operations before minority interests
and income taxes.......................................... 1,151 6.2 538 2.9 2,583 13.7
Minority interests in earnings of consolidated entities..... 70 0.4 150 0.8 141 0.7
------- ----- ------- ----- ------- -----
Income from continuing operations before income taxes....... 1,081 5.8 388 2.1 2,442 13.0
Provision for income taxes.................................. 549 3.0 206 1.1 981 5.2
------- ----- ------- ----- ------- -----
Income from continuing operations........................... $ 532 2.8 $ 182 1.0 $ 1,461 7.8
======= ===== ======= ===== ======= =====
Basic earnings per share from continuing operations......... $ .82 $ .28 $ 2.17
Diluted earnings per share from continuing operations....... $ .82 $ .27 $ 2.15
% changes from prior year:
Revenues.................................................. (0.7)% 0.2% 9.7%
Income from continuing operations before income taxes..... 178.8 (84.1) 42.4
Income from continuing operations......................... 191.2 (87.5) 42.5
Basic earnings per share from continuing operations....... 192.9 (87.1) 40.9
Diluted earnings per share from continuing operations..... 203.7 (87.4) 41.4
Admissions(a)............................................. (1.4) 1.0 6.8
Equivalent admissions(b).................................. (1.1) 2.7 8.8
Revenues per equivalent admission......................... 0.3 (2.4) 0.8
Same facility % changes from prior year(c):
Revenues.................................................. (0.2) 1.1 6.6
Admissions(a)............................................. 0.4 1.7 3.8
Equivalent admissions(b).................................. 1.4 3.5 5.8
Revenues per equivalent admission......................... (1.5) (2.3) 0.7
</TABLE>
- ---------------
(a) Represents the total number of patients admitted (in the facility for a
period in excess of 23 hours) to the Company's hospitals and is used by
management and certain investors as a general measure of inpatient volume.
(b) Equivalent admissions are used by management and certain investors as a
general measure of combined inpatient and outpatient volume. Equivalent
admissions are computed by multiplying admissions (inpatient volume) by the
sum of gross inpatient revenue and gross outpatient revenue and then
dividing the resulting amount by gross inpatient revenue. The equivalent
admissions computation "equates" outpatient revenue to the volume measure
(admissions) used to measure inpatient volume resulting in a general measure
of combined inpatient and outpatient volume.
(c) Same facility information excludes the operations of hospitals and their
related facilities which were either acquired or divested during the current
and prior year.
40
<PAGE> 41
COLUMBIA/HCA HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Years Ended December 31, 1998 and 1997
Revenues decreased 0.7% to $18.68 billion in 1998 compared to $18.82
billion in 1997, primarily as a result of the sales of facilities and declines
in volumes. Inpatient admissions decreased 1.4% from a year ago and equivalent
admissions (adjusted to reflect combined inpatient and outpatient volume)
decreased 1.1%. On a same facility basis, revenues decreased 0.2%, admissions
increased 0.4% and equivalent admissions increased 1.4% from a year ago. The
small decline in revenue, compared to the decline in equivalent admissions
resulted in a slight increase in revenue per equivalent admission of 0.3%. On a
same facility basis, the decline in revenue compared to an increase in
equivalent admissions resulted in a decline in revenue per equivalent admission
of 1.5%. As previously discussed, the increase in outpatient volume activity is
primarily a result of the continuing trend of certain services, previously
provided in an inpatient setting, being converted to an outpatient setting.
The decline in revenues was due to several factors including decreases in
Medicare reimbursement rates mandated by the BBA-97 which became effective
October 1, 1997 (lowered 1998 revenues by approximately $215 million), continued
increases in discounts from the growing number of managed care payers (managed
care as a percentage of total admissions increased to 39% in 1998 compared to
35% in 1997), delays experienced in obtaining Medicare cost report settlements
(cost report filings and settlements resulted in favorable revenue adjustments
of $37 million in 1998 compared to $43 million in 1997), and a net decrease in
the number of consolidated hospitals and surgery centers since 1997 due to the
sales of several facilities during 1998. There were 281 consolidated hospitals
and 102 surgery centers at December 31, 1998 compared to 309 hospitals and 140
surgery centers at December 31, 1997.
Income from continuing operations before income taxes increased 178.8% to
$1.1 billion in 1998 from $388 million in 1997. Pretax margins increased to 5.8%
in 1998 from 2.1% in 1997. The increase in pretax income was primarily
attributable to gains on the sales of facilities and a small increase in the
operating margin. Excluding the gains on sales of facilities, asset impairment
charges and restructuring of operations and investigation related costs, income
from continuing operations before income taxes increased 2% to $990 million in
1998 from $970 million in 1997 and the pretax margin increased to 5.3% in 1998
from 5.2% in 1997. These increases were attributable to decreases in operating
expenses as a percent of revenues.
Operating expenses increased as a percentage of revenues in almost every
expense category, except other operating expenses which declined 2.4% from 1997.
The increases were primarily attributable to the Company's inability to adjust
expenses in line with the decreases experienced in revenues and reimbursement
trends. Management's attention to the investigations, reactions by certain
physicians and patients to the negative media coverage and management changes at
several levels and locations throughout the Company continue to contribute to
the Company's inability to implement changes to reduce operating expenses in
response to the revenue declines.
Salaries and benefits, as a percentage of revenues, increased to 41.8% in
1998 from 40.6% in 1997. The increase was due to a 3.4% increase in salaries and
benefits per equivalent admission, which can be attributed to a 2.7% increase in
labor cost per hour and a 0.5% increase in man-hours per equivalent admission.
Supply costs increased as a percentage of revenues to 15.5% in 1998 from
14.5% in 1997 due to a 7.7% increase in the cost of supplies per equivalent
admission, while revenues per equivalent admission increased only 0.3%.
Other operating expenses (which includes contract services, professional
fees, repairs and maintenance, rents and leases, utilities, insurance, marketing
and non-income taxes) decreased as a percentage of revenues to 20.2% in 1998
from 22.6% in 1997. The decrease was due to small decreases in several of these
expense
41
<PAGE> 42
COLUMBIA/HCA HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Years Ended December 31, 1998 and 1997 (Continued)
categories as a percentage of revenues, including lower marketing costs being
incurred due to the cancellation of a national branding campaign.
Provision for doubtful accounts, as a percentage of revenues, increased to
7.7% in 1998 from 7.5% in 1997 due to internal factors such as computer
information system conversions (including patient accounting systems) at certain
facilities and external factors such as payer mix shifts to managed care plans
(resulting in increased amounts of patient co-payments and deductibles) and
increases in claim audits and remittance denials from certain payers. Management
is unable to quantify the effects of each of these factors, but the shift in
payer mix is expected to continue and the provision for doubtful accounts is
likely to remain at higher levels than in past years (1996 and prior).
Equity in earnings of affiliates increased slightly as a percentage of
revenues to 0.6% in 1998 from 0.4% in 1997.
Depreciation and amortization increased as a percentage of revenues to 6.7%
in 1998 from 6.6% in 1997, primarily due to the slowdown in revenue growth and
increased capital expenditures related to ancillary services (such as outpatient
services) and information systems. Capital expenditures in these areas generally
result in shorter depreciation and amortization lives for the assets acquired
than typical hospital acquisitions.
Interest expense increased to $561 million in 1998 compared to $493 million
in 1997. A primary reason for the increased interest expense is an increase in
the average interest rate on the Company's borrowings. The Company's credit
ratings were downgraded in both 1998 and 1997 and this has caused a shift in
credit sources from the commercial paper market to bank debt.
During 1998, Columbia/HCA recognized a pretax gain of $744 million ($365
million after-tax) on the sale of certain hospitals and surgery centers. The
gain includes a pretax gain of $570 million ($335 million after-tax) on the sale
of 21 hospitals to a consortium of not-for-profit entities, a pretax gain of
$203 million ($50 million after-tax) on the sale of 34 surgery centers, and a
loss of $29 million ($20 million after-tax) on the sale of 6 hospitals and other
facilities. See Note 3-Restructuring of Operations in the Notes to Consolidated
Financial Statements.
During 1998, management approved a plan to divest a group of the Company's
medical office buildings. The divestiture is expected to be completed through
either sales or the transfer of the medical office buildings to a joint venture
in which the Company may maintain a minority interest. The carrying value for
these medical office buildings, along with certain hospitals and other
facilities expected to be sold, was reduced to fair value, based upon estimates
of sales values resulting in a non-cash, pretax impairment charge of $542
million ($175 million of the total impairment charge was related to the medical
office buildings). See Note 3-Restructuring of Operations in the Notes to
Consolidated Financial Statements.
During 1997, the Company recorded $442 million of asset impairment charges.
The charges primarily related to hospital and surgery center facilities to be
sold or closed ($402 million) and physician practices ($40 million) where
projected future cash flows were less than the carrying value of the related
assets.
The Company incurred $111 million and $140 million of costs during 1998 and
1997, respectively, in connection with the investigations and changes in
management and business strategy. In 1998, these costs included $96 million in
professional fees related to the investigations, $5 million in severance costs
and $10 million in other costs. In 1997, these costs included $61 million in
severance costs, $44 million in professional fees related to the investigations
and $35 million in other costs.
42
<PAGE> 43
COLUMBIA/HCA HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Years Ended December 31, 1998 and 1997 (Continued)
Minority interests decreased as a percentage of revenues to 0.4% in 1998
from 0.8% in 1997. The decrease in minority interest expense was attributable to
declines in profitability in certain operations that have minority ownership and
the sales during 1998 of certain minority owned operations (the majority of the
34 surgery centers that were sold during 1998 had minority owners).
Income from continuing operations increased 191.2% to $532 million ($.82
per diluted share) during 1998 compared to $182 million ($.27 per diluted share)
in 1997. Excluding the gains on sales of facilities, asset impairment charges,
and restructuring of operations and investigation related costs, income from
continuing operations increased 4.3% to $590 million ($.91 per diluted share) in
1998 from $565 million ($.85 per diluted share) in 1997.
As previously discussed, the Company is currently in the process of
restructuring its operations (including the spin-offs of the America and Pacific
Groups and the divestiture of certain facilities). See Note 3-Restructuring of
Operations in the Notes to Consolidated Financial Statements. Assuming the
completion of the restructuring, the Company's remaining core assets had pro
forma net income from continuing operations which increased 44.6% to $364
million in 1998 from $251 million in 1997. Excluding gains on sales of
facilities, impairment of long-lived assets and restructuring of operations and
investigation related costs, pro forma net income for the Company's remaining
core assets increased 37.9% to $688 million in 1998 from $499 million in 1997.
Years Ended December 31, 1997 and 1996
Income from continuing operations before income taxes declined 84.1% to
$388 million in 1997 from $2.4 billion in 1996 and pretax margins decreased to
2.1% in 1997 from 13.0% in 1996. The decrease in pretax income was primarily
attributable to the impairment charges on long-lived assets, restructuring of
operations and investigation related costs, a decline in revenue growth rates
and decreases in the operating margin. Excluding the asset impairment charges
and restructuring of operations and investigation related costs, income from
continuing operations before income taxes declined 60.3% to $970 million in 1997
from $2.4 billion in 1996 and pretax margins decreased to 5.2% in 1997 from
13.0% in 1996. The operating results declines, excluding the significant
changes, were attributable to declines in revenue growth rates and increases in
operating expenses as a percent of revenues.
Revenues increased 0.2% to $18.82 billion in 1997 compared to $18.79
billion 1996. Inpatient admissions increased 1.0% from 1996. On a same facility
basis, revenues increased 1.1%, admissions increased 1.7% and equivalent
admissions (adjusted to reflect combined inpatient and outpatient volume)
increased 3.5% from 1996. The increase in outpatient activity is primarily a
result of the continuing trend of certain services, previously provided in an
inpatient setting, being converted to an outpatient setting (average daily
outpatient visits increased 7.1% in 1997 compared to 1996).
The patient volume growth rates experienced in 1997 were less than the
rates experienced in prior years, which management believes was due, in part, to
the reactions of certain physicians and patients to the negative media coverage
related to the ongoing governmental investigations and increased competition.
The revenue growth rate in 1997 was less than experienced in prior years
which management believes was attributable to several factors, including,
divestitures of facilities (there were 10 fewer consolidated facilities at the
end of 1997 compared to 1996), delays experienced in obtaining Medicare cost
report settlements (cost report settlements resulted in favorable revenue
adjustments of $43 million in 1997 compared to $242 million in 1996) and
decreases in Medicare rates of reimbursement mandated by the BBA-97 which became
effective
43
<PAGE> 44
COLUMBIA/HCA HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Years Ended December 31, 1997 and 1996 (Continued)
October 1, 1997 (lowered 1997 revenues by approximately $50 million). Also
contributing to the decline were continued increases in discounts from the
growing number of managed care payers which required management to increase
estimates for discounts from managed care payers. During 1997, managed care as a
percent of total admissions increased to 35% compared to 32% during 1996. Total
net revenues per equivalent admission declined 2.4% to $6,486 in 1997 from
$6,648 in 1996.
Operating expenses increased as a percentage of revenues in every expense
category. The increases, as described below, were primarily attributable to the
Company's inability during the third and fourth quarters of 1997 to adjust
expenses on a timely basis in line with the decreases experienced in volume
trends. Management attention to the investigations, reactions by certain
physicians and patients to the negative media coverage and management changes at
several levels and locations throughout the Company contributed to the Company's
inability to implement changes to reduce operating expenses in response to the
volume and revenue growth rate declines.
Salaries and benefits, as a percentage of revenues, increased to 40.6% in
1997 from 38.4% in 1996. The primary reason for the increase was the decline in
revenues per equivalent admission. The Company was unable to adjust staffing on
a timely basis corresponding with the declining equivalent admission growth
rate.
Supply costs increased as a percentage of revenues to 14.5% in 1997 from
14.1% in 1996 due to a decline in net revenue per equivalent admission while the
cost of supplies remained relatively unchanged.
Other operating expenses, as a percentage of revenues, increased to 22.6%
in 1997 from 19.6% in 1996. The decrease was due, in part, to an increase in
contract services as a percentage of revenues to 8.9% in 1997 from 7.6% in 1996
which resulted from payments to third parties on a fee basis for both new
services and services previously performed by Company employees. Included in
other operating expenses in 1997 are costs associated with start-up activities
which were previously capitalized and subsequently amortized. The Company
changed its policy on accounting for start-up costs effective January 1, 1997,
which resulted in approximately $106 million in other operating expenses for
1997, compared to such costs being capitalized and the related expense recorded
as amortization expense during 1996. See Note 8-Accounting Change in the Notes
to Consolidated Financial Statements. Also included in other operating expenses
are professional fees, repairs and maintenance, rents and leases, utilities,
insurance and non-income taxes. There were no significant changes in any of
these expenses as a percentage of revenues.
Provision for doubtful accounts, as a percentage of revenues, increased to
7.5% in 1997 from 6.4% in 1996 due to internal factors such as computer
information system conversions (including patient accounting systems) at various
facilities and external factors such as payer mix shifts to managed care plans
(resulting in increased amounts of patient co-payments and deductibles) and
payer remittance slowdowns. The information system conversions hampered the
business office billing functions and collection efforts in those facilities as
some resources were directed to installing and converting systems and building
new data files, rather than devoting full effort to billing and collecting
receivables. The Company experienced an increased occurrence of charge audits
from certain payers due to the negative publicity surrounding the government
investigations which have resulted in delays in the collection of receivables.
Management is unable at this time to predict when or if, these delays in
collecting accounts receivable will improve or the effect the delays will have
on the ultimate amounts collected.
Equity in earnings of affiliates decreased as a percentage of revenues to
0.4% in 1997 from 0.9% in 1996 primarily due to decreased profitability at
certain facilities acquired through joint ventures during 1995 and 1996.
Offsetting the decreased profitability were increases in the number of
facilities accounted for using the
44
<PAGE> 45
COLUMBIA/HCA HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Years Ended December 31, 1997 and 1996 (Continued)
equity method of accounting. As of December 31, 1997, there were 27 hospitals
and five freestanding surgery centers compared to 22 hospitals and four
freestanding surgery centers at December 31, 1996.
Depreciation and amortization increased as a percentage of revenues to 6.6%
in 1997 from 6.1% in 1996, primarily due to the slowdown in revenue growth and
increased capital expenditures related to ancillary services (such as outpatient
services) and information systems. Capital expenditures in these areas generally
result in shorter depreciation and amortization lives for the assets acquired
than typical hospital acquisitions. Included in the overall increase in
depreciation and amortization was a decrease in amortization during 1997 related
to the Company's new policy of expensing start-up costs through operating
expenses rather than capitalizing and expensing through amortization.
Interest expense increased to $493 million in 1997 compared to $488 million
in 1996 primarily as a result of an increase in the average outstanding debt
during 1997 compared to 1996. This was due, in part, to the additional debt
incurred in 1997 related to the Company's $1.0 billion common stock repurchase
program. The interest expense associated with the increase in debt related to
the Value Health Merger has been allocated to "Discontinued operations" and is
therefore not included in interest expense from continuing operations.
During 1997, the Company recorded $442 million of asset impairment charges.
The charges primarily relate to hospital and surgery center facilities to be
sold or closed ($402 million) and physician practices where projected future
cash flows were less than the carrying value of the related assets ($40
million). See Note 3 -- Restructuring of Operations in the Notes to Consolidated
Financial Statements.
The Company incurred $140 million of costs during 1997 in connection with
the investigations and changes in management and business strategy. These costs
included $61 million in severance costs, $44 million in professional fees
related to the investigations and $35 million in other costs.
Minority interests increased slightly as a percentage of revenues to 0.8%
in 1997 from 0.7% in 1996.
Income from continuing operations decreased 87.5% to $182 million ($.27 per
diluted share) during 1997 compared to $1.5 billion ($2.15 per diluted share) in
1996. Excluding the asset impairment charges, restructuring of operations and
investigation related costs, income from continuing operations declined 61.3% to
$565 million ($.85 per diluted share) in 1997 from $1.5 billion ($2.15 per
diluted share) in 1996.
As previously discussed, the Company is currently in the process of
restructuring its operations. See Note 3 -- Restructuring of Operations in the
Notes to Consolidated Financial Statements. Assuming the completion of the
restructuring, the Company's remaining core assets had pro forma net income from
continuing operations which decreased 81.4% to $251 million in 1997 from $1,353
million in 1996. Excluding gains on sales of facilities, impairment of
long-lived assets and restructuring of operations and investigation related
costs, pro forma net income for the Company's remaining core assets decreased
63.2% to $499 million in 1997 from $1,353 million in 1996.
Liquidity
Cash provided by continuing operating activities totaled $1.9 billion in
1998 compared to $1.5 billion in 1997 and $2.6 billion in 1996. The increase
from 1997 to 1998, and the decrease from 1996 to 1997, were primarily due to the
loss incurred from continuing operations during 1997. During 1998, the Company
applied for and received a refund for approximately $350 million resulting from
excess estimated tax payments made in 1997 based upon more profitable prior
periods. This resulted in an increase in income taxes receivable in 1997, which
negatively affected 1997 cash flows.
45
<PAGE> 46
COLUMBIA/HCA HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Liquidity (Continued)
Cash provided by investing activities increased to $1.0 billion in 1998,
compared to cash used in investing activities of $2.7 billion in 1997 and $2.2
billion in 1996. The increase was primarily due to proceeds from the sales of
certain discontinued operations of $718 million in 1998 and proceeds from the
disposition of hospitals and other health care entities of $2.1 billion in 1998
compared to $212 million in 1997 and $166 million in 1996. Also in 1998, cash
flows from discontinued operations resulted in a $41 million use of cash,
compared to an approximately $1.2 billion use of cash in 1997 to complete the
Value Health acquisition.
Cash flows used in financing activities totaled approximately $2.7 billion
during 1998, compared to cash provided by financing activities of $1.3 billion
in 1997 and cash flows used in financing activities of $489 million in 1996. The
cash flows provided by continuing operating activities and investing activities
were primarily used to pay down debt during 1998. During 1997, the Company
repurchased approximately 29 million shares of its common stock pursuant to its
$1.0 billion stock repurchase program announced and completed in 1997. The
repurchase was funded by the issuance of long-term debt, commercial paper and
bank borrowings. During 1996 the excess of cash flows provided by continuing
operating activities over cash used in investing activities was used to pay down
long-term debt and commercial paper borrowings.
Working capital totaled $304 million at December 31, 1998 and $1.7 billion
at December 31, 1997. Included in current liabilities is $741 million
outstanding under the Company's former 364-day revolving credit facility which
was converted to a one-year term loan. The Company repaid the one-year term loan
in February 1999. Management believes that cash flows from operations and
amounts available under the Company's credit facilities are sufficient to meet
expected liquidity needs during 1999.
Investments of the Company's professional liability insurance subsidiary to
maintain statutory equity and pay claims totaled $1.8 billion and $1.5 billion
at December 31, 1998 and 1997, respectively.
During 1997, the Company announced both the cessation of sales of interests
in hospitals to physicians and its intention to repurchase physician ownership
interests in the Company's hospitals. The Company repurchased approximately $41
million and $73 million of physician interests in 1998 and 1997, respectively.
The Company has various agreements with joint venture partners whereby the
partners have an option to sell or "put" their interests in the joint venture
back to the Company within specific periods at fixed prices or prices based on
certain formulas. The combined put price under all such agreements was
approximately $1.0 billion at December 31, 1998. During April 1998, the partner
in the Memorial Healthcare Group, Inc. joint venture exercised its put option
whereby the Company purchased the partner's interest in the joint venture for
approximately $40 million. The Company cannot predict if, or when, other joint
venture partners will exercise such options.
During the first quarter of 1998, the Internal Revenue Service issued
guidance regarding certain tax consequences of joint ventures between for-profit
and not-for-profit hospitals. The Company has not determined the impact of the
tax ruling on its existing joint ventures and is consulting with its joint
venture partners and tax advisers to develop appropriate courses of action. The
tax ruling could require the restructuring of certain joint ventures with
not-for-profits or influence the exercise of the put agreements by certain joint
venture partners.
In February 1999, the Company announced that its Board of Directors
authorized the repurchase of up to an additional $1 billion of its common stock.
The Company expects to repurchase its shares through open market purchases,
privately negotiated transactions or through a series of accelerated or forward
purchase contracts.
46
<PAGE> 47
COLUMBIA/HCA HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Liquidity (Continued)
In July 1998, the Company announced a stock repurchase program under which
up to $1 billion of the Company's common stock would be repurchased by entering
into a series of forward purchase contracts. Approximately 44 million shares
have been purchased, at an average cost of approximately $22.65 per share. The
majority of these shares were purchased by certain financial organizations
through a series of forward purchase contracts. In accordance with the terms of
the forward purchase contracts, which permit settlement on a net share basis,
the shares purchased remain issued and outstanding until the forward purchase
contracts are settled. The Company expects settlement of the contracts to occur
during the second quarter of 1999.
In connection with the Company's share repurchase programs, the Company
entered into a Letter of Credit Agreement (the "LOC Agreement") with the United
States Department of Justice (the "DOJ"). As part of the LOC Agreement, the
Company will provide the DOJ with Letters of Credit totaling $1 billion. The LOC
Agreement also provides that the Company's share repurchase program announced in
February 1999 may be made, at the Company's discretion, through open market
purchases, privately negotiated transactions or through a series of accelerated
or forward purchase contracts. The Company and the DOJ acknowledge that the
amount in the LOC Agreement is not based upon the amount or expected amount of
any potential settlement. The LOC Agreement does not constitute an admission of
liability by the Company.
The resolution of the government investigations and the various lawsuits
and legal proceedings that have been asserted could result in substantial
liabilities to the Company. The ultimate liabilities cannot be reasonably
estimated, as to the timing or amounts, at this time; however, it is possible
that results of operations, financial position and liquidity could be
materially, adversely affected upon the resolution of certain of these
contingencies.
Capital Resources
Excluding acquisitions, capital expenditures were $1.3 billion in 1998 and
$1.4 billion in both 1997 and 1996. Planned capital expenditures in 1999 are
expected to approximate $1.2 billion. Management believes that its capital
expenditure program is adequate to expand, improve and equip its existing health
care facilities.
Columbia/HCA expended $215 million, $440 million (excluding discontinued
operations), and $809 million for acquisitions and investments in and advances
to affiliates (generally 50% interests in joint ventures that are accounted for
using the equity method) during 1998, 1997 and 1996, respectively. Changes in
management and business strategy have resulted in declines the Company's
acquisition plans compared to prior years.
Columbia/HCA expects to finance capital expenditures with internally
generated and borrowed funds. Available sources of capital include public or
private debt, amounts available under the Company's revolving credit facility
(approximately $1.0 billion as of February 28, 1999) and equity. At December 31,
1998, there were projects under construction which had an estimated additional
cost to complete and equip of approximately $1.1 billion.
During the third quarter of 1998, the Company amended the one-year term
loan and the revolving credit facility primarily to allow repurchases of up to
$1.0 billion of its common stock. During the third quarter of 1998, the Company
entered into a $1.0 billion term loan agreement with several banks which matures
February 2002.
The one-year term loan, the revolving credit facility and the new $1.0
billion term loan contain customary covenants which include (i) limitations on
additional debt, (ii) limitations on sales of assets, mergers and
47
<PAGE> 48
COLUMBIA/HCA HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Capital Resources (Continued)
changes of ownership, and (iii) maintenance of certain interest coverage ratios.
The Company is currently in compliance with all such covenants.
During the third quarter of 1997, the Company began replacing amounts
outstanding under its commercial paper programs with borrowings under its bank
credit facilities. This was due to limited access to the commercial paper market
as a funding source caused by downgrades of the Company's senior debt and
commercial paper credit ratings by Moody's Investors Service ("Moody's") and
Standard and Poor's. In February 1998, Moody's downgraded the Company's senior
debt credit rating to Ba2 and its commercial paper rating to NP (not prime). In
February 1999, Standard & Poor's downgraded the Company's senior debt rating to
BB+ and its commercial paper rating to B.
The Company anticipates closing on a new $1.0 billion Senior Interim Term
Loan at the end of March 1999. It is anticipated that the proceeds will be used
to fund the $1.0 billion share repurchase program approved in February 1999. The
Company also plans to amend its current revolving credit facility and $1.0
billion term loan to permit the spin-off of the Company's America and Pacific
operating groups and to place a $1.25 billion letter of credit sublimit in the
revolving credit facility.
The Company's restructuring of operations discussed earlier has resulted in
the receipt of a significant amount of cash proceeds in 1998. The Company
continues to manage its capital structure during this process through the
application of such proceeds, as it considers appropriate, to the repayment of
debt and the repurchase of its common stock.
IMPACT OF YEAR 2000 COMPUTER ISSUES
The Company has dedicated substantial resources to address the impact of
the Year 2000 problem. The Company has engaged all relevant aspects of the
organization in a coordinated effort to address the Year 2000 problem and to
minimize the chance of an interruption to the Company's operations or impact to
patient safety and health. The Year 2000 problem is the result of two potential
malfunctions that could have an impact on the Company's systems and equipment.
The first problem arises due to computers being programmed to use two rather
than four digits to define the applicable year. The second problem arises in
embedded chips, where microchips and microcontrollers have been designed using
two rather than four digits to define the applicable year. Certain of the
Company's computer programs, building infrastructure components (e.g., alarm
systems and HVAC systems) and medical devices that are date sensitive, may
recognize a date using "00" as the year 1900 rather than the year 2000. If
uncorrected, the problem could result in computer system and program failures or
equipment and medical device malfunctions that could result in a disruption of
business operations or that could affect patient diagnosis and treatment.
With respect to the information technology ("IT") systems portions of the
Company's Year 2000 project, which address the inventory, assessment,
remediation, testing and implementation of internally developed software, the
Company has identified various software applications that are being addressed on
separate time lines. The Company has begun remediating all these software
applications and is testing the software applications where remediation has been
completed. The Company has also completed the assessment of mission critical
third party software (i.e., that software which is essential for day-to-day
operations) and has developed testing and implementation plans with separate
time lines. The Company has completed and placed into production 60% of software
applications and is 75% complete on most of the remaining software applications
and anticipates completing, in all material respects, remediation, testing and
implementation for internally developed and mission critical third party
software by June 30, 1999. Remediation, testing and
48
<PAGE> 49
COLUMBIA/HCA HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- (CONTINUED)
IMPACT OF YEAR 2000 COMPUTER ISSUES (CONTINUED)
implementation of various software applications for certain of the Company's
related subsidiaries are expected to be complete in the fourth quarter of 1999.
These exceptions (to the June 1999 IT systems goals) should not have a material
effect on the Company's readiness. The IT systems portion of the Company's Year
2000 project is currently on schedule in all material respects.
With respect to the IT infrastructure portion of the Company's Year 2000
project, the Company has undertaken a program to inventory, assess and correct,
replace or otherwise address impacted vendor-supplied products (hardware,
systems software, business software, and telecommunication equipment). The
Company has implemented a program to contact vendors, analyze information
provided, and to remediate, replace or otherwise address IT products that pose a
material Year 2000 impact. The Company anticipates completion, in all material
respects, of the IT infrastructure portion of its program by June 1999. The IT
infrastructure portion of the Company's Year 2000 project is currently on
schedule in all material respects.
The Company presently believes that with modifications to existing software
or the installation of upgraded software under the IT infrastructure portion,
the Year 2000 will not pose material operational problems for the Company's
computer systems. However, if such modifications or upgrades are not
accomplished in a timely manner, Year 2000 related failures could have a
material adverse effect on the operations of the Company.
With respect to the non-IT infrastructure portion of the Company's Year
2000 project, the Company has undertaken a program to inventory, assess and
correct, replace or otherwise address impacted vendor products, medical
equipment and other related equipment with embedded chips. The Company has
implemented a program to contact vendors, analyze information provided, and to
remediate, replace or otherwise address devices or equipment that pose a
material Year 2000 impact. The Company anticipates completion, in all material
respects, of the non-IT infrastructure portion of its program by September 30,
1999 (revised from the original date of June 30, 1999). With respect to such
revised date, the non-IT infrastructure portion of the Company's Year 2000
project is currently on schedule in all material respects.
The Company is prioritizing its non-IT infrastructure efforts by focusing
on equipment and medical devices that will have a direct impact on patient care.
The Company is directing substantial efforts to repair, replace, upgrade or
otherwise address this equipment and these medical devices in order to minimize
risk to patient safety and health. The Company is relying on information that is
being provided to it by equipment and medical device manufacturers regarding the
Year 2000 status of their products. While the Company is attempting to evaluate
information provided by its previous and current vendors, there can be no
assurance that in all instances accurate information is being provided. The
Company also cannot in all instances guarantee that the repair, replacement or
upgrade of all non-IT infrastructure systems will occur on a timely basis or
that such repairs, replacements or upgrades will avoid all Year 2000 problems.
The Company has initiated communications with its major third party payers
and intermediaries, including government payers and intermediaries. The Company
relies on these entities for accurate and timely reimbursement of claims, often
through the use of electronic data interfaces. The Company has not received
assurances that these interfaces will be timely converted. Testing with payers
and intermediaries will not be completed by June 30, 1999 because the payers and
intermediaries are not ready to test with the Company's systems. Failure of
these third party systems could have a material adverse effect on the Company's
cash flow and results of operations.
The Company also has initiated communications with its mission critical
suppliers and vendors (i.e., those suppliers and vendors whose products and
services are essential for day-to-day operations) to verify their ability to
continue to deliver goods and services through the Year 2000. The Company has
not received assurances from all mission critical suppliers and vendors that
they will be able to continue to deliver goods
49
<PAGE> 50
COLUMBIA/HCA HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- (CONTINUED)
IMPACT OF YEAR 2000 COMPUTER ISSUES (CONTINUED)
and services through the Year 2000, but the Company is continuing its efforts to
obtain such assurances. Failure of these third parties could have a material
adverse effect on operations and/or the ability to provide health care services.
With the assistance of external resources, the Company has undertaken the
development of contingency plans in the event that its Year 2000 efforts, or the
failures of third parties upon which the Company relies, are not successfully or
timely completed. The Company has developed a contingency planning methodology
and will implement contingency plans throughout 1999.
While the Company is developing contingency plans to address possible
failure scenarios, the Company recognizes that there are "worst case" scenarios
which may develop and are largely outside the Company's control. The Company
recognizes the risks associated with extended infrastructure (power, water,
telecommunications) failure, the interruption of insurance payments to the
Company and the failure of equipment or software that could impact patient
safety or health despite the assurances of third parties. The Company is
addressing these and other failure scenarios in its contingency planning effort
and is engaging third parties in discussions regarding how to manage common
failure scenarios, but the Company cannot currently estimate the likelihood or
the potential cost of such failures. Currently, the Company does not believe
that any reasonably likely worst case scenario will have a material impact on
the Company's revenues or operations. Those reasonably likely worst case
scenarios include continued expenditures for remediation, continued expenditures
for replacement or upgrade of equipment, continued efforts regarding contingency
planning, increased staffing for the periods immediately preceding and after
January 1, and possible implementation of alternative payment schemes with the
Company's payers.
The Year 2000 project is currently estimated to have a minimum total cost
of $86 million, of which the Company incurred $35 million in 1998. Cumulatively,
the Company has incurred $50 million of costs related to the Year 2000 project.
The increase to the estimated minimum total cost is related to estimates for
repair or replacement of non-IT systems and costs related to an affiliated
subsidiary. The estimate does not include payroll costs for certain internal
employees because these costs are not separately tracked by the Company or asset
replacement costs which cannot currently be estimated. The Company recognizes
that the total cost is likely to increase as it completes its assessment of
non-IT systems and as it continues its remediation and testing of IT systems and
such increase could be material. The Company is not currently able to reasonably
estimate the ultimate cost to be incurred for the assessment, remediation,
upgrade, replacement and testing of its impacted non-IT systems. The majority of
the costs related to the Year 2000 project will be expensed as incurred and are
expected to be funded through operating cash flows.
The costs of the project and estimated completion dates for the Year 2000
modifications are based on management's best estimates, which were derived
utilizing numerous assumptions of future events, including the continued
availability of certain resources, third party modification plans and other
factors. However, there can be no guarantees that these estimates will be
achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area and the
ability to locate and correct all relevant computer codes and all medical
equipment.
EFFECTS OF INFLATION AND CHANGING PRICES
Various federal, state and local laws have been enacted that, in certain
cases, limit the Company's ability to increase prices. Revenues for acute care
hospital services rendered to Medicare patients are established under the
federal government's prospective payment system. Total Medicare revenues
approximated 30% in 1998, 34% in 1997 and 35% in 1996.
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COLUMBIA/HCA HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- (CONTINUED)
EFFECTS OF INFLATION AND CHANGING PRICES (CONTINUED)
Management believes that hospital industry operating margins have been, and
may continue to be, under significant pressure because of deterioration in
inpatient volumes, changes in payer mix and growth in operating expenses in
excess of the increase in prospective payments under the Medicare program.
Management expects that the average rate of increase in Medicare prospective
payments will range from 0% to 0.5% in 1999. In addition, as a result of
increasing regulatory and competitive pressures, the Company's ability to
maintain operating margins through price increases to non-Medicare patients is
limited.
HEALTH CARE REFORM
In recent years, an increasing number of legislative proposals have been
introduced or proposed to Congress and in some state legislatures that would
significantly affect health care systems in the Company's markets. The cost of
certain proposals would be funded in significant part by reduction in payments
by government programs, including Medicare and Medicaid, to health care
providers (similar to the reductions incurred as part of BBA-97 as previously
discussed). While the Company is unable to predict which, if any, proposals for
health care reform will be adopted, there can be no assurance that proposals
adverse to the business of the Company will not be adopted.
PENDING IRS DISPUTES
The Company is contesting income taxes and related interest proposed by the
IRS for prior years aggregating approximately $351 million as of December 31,
1998. Management believes that final resolution of these disputes will not have
a material adverse effect on the results of operations or liquidity of the
Company. (See Note 7 -- Income Taxes of the Notes to Consolidated Financial
Statements for a description of the pending IRS disputes).
51
<PAGE> 52
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk related to changes in interest rates
and market values of securities. The Company currently uses derivative
instruments to offset the market risk exposure of the investments in equity
securities of its insurance subsidiary. No derivatives are currently used to
alter the interest rate characteristics of the Company's debt instruments or the
insurance subsidiary's investments in fixed income securities. The Company's use
of derivatives is intended to lessen the impact on the fair value of its
investments in equity securities that result from movements in market rates and
prices. The Company uses sensitivity analysis models to evaluate these impacts.
The Company's investments in fixed income and equity securities were $1,370
million and $394 million (including the value of derivative instruments),
respectively, at December 31, 1998. These investments are carried at fair value
with changes in unrealized gains and losses being recorded as adjustments to
stockholders' equity. The fair value of investments is generally based on quoted
market prices. Changes in interest rates and market values of securities are not
expected to be material in relation to the financial position and operating
results of the Company.
With respect to the Company's interest-bearing liabilities, approximately
$2,241 million of long-term debt at December 31, 1998 is subject to variable
rates of interest, while the remaining balance in long-term debt of $4,512
million at December 31, 1998 is subject to fixed rates of interest. The
estimated fair value of the Company's total long-term debt was $6,661 million at
December 31, 1998. The estimates of fair value are based upon the quoted market
prices for the same or similar issues of long-term debt with the same
maturities. Based on a hypothetical 1% increase in interest rates, the potential
annualized losses in future pretax earnings would be approximately $22 million.
The impact of such a change in interest rates on the carrying value of long-term
debt would not be significant. The estimated changes to interest expense and the
fair value of long-term debt are determined considering the impact of
hypothetical interest rates on the Company's borrowing cost and long-term debt
balances. These analyses do not consider the effects, if any, of the potential
changes in the Company's credit ratings or the overall level of economic
activity. Further, in the event of a change of significant magnitude, management
would expect to take actions intended to further mitigate its exposure to such
change. In February 1999, the Company repaid, in its entirety, variable interest
rate loans under the Company's 364-day revolving credit agreement (which had a
balance of $741 million at December 31, 1998) with proceeds from asset
divestitures and additional variable interest rate borrowings under the
Company's five-year revolving credit agreement. See Note 11 -- Long Term Debt in
the Notes to Consolidated Financial Statements.
Foreign operations and the related market risks associated with foreign
currency are currently insignificant to the Company's results of operations and
financial position.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information with respect to this Item is contained in the Company's
consolidated financial statements indicated in the Index on Page F-1 of this
Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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<PAGE> 53
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is set forth under the heading
"Election of Directors" in the definitive proxy materials of the Company to be
filed in connection with its 1999 Annual Meeting of Stockholders, except for the
information regarding executive officers of the Company, which is contained in
Item 1 of Part I of this Annual Report on Form 10-K. The information required by
this Item contained in such definitive proxy materials is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is set forth under the heading
"Executive Compensation" in the definitive proxy materials of the Company to be
filed in connection with its 1999 Annual Meeting of Stockholders, which
information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is set forth under the heading
"Principal Stockholders" in the definitive proxy materials of the Company to be
filed in connection with its 1999 Annual Meeting of Stockholders, which
information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is set forth under the heading
"Compensation Committee Interlocks and Insider Participation" in the definitive
proxy materials of the Company to be filed in connection with its 1999 Annual
Meeting of Stockholders, which information is incorporated herein by reference.
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<PAGE> 54
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents filed as part of the report:
1. Financial Statements The accompanying index to financial statements on
page F-1 of this Annual Report on Form 10-K is provided in response to this
item.
2. List of Financial Statement Schedules All schedules are omitted because
the required information is not present, not present in material amounts or
presented within the financial statements.
3. List of Exhibits
<TABLE>
<S> <C> <C>
3.1(a) -- Restated Certificate of Incorporation of the Company (filed
as Exhibit 3(a) to the Company's Current Report on Form 8-K
dated February 11, 1994, and incorporated herein by
reference).
3.1(b) -- Amendment to the Restated Certificate of Incorporation of
the Company (filed as Exhibit 3(a) to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1998, and incorporated herein by reference).
3.2(a) -- By-laws of the Company (filed as Exhibit 2.2 to the
Company's Registration Statement on Form 8-A dated August
31, 1993, and incorporated herein by reference).
3.2(b) -- Amendment to By-laws of the Company (filed as Exhibit 3.1(b)
to the Company's Current Report on Form 8-K dated February
11, 1994, and incorporated herein by reference).
3.2(c) -- Amendment to By-laws of the Company (filed as Exhibit 3(b)
to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998, and incorporated herein by
reference).
4.1 -- Specimen Certificate for shares of Common Stock, par value
$.01 per share, of the Company (filed as Exhibit 4.1 to the
Company's Form SE to Form 10-K for the fiscal year ended
December 31, 1993, and incorporated herein by reference).
4.2 -- Registration Rights Agreement between the Company and The
1818 Fund, L.P. dated March 18, 1991 (filed as Exhibit 4.5
to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1990, and incorporated herein by
reference).
4.3 -- Securities Purchase Agreement by and between the Company and
The 1818 Fund, L.P. dated as of March 18, 1991 (filed as
Exhibit 4.6 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1990, and incorporated
herein by reference).
4.4 -- Warrant to purchase shares of Common Stock, par value $.01
per share, of the Company (filed as Exhibit 4.7 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1990, and incorporated herein by
reference).
4.5 -- Registration Rights Agreement dated as of March 16, 1989, by
and among HCA-Hospital Corporation of America and the
persons listed on the signature pages thereto (filed as
Exhibit (g)(24) to Amendment No. 3 to the Schedule 13E-3
filed by HCA-Hospital Corporation of America, Hospital
Corporation of America and The HCA Profit Sharing Plan on
March 22, 1989, and incorporated herein by reference).
4.6 -- Assignment and Assumption Agreement dated as of February 10,
1994, between HCA-Hospital Corporation of America and the
Company relating to the Registration Rights Agreement, as
amended (filed as Exhibit 4.7 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993,
and incorporated herein by reference).
4.8(a) -- $2 Billion Credit Agreement dated as of February 10, 1994
(the "Credit Facility"), among the Company, the Several
Banks and Other Financial Institutions, and Chemical Bank as
Agent and as CAF Loan Agent (filed as Exhibit 4.10 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993, and incorporated herein by
reference).
4.8(b) -- Agreement and Amendment to the Credit Facility dated as of
September 26, 1994 (filed as Exhibit 4.10 to the Company's
Registration Statement on Form S-4 (File No. 33-56803), and
incorporated herein by reference).
</TABLE>
54
<PAGE> 55
<TABLE>
<S> <C> <C>
4.8(c) -- Agreement and Amendment to the Credit Facility dated as of
February 28, 1996 (filed as Exhibit 4.10(c) to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, and incorporated herein by reference).
4.8(d) -- Agreement and Amendment to the Credit Facility dated as of
February 26, 1997 (filed as Exhibit 4.10(d) to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, and incorporated herein by reference).
4.8(e) -- Agreement and Amendment to the Credit Facility dated as of
June 17, 1997 (filed as Exhibit 10(d) to the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997, and incorporated herein by reference).
4.8(f) -- Second Amendment to the Credit Facility, dated as of
February 3, 1998 (filed as Exhibit 4.10(f) to the Company's
Annual Report on Form 10-K for the year ended December 31,
1997, and incorporated herein by reference).
4.8(g) -- Third Amendment to the Credit Facility, dated as of March
26, 1998 (filed as Exhibit 4.10(g) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997,
and incorporated herein by reference).
4.8(h) -- Fourth Amendment to the Credit Facility, dated as of July
10, 1998 (filed as Exhibit 10(b) to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1998, and incorporated herein by reference).
4.9 -- Indenture dated as of December 15, 1993 between the Company
and The First National Bank of Chicago, as Trustee (filed as
Exhibit 4.11 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993, and incorporated
herein by reference).
4.10 -- $1 Billion Credit Agreement dated as of July 10, 1998 among
the Registrant. The Several Banks and other Financial
Institutions and NationsBank, N.A. as Documentation Agent,
The Bank of Nova Scotia and Deutsche Bank Securities, as
Co-Syndication Agents and The Chase Manhattan Bank, as Agent
(filed as Exhibit 10(c) to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1998, and
incorporated herein by reference).
10.1 -- Agreement and Plan of Merger among the Company, COL
Acquisition Corporation and Healthtrust, Inc. -- The
Hospital Company dated as of October 4, 1994 (filed as
Exhibit 2 to the Company's Registration Statement on Form
S-4 (File No. 33-56803), and incorporated herein by
reference).
10.2 -- Agreement and Plan of Merger among the Company, CHOS
Acquisition Corporation and HCA-Hospital Corporation of
America dated as of October 2, 1993 (filed as Exhibit 2 to
the Company's Registration Statement on Form S-4 (File No.
33-50735), and incorporated herein by reference).
10.3 -- Agreement and Plan of Merger between Galen Health Care, Inc.
and the Company dated as of June 10, 1993 (filed as Exhibit
2 to the Company's Registration Statement on Form S-4 (File
No. 33-49773), and incorporated herein by reference).
10.4 -- Agreement and Plan of Merger among Hospital Corporation of
America, HCA-Hospital Corporation of America and TF
Acquisition, Inc. dated November 21, 1988 plus a list
identifying the contents of all omitted exhibits to the
Agreement and Plan of Merger plus an agreement of Hospital
Corporation of America to furnish supplementally to the
Securities and Exchange Commission upon request a copy of
all omitted exhibits (filed as Exhibit 2 to Hospital
Corporation of America's Current Report on Form 8-K dated
November 21, 1988, and incorporated herein by reference).
10.5 -- Amendment No. 1 to Agreement and Plan of Merger dated as of
February 7, 1989, among Hospital Corporation of America,
HCA-Hospital Corporation of America and TF Acquisition, Inc.
(filed as Exhibit 2(b) to Hospital Corporation of America's
Annual Report on Form 10-K for the year ended December 31,
1988, and incorporated herein by reference).
10.6 -- Columbia Hospital Corporation Stock Option Plan (filed as
Exhibit 10.13 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1990, and
incorporated herein by reference).*
</TABLE>
55
<PAGE> 56
<TABLE>
<S> <C> <C>
10.7(a) -- Columbia Hospital Corporation 1992 Stock and Incentive Plan
(filed as Exhibit 10.14 to the Company's Registration
Statement on Form S-1 (Reg. No. 33-48886), and incorporated
herein by reference).*
10.7(b) -- Amended and Restated Columbia/HCA Healthcare Corporation
1992 Stock and Incentive Plan (which Plan is filed
herewith).*
10.8 -- Columbia Hospital Corporation Outside Directors Nonqualified
Stock Option Plan (filed as Exhibit 28.1 to the Company's
Registration Statement on Form S-8 (File No. 33-55272), and
incorporated herein by reference).*
10.9 -- HCA-Hospital Corporation of America 1989 Nonqualified Stock
Option Plan, as amended through December 16, 1991 (filed as
Exhibit 10(g) to HCA-Hospital Corporation of America's
Registration Statement on Form S-1 (File No. 33-44906), and
incorporated herein by reference).*
10.10 -- Form of Stock Option Agreement under the HCA-Hospital
Corporation of America 1989 Nonqualified Stock Option Plan
(filed as Exhibit 10(j) to HCA-Hospital Corporation of
America's Annual Report on Form 10-K for the year ended
December 31, 1989, and incorporated herein by reference).*
10.11 -- HCA-Hospital Corporation of America Nonqualified Initial
Option Plan (filed as Exhibit 4.6 to the Company's
Registration Statement on Form S-3 (File No. 33-52379), and
incorporated herein by reference).*
10.12 -- Form of Indemnity Agreement with certain officers and
directors (filed as Exhibit 10(kk) to Galen Health Care,
Inc.'s Registration Statement on Form 10, as amended, and
incorporated herein by reference).
10.13 -- Form of Severance Pay Agreement between Galen Health Care,
Inc. and certain executives (filed as Exhibit 10(jj) to
Galen Health Care, Inc.'s Registration Statement on Form 10,
as amended, and incorporated herein by reference).*
10.14 -- Form of Severance Agreement between HCA-Hospital Corporation
of America and certain executives dated as of November 1,
1993 (filed as Exhibit 10.15 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993,
and incorporated herein by reference).*
10.15 -- Assumption Agreement among the Company, CHOS Acquisition
Corporation and HCA-Hospital Corporation of America dated as
of February 10, 1994, relating to the Severance Agreements
(filed as Exhibit 10.16 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993, and
incorporated herein by reference).*
10.16 -- Form of Severance Pay Agreement between the Company and
certain executives dated as of June 10, 1993 (filed as
Exhibit 10.17 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993, and
incorporated herein by reference).*
10.17 -- Form of Galen Health Care, Inc. 1993 Adjustment Plan (filed
as Exhibit 4.15 to the Company's Registration Statement on
Form S-8 (File No. 33-50147), and incorporated herein by
reference).*
10.18 -- Columbia/HCA Healthcare Corporation 1997 Annual Incentive
Plan (filed as Exhibit 10.19 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1996,
and incorporated herein by reference).*
10.19 -- Columbia/HCA Healthcare Corporation Directors' Retirement
Policy (filed as Exhibit 10.20 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31,
1993, and incorporated herein by reference).*
10.20 -- HCA-Hospital Corporation of America 1992 Stock Compensation
Plan (filed as Exhibit 10(t) to HCA-Hospital Corporation of
America's Registration Statement on Form S-1 (File No. 33-
44906), and incorporated herein by reference).*
10.21 -- Columbia/HCA Healthcare Corporation 1995 Management Stock
Purchase Plan (filed as Exhibit 10.22 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, and incorporated herein by reference).*
</TABLE>
56
<PAGE> 57
<TABLE>
<S> <C> <C>
10.22 -- Employment Agreement, dated April 24, 1995 by and between
the Company and R. Clayton McWhorter (filed as Exhibit 10.24
to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996, and incorporated herein by
reference).*
10.23 -- Amended and Restated Agreement and Plan of Merger among the
Company, CVH Acquisition Corporation and Value Health, Inc.
dated as of April 14, 1997 (filed as Exhibit 2 to the
Company's Current Report on Form 8-K dated April 22, 1997,
and incorporated herein by reference).
10.24 -- Separation Agreement between the Company and Richard L.
Scott dated July 25, 1997 (filed as Exhibit 10(a) to the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997, and incorporated herein by
reference).*
10.25 -- Separation Agreement between the Company and David T.
Vandewater dated July 25, 1997 (filed as Exhibit 10(b) to
the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997, and incorporated herein by
reference).*
10.26 -- Columbia/HCA Healthcare Corporation Directors
Fees/Compensation Policy as revised May 14, 1998 (which
policy is filed herewith).*
10.27 -- Columbia/HCA Healthcare Corporation Outside Directors Stock
and Incentive Compensation Plan (filed as Exhibit 10.29 to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997, and incorporated herein by
reference).*
10.28 -- Columbia/HCA Healthcare Corporation Amended and Restated
1995 Management Stock Purchase Plan (filed as Exhibit 10.30
to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997, and incorporated herein by
reference).*
10.29 -- Columbia/HCA Healthcare Corporation Performance Equity
Incentive Plan (filed as Exhibit 10.31 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, and incorporated herein by reference).*
10.30 -- Separation Agreement between the Company and Don Steen dated
October 17, 1997 (filed as Exhibit 10.32 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, and incorporated herein by reference).*
10.31 -- Separation Agreement between the Company and Dan Moen dated
July 1, 1998 (which agreement is filed herewith).*
10.32 -- Separation Agreement between the Company and David White
dated September 11, 1998 (which agreement is filed
herewith).*
10.33 -- Letter Agreement between the Company and Robert Waterman
dated October 31, 1997 (which agreement is filed herewith).*
10.34 -- Letter Agreement between the Company and R. Clayton
McWhorter dated January 18, 1999 (which agreement is filed
herewith).*
10.35 -- Columbia/HCA Healthcare Corporation 1999 Performance Equity
Incentive Plan (which plan is filed herewith).*
10.36 -- Columbia/HCA Healthcare Corporation Severance Policy for
America and Pacific Groups (which policy is filed
herewith).*
10.37 -- Letter of Credit Agreement dated February 11, 1999 between
Columbia/HCA Healthcare Corporation and the United States of
America (filed as Exhibit 99 to the Company's Current Report
on Form 8-K dated February 23, 1999, and incorporated herein
by reference).
12 -- Statement re Computation of Ratio of Earnings to Fixed
Charges.
18 -- Letter re Change in Accounting Principle.
21 -- List of Subsidiaries.
23 -- Consent of Ernst & Young LLP.
27 -- Financial Data Schedule for 1998 year-end information (for
SEC use only).
</TABLE>
- ---------------
* Management compensatory plan or arrangement.
57
<PAGE> 58
(b) Reports on Form 8-K.
On October 27, 1998, the Company announced operating results for the third
quarter and nine months ended September 30, 1998.
On December 14, 1998, the Company announced that it filed with the
Securities and Exchange Commission the Form 10 Registration Statements related
to the proposed tax free spin-off to the Company's stockholders of LifePoint
Hospitals, Inc. and Triad Hospitals, Inc., formerly known as the Company's
America and Pacific Groups, respectively.
58
<PAGE> 59
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
COLUMBIA/HCA HEALTHCARE CORPORATION
By: /s/ THOMAS F. FRIST, JR., M.D.
-------------------------------------
Thomas F. Frist, Jr., M.D.
Chairman and Chief Executive Officer
Dated: March 30, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ THOMAS F. FRIST, JR., M.D. Chairman of the Board and Chief March 30, 1999
- ----------------------------------------------------- Executive Officer
Thomas F. Frist, Jr., M.D.
/s/ R. MILTON JOHNSON Vice President and Controller March 30, 1999
- ----------------------------------------------------- (Principal Accounting
R. Milton Johnson Officer)
/s/ MAGDALENA H. AVERHOFF, M.D. Director March 25, 1999
- -----------------------------------------------------
Magdalena H. Averhoff, M.D.
/s/ MARTIN FELDSTEIN Director March 26, 1999
- -----------------------------------------------------
Martin Feldstein
/s/ FREDERICK W. GLUCK Director March 25, 1999
- -----------------------------------------------------
Frederick W. Gluck
/s/ T. MICHAEL LONG Director March 25, 1999
- -----------------------------------------------------
T. Michael Long
/s/ R. CLAYTON MCWHORTER Director March 25, 1999
- -----------------------------------------------------
R. Clayton McWhorter
/s/ JOHN H. MCARTHUR Director March 25, 1999
- -----------------------------------------------------
John H. McArthur
/s/ THOMAS S. MURPHY Director March 25, 1999
- -----------------------------------------------------
Thomas S. Murphy
/s/ KENT C. NELSON Director March 25, 1999
- -----------------------------------------------------
Kent C. Nelson
/s/ CARL E. REICHARDT Director March 26, 1999
- -----------------------------------------------------
Carl E. Reichardt
/s/ FRANK S. ROYAL, M.D. Director March 25, 1999
- -----------------------------------------------------
Frank S. Royal, M.D.
</TABLE>
59
<PAGE> 60
COLUMBIA/HCA HEALTHCARE CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-2
Consolidated Financial Statements:
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996....................... F-3
Consolidated Balance Sheets, December 31, 1998 and 1997... F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1998, 1997 and 1996........... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996....................... F-6
Notes to Consolidated Financial Statements................ F-7
Quarterly Consolidated Financial Information
(Unaudited)............................................ F-26
</TABLE>
F-1
<PAGE> 61
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
Columbia/HCA Healthcare Corporation
We have audited the accompanying consolidated balance sheets of
Columbia/HCA Healthcare Corporation as of December 31, 1998 and 1997 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Columbia/HCA
Healthcare Corporation at December 31, 1998 and 1997, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998 in conformity with generally accepted
accounting principles.
As explained in Note 8 to the Consolidated Financial Statements, effective
January 1, 1997, the Company changed its method of accounting for start-up
costs.
ERNST & YOUNG LLP
Nashville, Tennessee
February 19, 1999
F-2
<PAGE> 62
COLUMBIA/HCA HEALTHCARE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1998 1997 1996
------- -------- -------
<S> <C> <C> <C>
Revenues.................................................... $18,681 $ 18,819 $18,786
Salaries and benefits....................................... 7,811 7,631 7,205
Supplies.................................................... 2,901 2,722 2,655
Other operating expenses.................................... 3,771 4,263 3,689
Provision for doubtful accounts............................. 1,442 1,420 1,196
Depreciation and amortization............................... 1,247 1,238 1,143
Interest expense............................................ 561 493 488
Equity in earnings of affiliates............................ (112) (68) (173)
Gains on sales of facilities................................ (744) -- --
Impairment of long-lived assets............................. 542 442 --
Restructuring of operations and investigation related
costs..................................................... 111 140 --
------- -------- -------
17,530 18,281 16,203
------- -------- -------
Income from continuing operations before minority interests
and income taxes.......................................... 1,151 538 2,583
Minority interests in earnings of consolidated entities..... 70 150 141
------- -------- -------
Income from continuing operations before income taxes....... 1,081 388 2,442
Provision for income taxes.................................. 549 206 981
------- -------- -------
Income from continuing operations........................... 532 182 1,461
Discontinued operations:
Income (loss) from operations of discontinued businesses,
net of income taxes (benefits) of ($26) in 1998, $18 in
1997 and $29 in 1996................................... (80) 12 44
Losses on disposals of discontinued businesses, net of
income tax benefit of $124 in 1997..................... (73) (443) --
Cumulative effect of accounting change, net of income tax
benefit of $36............................................ -- (56) --
------- -------- -------
Net income (loss)................................. $ 379 $ (305) $ 1,505
======= ======== =======
Basic earnings (loss) per share:
Income from continuing operations......................... $ .82 $ .28 $ 2.17
Discontinued operations:
Income (loss) from operations of discontinued
businesses............................................ (.12) .02 .07
Losses on disposals of discontinued businesses......... (.11) (.67) --
Cumulative effect of accounting change.................... -- (.09) --
------- -------- -------
Net income (loss)................................. $ .59 $ (.46) $ 2.24
======= ======== =======
Diluted earnings (loss) per share:
Income from continuing operations......................... $ .82 $ .27 $ 2.15
Discontinued operations:
Income (loss) from operations of discontinued
businesses............................................ (.12) .02 .07
Losses on disposals of discontinued businesses......... (.11) (.67) --
Cumulative effect of accounting change.................... -- (.08) --
------- -------- -------
Net income (loss)................................. $ .59 $ (.46) $ 2.22
======= ======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 63
COLUMBIA/HCA HEALTHCARE CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 297 $ 110
Accounts receivable, less allowances for doubtful accounts
of $1,645 -- 1998 and
$1,661 -- 1997.......................................... 2,096 2,522
Inventories............................................... 434 452
Income taxes receivable................................... 149 532
Other..................................................... 887 807
------- -------
3,863 4,423
Property and equipment, at cost:
Land...................................................... 925 967
Buildings................................................. 6,708 7,257
Equipment................................................. 7,449 7,461
Construction in progress (estimated cost to complete and
equip after December 31, 1998 -- $1,066)................ 562 569
------- -------
15,644 16,254
Accumulated depreciation.................................. (6,195) (6,024)
------- -------
9,449 10,230
Investments of insurance subsidiary......................... 1,614 1,422
Investments in and advances to affiliates................... 1,275 1,329
Intangible assets, net of accumulated amortization of
$596 -- 1998 and $510 -- 1997............................. 2,910 3,521
Net assets of discontinued operations....................... -- 841
Other....................................................... 318 236
------- -------
$19,429 $22,002
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 784 $ 929
Accrued salaries.......................................... 425 475
Other accrued expenses.................................... 1,282 1,237
Long-term debt due within one year........................ 1,068 132
------- -------
3,559 2,773
Long-term debt.............................................. 5,685 9,276
Professional liability risks, deferred taxes and other
liabilities............................................... 1,839 1,867
Minority interests in equity of consolidated entities....... 765 836
Stockholders' equity:
Common stock $.01 par; authorized 1,600,000,000 voting
shares and 50,000,000 nonvoting shares; outstanding
621,578,300 voting shares and 21,000,000 nonvoting
shares -- 1998 and 620,452,200 voting shares and
21,000,000 nonvoting shares -- 1997..................... 6 6
Capital in excess of par value............................ 3,498 3,480
Other..................................................... 11 13
Accumulated other comprehensive income.................... 80 92
Retained earnings......................................... 3,986 3,659
------- -------
7,581 7,250
------- -------
$19,429 $22,002
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 64
COLUMBIA/HCA HEALTHCARE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN ACCUMULATED
--------------- EXCESS OF OTHER
SHARES PAR PAR COMPREHENSIVE RETAINED
(000) VALUE VALUE OTHER INCOME EARNINGS TOTAL
------- ----- ---------- ----- ------------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1995................... 668,728 $7 $4,496 $26 $34 $2,566 $7,129
Comprehensive income:
Net income................................ 1,505 1,505
Other comprehensive income (loss), net of
tax (See NOTE 17):
Net unrealized gains on investment
securities........................... 24 24
Foreign currency translation
adjustments.......................... (6) (6)
--- ------ ------
Total comprehensive income........... 18 1,505 1,523
Cash dividends.............................. (54) (54)
Stock options exercised, net................ 3,859 81 (5) 76
Other....................................... (1,088) (58) (7) (65)
------- -- ------ --- --- ------ ------
Balances, December 31, 1996................... 671,499 7 4,519 14 52 4,017 8,609
Comprehensive loss:
Net loss.................................. (305) (305)
Other comprehensive income, net of tax
(See NOTE 17):
Net unrealized gains on investment
securities........................... 38 38
Foreign currency translation
adjustments.......................... 2 2
--- ------ ------
Total comprehensive loss............. 40 (305) (265)
Cash dividends.............................. (53) (53)
Stock repurchases........................... (37,895) (1) (1,272) (1,273)
Stock options exercised, net................ 4,108 100 (4) 96
Employee benefit plan issuances............. 3,740 108 108
Other....................................... 25 3 28
------- -- ------ --- --- ------ ------
Balances, December 31, 1997................... 641,452 6 3,480 13 92 3,659 7,250
Comprehensive income:
Net income................................ 379 379
Other comprehensive income (loss), net of
tax (See NOTE 17):
Net unrealized losses on investment
securities........................... (13) (13)
Foreign currency translation
adjustments.......................... 1 1
--- ------ ------
Total comprehensive income........... (12) 379 367
Cash dividends.............................. (52) (52)
Stock repurchases........................... (4,076) (98) (98)
Stock options exercised, net................ 1,623 37 37
Employee benefit plan issuances............. 2,983 71 71
Other....................................... 596 8 (2) 6
------- -- ------ --- --- ------ ------
Balances, December 31, 1998................... 642,578 $6 $3,498 $11 $80 $3,986 $7,581
======= == ====== === === ====== ======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 65
COLUMBIA/HCA HEALTHCARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Cash flows from continuing operating activities:
Net income (loss)......................................... $ 379 $ (305) $1,505
Adjustments to reconcile net income (loss) to net cash
provided by continuing operating activities:
Provision for doubtful accounts...................... 1,442 1,420 1,196
Depreciation and amortization........................ 1,247 1,238 1,143
Income taxes......................................... 351 (782) 269
Gains on sales of facilities......................... (744) -- --
Impairment of long-lived assets...................... 542 442 --
Loss (income) from discontinued operations........... 153 431 (44)
Increase (decrease) in cash from operating assets and
liabilities:
Accounts receivable............................... (1,229) (1,167) (1,360)
Inventories and other assets...................... (39) 25 (14)
Accounts payable and accrued expenses............. (177) 121 (145)
Other................................................ (9) 60 39
------ ------ ------
Net cash provided by continuing operating
activities...................................... 1,916 1,483 2,589
------ ------ ------
Cash flows from investing activities:
Purchase of property and equipment........................ (1,255) (1,422) (1,391)
Acquisition of hospitals and health care entities......... (215) (411) (748)
Disposal of hospitals and health care entities............ 2,060 212 166
Purchase of investments................................... (294) (74) (219)
Investment in discontinued operations, net................ 677 (1,060) (26)
Other..................................................... (3) 9 (1)
------ ------ ------
Net cash provided by (used in) investing
activities...................................... 970 (2,746) (2,219)
------ ------ ------
Cash flows from financing activities:
Issuance of long-term debt................................ 3 249 459
Net change in commercial paper and bank borrowings........ (2,514) 2,453 (579)
Repayment of long-term debt............................... (147) (318) (303)
Issuances (repurchases) of common stock, net.............. 8 (1,082) (20)
Payment of cash dividends and redemption of preferred
stock purchase rights.................................. (52) (53) (54)
Other..................................................... 3 11 8
------ ------ ------
Net cash provided by (used in) financing
activities...................................... (2,699) 1,260 (489)
------ ------ ------
Change in cash and cash equivalents......................... 187 (3) (119)
Cash and cash equivalents at beginning of period............ 110 113 232
------ ------ ------
Cash and cash equivalents at end of period.................. $ 297 $ 110 $ 113
====== ====== ======
Interest payments........................................... $ 566 $ 471 $ 499
Income tax payments, net of refunds......................... $ (139) $1,168 $ 709
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 66
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- ACCOUNTING POLICIES
Reporting Entity
Columbia/HCA Healthcare Corporation is a holding company whose affiliates
own and operate hospitals and related health care entities. The term
"affiliates" includes direct and indirect subsidiaries of Columbia/ HCA
Healthcare Corporation and partnerships and joint ventures in which such
subsidiaries are partners. At December 31, 1998, these affiliates owned and
operated 281 hospitals, 102 freestanding surgery centers and provided extensive
outpatient and ancillary services. Affiliates of Columbia/HCA are also partners
in several 50/50 joint ventures that own and operate 24 hospitals and 5
freestanding surgery centers which are accounted for using the equity method.
The Company's facilities are located in 32 states, England and Switzerland. The
terms "Columbia/HCA" or the "Company" as used in this annual report on Form 10-K
refer to Columbia/ HCA Healthcare Corporation and its affiliates unless
otherwise stated or indicated by content.
Basis of Presentation
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
The consolidated financial statements include all subsidiaries and entities
controlled by the Company. Significant intercompany transactions have been
eliminated. Investments in entities which the Company does not control, but in
which it has a substantial ownership interest and can exercise significant
influence, are accounted for using the equity method.
The Company has completed various acquisitions, disposals and joint venture
transactions that have been recorded under the purchase method of accounting.
Accordingly, the accounts of these entities have been consolidated with those of
the Company for periods subsequent to the acquisition of controlling interest
and for periods prior to the disposal of controlling interest.
Revenues
The Company's health care facilities have entered into agreements with
third-party payers, including government programs and managed care health plans,
under which the facilities are paid based upon established charges, the cost of
providing services, predetermined rates per diagnosis, fixed per diem rates or
discounts from established charges.
Revenues are recorded at estimated amounts due from patients and
third-party payers for the health care services provided. Settlements under
reimbursement agreements with third-party payers are estimated and recorded in
the period the related services are rendered and are adjusted in future periods
as final settlements are determined (in relation to certain government programs,
primarily Medicare, this is generally referred to as the "cost report" filing
and settlement process). The adjustments to estimated settlements resulted in
increases to revenues of $37 million, $43 million and $242 million in 1998, 1997
and 1996, respectively. In association with the ongoing Federal investigations
into certain of Columbia/HCA's business practices, the applicable governmental
agencies have substantially ceased the final settlement of the Company's cost
reports. Since the cost reports are not being settled, the Company is not
receiving the updated information which has historically been the basis used by
the Company to adjust estimated settlement amounts. At this time, the Company
cannot predict when, or if, the historical cost report settlement process will
be resumed. Management believes that adequate provisions have been made for
adjustments that may result from final determination of amounts earned under
these programs.
The Company provides care without charge to patients who are financially
unable to pay for the health care services they receive. Because the Company
does not pursue collection of amounts determined to qualify as charity care,
they are not reported in revenues.
F-7
<PAGE> 67
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1 -- ACCOUNTING POLICIES (CONTINUED)
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments with a maturity
of three months or less when purchased. Carrying values of cash and cash
equivalents approximate fair value due to the short-term nature of these
instruments.
Accounts Receivable
Columbia/HCA receives payment for services rendered from Federal and state
agencies (under the Medicare, Medicaid and Champus programs), managed care
health plans, commercial insurance companies, employers and patients. During the
years ended December 31, 1998 and 1997, approximately 30% and 34%, respectively,
of the Company's revenues related to patients participating in the Medicare
program. Columbia/ HCA recognizes that revenues and receivables from government
agencies are significant to the Company's operations, but Columbia/HCA does not
believe that there are significant credit risks associated with these government
agencies. Columbia/HCA does not believe that there are any other significant
concentrations of revenues from any particular payer that would subject the
Company to any significant credit risks in the collection of its accounts
receivable.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market.
Long-lived Assets
(a) Property and Equipment
Depreciation expense, computed using the straight-line method, was $1.1
billion in 1998, $1.1 billion in 1997 and $1.0 billion in 1996. Buildings and
improvements are depreciated over estimated useful lives ranging generally from
10 to 40 years. Estimated useful lives of equipment vary generally from 3 to 10
years.
(b) Intangible Assets
Intangible assets consist primarily of costs in excess of the fair value of
identifiable net assets of acquired entities and are amortized using the
straight-line method generally over periods ranging from 30 to 40 years for
hospital acquisitions and periods ranging from 5 to 20 years for physician
practice, clinic and other acquisitions. Noncompete agreements and debt issuance
costs are amortized based upon the lives of the respective contracts or loans.
When events, circumstances and operating results indicate that the carrying
values of certain long-lived assets and the related identifiable intangible
assets might be impaired, Columbia/HCA prepares projections of the undiscounted
future cash flows expected to result from the use of the assets and their
eventual disposition. If the projections indicate that the recorded amounts are
not expected to be recoverable, such amounts are reduced to estimated fair
value.
Professional Liability Insurance Claims
A substantial portion of the Company's professional liability risks is
insured through a wholly-owned insurance subsidiary of Columbia/HCA, which is
funded annually. Provisions for losses related to professional liability risks
are based upon actuarially determined estimates. To the extent that subsequent
claims information varies from management's estimates, any adjustments to
estimated liability amounts are reflected in current operating results.
Allowances for professional liability risks were $1.4 and $1.3 billion at
December 31, 1998 and 1997, respectively.
F-8
<PAGE> 68
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1 -- ACCOUNTING POLICIES (CONTINUED)
Investments of Insurance Subsidiary
At December 31, 1998, all of the investments of the Company's wholly-owned
insurance subsidiary were classified as "available for sale" as defined in
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115").
At December 31, 1997, a portion of the insurance subsidiary's investments
(approximately $57 million) were classified as trading securities. Trading
securities are bought and held principally for the purpose of selling them in
the near future. Trading securities are recorded at fair value and unrealized
gains and losses are included in results of operations.
Minority Interests in Consolidated Entities
The consolidated financial statements include all assets, liabilities,
revenues and expenses of less than 100% owned entities controlled by
Columbia/HCA. Accordingly, management has recorded minority interests in the
earnings and equity of such entities.
Columbia/HCA is a party to several partnership agreements which generally
include provisions for the redemption of minority interests using specified
valuation techniques.
Stock Based Compensation
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB 25") and related interpretations in
accounting for its employee stock benefit plans. Accordingly, no compensation
cost has been recognized for the Company's employee stock benefit plans.
Earnings Per Share
In 1997, the Financial Accounting Standards Board issued Statement No. 128
"Earnings per Share" ("SFAS 128"). SFAS 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. Earnings per share amounts for all periods have been
presented, and restated where appropriate, to conform to the SFAS 128
requirements.
Comprehensive Income
In 1997, the Financial Accounting Standards Board issued Statement No. 130,
"Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes standards
for reporting and disclosure of comprehensive income and its components in the
financial statements. The Company has elected to report comprehensive income and
its components in the consolidated statements of stockholders' equity.
Disclosures about Segments of an Enterprise
In 1998, Columbia/HCA adopted Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). SFAS 131 establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports. It also establishes standards
for related disclosures about products and services, geographic areas, and major
customers.
F-9
<PAGE> 69
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 1 -- ACCOUNTING POLICIES (CONTINUED)
Derivatives
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities", which is required to be adopted in years beginning
after June 15, 1999. Because of the Company's minimal use of derivatives,
management does not anticipate that the adoption of the new statement will have
a significant effect on the results of operations or the financial position of
the Company.
Reclassifications
Certain prior year amounts have been reclassified to conform to the 1998
presentation.
NOTE 2 -- INVESTIGATIONS
The Company is currently the subject of several Federal investigations into
its business practices, as well as governmental investigations by various
states. The Company is cooperating in these investigations and understands,
through written notice and other means, that it is a target in these
investigations. Given the breadth of the ongoing investigations, the Company
expects additional subpoenas and other investigative and prosecutorial activity
to occur in these and other jurisdictions in the future. Columbia/HCA is a
defendant in several qui tam actions brought by private parties on behalf of the
United States of America, which have been unsealed and served on Columbia/HCA.
The actions allege, in general, that Columbia/HCA and certain subsidiaries
and/or affiliated partnerships violated the False Claims Act for improper claims
submitted to the government for reimbursement. The lawsuits seek damages of
three times the amount of all Medicare or Medicaid claims (involving false
claims) presented by the defendants to the Federal government, civil penalties
of not less than $5,000 nor more than $10,000 for each such Medicare or Medicaid
claim, attorney's fees and costs. The government has intervened in two qui tam
actions. Columbia/HCA is aware of additional qui tam actions that remain under
seal and believes that there are other sealed qui tam cases of which it is
unaware.
The Company is the subject of a formal order of investigation by the
Securities and Exchange Commission. The Company understands that the
investigation includes the anti-fraud, periodic reporting and internal
accounting control provisions of the Federal securities laws.
Management believes the ongoing investigations and related media coverage
are having a negative effect on the Company's results of operations. It is too
early to predict the outcome or effect of the ongoing investigations or qui tam
and other actions or whether any additional investigations or litigations will
be commenced. If Columbia/HCA is found to have violated Federal or state laws
relating to Medicare, Medicaid or similar programs, the Company could be subject
to substantial monetary fines, civil and criminal penalties and exclusion from
participation in the Medicare and Medicaid programs. Similarly, the amounts
claimed in the qui tam and other actions may be substantial, and Columbia/HCA
could be subject to substantial costs resulting from an adverse outcome of one
or more such actions. Any such sanctions or losses could have a material adverse
effect on the Company's financial position and results of operations. (See Note
12 -- Contingencies and Part I, Item 3: Legal Proceedings.)
NOTE 3 -- RESTRUCTURING OF OPERATIONS
The Company is currently in the process of restructuring its operations in
an effort to create a smaller and more focused company. The restructuring
includes the divestitures of certain hospitals, surgery centers and related
facilities, the spin-offs of two companies that currently represent the Pacific
and America operating groups and the divestitures of the Company's home health
and certain other businesses, as described in Note 5 -- Discontinued Operations.
F-10
<PAGE> 70
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- RESTRUCTURING OF OPERATIONS (CONTINUED)
Divestiture of Certain Hospitals and Surgery Centers
During 1998, Columbia/HCA recognized a net pretax gain of $744 million
($365 million after-tax) on the sale of certain hospitals and surgery centers.
The gain includes the sale of 20 consolidated hospitals and 1 non-consolidated
hospital to a consortium of not-for-profit entities for gross proceeds of
approximately $1.2 billion, resulting in a pretax gain of $570 million ($335
million after-tax). The $744 million net gain also includes the completed sale
of 34 ambulatory surgery centers for proceeds of approximately $550 million. The
sale of these surgery centers resulted in a pretax gain of $203 million ($50
million after-tax). The high effective tax rate of 73% on the gain was due to
significant amounts of non-deductible goodwill related to the surgery centers
sold. Also included in the $744 million net gain was a pretax loss of $29
million ($20 million after-tax) on the sales of 6 hospitals for gross proceeds
of approximately $108 million. Proceeds from these sales were used to repay bank
borrowings.
During September 1998, management approved a plan to divest a group of the
Company's medical office buildings. The divestiture is expected to be completed
during 1999 through either sales or the transfer of the medical office buildings
to a joint venture in which the Company may maintain a minority interest. The
carrying value for the medical office buildings was reduced to fair value of
approximately $482 million, based on estimates of sales values, resulting in a
non-cash, pretax charge of approximately $175 million. For the years ended
December 31, 1998, 1997 and 1996, respectively, these medical office buildings
to be divested had net revenues of approximately $120 million, $110 million and
$98 million and incurred losses from continuing operations before the pretax
charge and income tax benefits of approximately $115 million , $101 million and
$72 million. Proceeds from the medical office buildings divestiture will be used
to repay bank borrowings.
During the third and fourth quarters of 1998, management identified and
initiated plans to sell or close during 1999, 23 consolidated hospitals and 1
non-consolidated hospital. The carrying value for certain of the hospitals and
other assets expected to be sold was reduced to fair value of approximately $422
million based on estimates of sales values, resulting in a non-cash, pretax
charge of approximately $367 million. For the years ended December 31, 1998,
1997 and 1996, respectively, the hospitals and other assets for which the
impairment charge was recorded had net revenues of approximately $896 million,
$954 million and $963 million and incurred income (losses) from continuing
operations before the pretax charge and income taxes (benefits) of approximately
$(77) million, $6 million, and $103 million. The sales of 8 of the 24 hospitals
were completed in 1998 for gross proceeds of approximately $180 million.
Proceeds (which approximated the carrying values) from the completed
divestitures were, and from the expected remaining divestitures will be, used to
repay bank borrowings.
During the fourth quarter of 1997, management identified and initiated
plans to close or sell twenty hospital facilities and fifteen surgery centers
(primarily optical surgery centers) that were identified as not compatible with
the Company's operating plans. The carrying value of these facilities was
reduced to fair value of approximately $226 million, based on estimates of sales
values, for a total non-cash charge, pretax of $402 million. As of December 31,
1998, the Company had completed the sales or closure of 18 hospitals and nine
surgery centers. Proceeds (which approximated the carrying values) were used to
repay bank borrowings.
The Company recorded, also during the fourth quarter of 1997, a non-cash,
pretax loss of approximately $40 million related to the impairment of
intangibles and other long-lived assets of certain physician practices where the
recorded asset values were not deemed to be fully recoverable based upon the
operating results trend and projected future cash flows. These assets are now
recorded at estimated fair value.
The asset impairment charges did not have a significant impact on the
Company's cash flows and are not expected to significantly impact cash flows for
future periods. As a result of the write-downs, depreciation and amortization
expense related to these assets will decrease in future periods. In the
aggregate, the net effect of
F-11
<PAGE> 71
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- RESTRUCTURING OF OPERATIONS (CONTINUED)
Divestiture of Certain Hospitals and Surgery Centers (Continued)
the change in depreciation and amortization expense is not expected to have a
material effect on operating results for future periods.
Spin-Offs
The Company is continuing with its previously announced plan to create two
tax-free spin-off companies. In August 1998, the Company submitted a ruling
request to the Internal Revenue Service (the "IRS") requesting that the proposed
spin-offs be tax-free to the Company and its shareholders. The two proposed
spin-off companies currently represent the Pacific and America operating groups.
At December 31, 1998, the Pacific group was comprised of 38 consolidating
hospitals with $1,589 million and $1,609 million in revenues for the years ended
December 31, 1998 and 1997, respectively. EBITDA (earnings before depreciation
and amortization, interest expense, impairment of long-lived assets, management
fees, minority interests and income taxes) for the Pacific Group was $149
million and $188 million for the years ended December 31, 1998 and 1997,
respectively.
The America group was comprised of 23 consolidating hospitals with $498
million and $488 million in revenues for the years ended December 31, 1998 and
1997, respectively. EBITDA for the America Group was $57 million and $82 million
for the years ended December 31, 1998 and 1997, respectively.
NOTE 4 -- RESTRUCTURING OF OPERATIONS AND INVESTIGATION RELATED COSTS
During 1998 and 1997, the Company recorded the following pretax charges in
connection with the restructuring of operations and the investigation related
costs as discussed in Note 2 -- Investigations and Note 3 -- Restructuring of
Operations (in millions):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Severance costs............................................. $ 5 $ 61
Professional fees related to investigations................. 96 44
Other....................................................... 10 35
---- ----
Total............................................. $111 $140
==== ====
</TABLE>
NOTE 5 -- DISCONTINUED OPERATIONS
Included in discontinued operations are three of the four business units
acquired in the August 1997 merger with Value Health, Inc. ("Value Health") and
the Company's home health care businesses. The Company implemented plans to
dispose of these businesses during 1997.
During the second and third quarters of 1998, the Company completed the
sales of the three Value Health units for proceeds totaling $662 million. The
proceeds from the sales were used to repay bank borrowings. The Company recorded
a $73 million loss upon completion of these sales in 1998, representing an
adjustment to the tax benefit related to the estimated $443 million after-tax
loss on disposal of discontinued operations recorded in the fourth quarter of
1997.
During the third and fourth quarters of 1998, the Company completed five
separate sales transactions that included substantially all of the Company's
home health care operations and received approximately $90 million in proceeds.
The proceeds from the sales were used to repay bank borrowings.
F-12
<PAGE> 72
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- DISCONTINUED OPERATIONS (CONTINUED)
Revenues of the discontinued businesses totaled $1.0 billion, $2.0 billion
and $1.1 billion for the years ended December 31, 1998, 1997 and 1996,
respectively.
NOTE 6 -- ACQUISITIONS
During the past three years, Columbia/HCA has acquired various hospitals
and related health care entities (or controlling interests in such entities),
all of which have been accounted for by the purchase method. The aggregate
purchase price of these transactions has been allocated to the assets acquired
and liabilities assumed based upon their respective fair values. The
consolidated financial statements include the accounts and operations of
acquired entities for periods subsequent to the respective acquisition dates.
The following is a summary of hospitals and other health care entity
acquisitions consummated during the last three years (excluding the acquisition
of Value Health) (dollars in millions):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ------
<S> <C> <C> <C>
Number of hospitals......................................... 6 5 14
Number of licensed beds..................................... 852 974 2,652
Purchase price information:
Hospitals:
Fair value of assets acquired.......................... $205 $162 $ 737
Liabilities assumed.................................... (39) (39) (103)
---- ---- ------
Net assets acquired............................... 166 123 634
Contributions from minority partners................... (54) (24) (133)
---- ---- ------
112 99 501
Other health care entities acquired....................... 103 312 247
---- ---- ------
Net cash paid..................................... $215 $411 $ 748
==== ==== ======
</TABLE>
The purchase price paid in excess of the fair value of identifiable net
assets of acquired entities aggregated $86 million in 1998, $221 million in 1997
and $291 million in 1996.
The pro forma effect of these acquisitions on the Company's results of
operations for the periods prior to the respective consummation dates was not
significant.
NOTE 7 -- INCOME TAXES
The provision for income taxes on income from continuing operations
consists of the following (dollars in millions):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current:
Federal................................................. $637 $313 $804
State................................................... 116 56 145
Deferred:
Federal................................................. (169) (134) 27
State................................................... (35) (29) 5
---- ---- ----
$549 $206 $981
==== ==== ====
</TABLE>
F-13
<PAGE> 73
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- INCOME TAXES (CONTINUED)
A reconciliation of the federal statutory rate to the effective income tax
rate follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate...................................... 35.0% 35.0% 35.0%
State income taxes, net of federal income tax benefit....... 4.9 4.6 4.0
Non-deductible intangible assets............................ 11.4 12.7 1.3
Other items, net............................................ (0.5) 0.6 (0.2)
---- ---- ----
Effective income tax rate................................... 50.8% 52.9% 40.1%
==== ==== ====
</TABLE>
A summary of the items comprising the deferred tax assets and liabilities
at December 31 follows (dollars in millions):
<TABLE>
<CAPTION>
1998 1997
--------------------- ---------------------
ASSETS LIABILITIES ASSETS LIABILITIES
------ ----------- ------ -----------
<S> <C> <C> <C> <C>
Depreciation and fixed asset basis
differences.............................. $ -- $407 $ -- $648
Reserves for professional and general
liability and other risks................ 351 -- 395 --
Doubtful accounts.......................... 316 -- 360 --
Compensation............................... 98 -- 104 --
Other...................................... 182 281 170 260
---- ---- ------ ----
$947 $688 $1,029 $908
==== ==== ====== ====
</TABLE>
Deferred income taxes of $486 million and $423 million at December 31, 1998
and 1997, respectively, are included in other current assets. Noncurrent
deferred income tax liabilities totaled $227 and $302 million at December 31,
1998 and 1997, respectively.
At December 31, 1998, federal and state net operating loss carryforwards
(expiring in years 1999 through 2004) available to offset future taxable income
approximated $784 million and $96 million, respectively. Utilization of net
operating loss carryforwards in any one year may be limited and, in certain
cases, result in a reduction of intangible assets. Net deferred tax assets
related to such carryforwards are not significant.
IRS Disputes
The Company is currently contesting before the United States Tax Court (the
"Tax Court") and the United States Court of Federal Claims certain claimed
deficiencies and adjustments proposed by the IRS in conjunction with its
examination of the Company's 1994 Federal income tax return, Columbia Healthcare
Corporation's ("CHC") 1993 and 1994 Federal income tax returns, HCA-Hospital
Corporation of America, Inc.'s ("HCA") 1981 through 1988 and 1991 through 1993
Federal income tax returns and Healthtrust, Inc.-The Hospital Company's
("Healthtrust") 1990 through 1994 Federal income tax returns. The disputed items
include: the disallowance of certain acquisition-related costs, executive
compensation, system conversion costs and insurance premiums which were deducted
in calculating taxable income and the methods of accounting used by certain
subsidiaries for calculating taxable income related to vendor rebates and
governmental receivables. The IRS is claiming an additional $351 million in
income taxes and interest through December 31, 1998.
Tax Court decisions received in 1996 and 1997 related to HCA's 1981 through
1988 Federal income tax returns may be appealed by the IRS or the Company to the
United States Court of Appeals, Sixth Circuit. The Company expects any decisions
regarding the appeal of these rulings will be made during 1999.
F-14
<PAGE> 74
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- INCOME TAXES (CONTINUED)
IRS Disputes (Continued)
Management believes that adequate provisions have been recorded to satisfy
final resolution of the disputed issues. Management believes that the Company,
CHC, HCA and Healthtrust properly reported taxable income and paid taxes in
accordance with applicable laws and agreements established with the IRS during
previous examinations and that final resolution of these disputes will not have
a material adverse effect on the results of operations or financial position of
the Company.
NOTE 8 -- ACCOUNTING CHANGE
In the fourth quarter of 1997, the Company changed its method of accounting
for start-up costs. The change involved expensing these costs as incurred rather
than capitalizing and subsequently amortizing such costs. The Company believes
the new method is preferable due to the changes in the Company's business
strategy and reviews of emerging accounting guidance on accounting for similar
(i.e., start-up, software system training and process re-engineering) costs.
The change in accounting principle resulted in the write-off of the costs
capitalized as of January 1, 1997. The cumulative effect of the write-off, $56
million (net of tax benefit), was expensed in the 1997 statement of operations.
Had the new method been used in the past, the pro forma effect on prior years
would have primarily affected 1996 (such costs incurred for periods prior to
1996 are considered immaterial to operations for those periods). The pro forma
effect on 1997 and 1996 follows (dollars in millions, except per share amounts):
<TABLE>
<CAPTION>
1997 1996
-------------------- --------------------
AS AS
REPORTED PRO-FORMA REPORTED PRO-FORMA
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Income from continuing operations............. $ 182 $ 182 $1,461 $1,405
Earnings per share -- basic................. $ .28 $ .28 $ 2.17 $ 2.08
Earnings per share -- diluted............... $ .27 $ .27 $ 2.15 $ 2.07
Net income (loss)............................. $(305) $(249) $1,505 $1,449
Earnings (loss) per share -- basic.......... $(.46) $(.37) $ 2.24 $ 2.15
Earnings (loss) per share -- diluted........ $(.46) $(.38) $ 2.22 $ 2.14
</TABLE>
F-15
<PAGE> 75
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share from continuing operations (dollars in millions, except per
share amounts):
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
NUMERATOR (A):
Income from continuing operations.................... $ 532 $ 182 $ 1,461
======= ======= =======
DENOMINATOR:
Share reconciliation (in thousands):
Shares used for basic earnings per share............. 643,719 657,931 670,774
Effect of dilutive securities:
Stock options................................... 2,310 4,407 6,214
Warrants and other.............................. 620 752 898
------- ------- -------
Shares used for diluted earnings per share........... 646,649 663,090 677,886
======= ======= =======
EARNINGS PER SHARE:
Basic earnings per share from continuing
operations........................................ $ .82 $ .28 $ 2.17
======= ======= =======
Diluted earnings per share from continuing
operations........................................ $ .82 $ .27 $ 2.15
======= ======= =======
</TABLE>
(a) Amount is used for both basic and diluted earnings per share computations
since there is no earnings effect related to the dilutive securities.
NOTE 10 -- INVESTMENTS OF INSURANCE SUBSIDIARY
A summary of the insurance subsidiary's investments at December 31 follows
(dollars in millions):
<TABLE>
<CAPTION>
1998
-----------------------------------
UNREALIZED
AMOUNTS
AMORTIZED -------------- FAIR
COST GAINS LOSSES VALUE
--------- ----- ------ ------
<S> <C> <C> <C> <C>
Fixed maturities:
United States Government......................... $ 119 $ -- $ -- $ 119
States and municipalities........................ 886 32 -- 918
Mortgage-backed securities....................... 78 1 -- 79
Corporate and other.............................. 173 2 (1) 174
Money market funds............................... 27 -- -- 27
Redeemable preferred stocks...................... 52 1 -- 53
------ ---- ---- ------
1,335 36 (1) 1,370
------ ---- ---- ------
Equity securities:
Perpetual preferred stocks....................... 21 1 -- 22
Common stocks.................................... 287 126 (41) 372
------ ---- ---- ------
308 127 (41) 394
------ ---- ---- ------
$1,643 $163 $(42) 1,764
====== ==== ====
Amounts classified as current assets............... (150)
------
Investment carrying value.......................... $1,614
======
</TABLE>
F-16
<PAGE> 76
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- INVESTMENTS OF INSURANCE SUBSIDIARY (CONTINUED)
<TABLE>
<CAPTION>
1997
-----------------------------------
UNREALIZED
AMOUNTS
AMORTIZED -------------- FAIR
COST GAINS LOSSES VALUE
--------- ----- ------ ------
<S> <C> <C> <C> <C>
Fixed maturities:
United States Government......................... $ 17 $ -- $ -- $ 17
States and municipalities........................ 657 24 -- 681
Mortgage-backed securities....................... 107 2 -- 109
Corporate and other.............................. 128 3 (1) 130
Money market funds............................... 63 -- -- 63
Redeemable preferred stocks...................... 64 -- -- 64
------ ---- ---- ------
1,036 29 (1) 1,064
------ ---- ---- ------
Equity securities:
Perpetual preferred stocks....................... 36 1 (1) 36
Common stocks.................................... 303 130 (18) 415
------ ---- ---- ------
339 131 (19) 451
------ ---- ---- ------
$1,375 $160 $(20) 1,515
====== ==== ====
Amounts classified as current assets............... (93)
------
Investment carrying value.......................... $1,422
======
</TABLE>
The fair value of investment securities is generally based on quoted market
prices.
Scheduled maturities of investments in debt securities at December 31, 1998
were as follows (dollars in millions):
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
--------- ------
<S> <C> <C>
Due in one year or less..................................... $ 243 $ 243
Due after one year through five years....................... 368 377
Due after five years through ten years...................... 361 378
Due after ten years......................................... 285 293
------ ------
1,257 1,291
Mortgage-backed securities.................................. 78 79
------ ------
$1,335 $1,370
====== ======
</TABLE>
The average expected maturity of the investments in debt securities listed
above approximated 4.1 years at December 31, 1998. Expected and scheduled
maturities may differ because the issuers of certain securities may have the
right to call, prepay or otherwise redeem such obligations without penalty.
The tax equivalent yield on investments (including common stocks) averaged
10% for 1998, 12% for 1997 and 7% for 1996. Tax equivalent yield is the rate
earned on invested assets, excluding unrealized gains and losses, adjusted for
the benefit of certain investment income not being subject to taxation.
F-17
<PAGE> 77
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- INVESTMENTS OF INSURANCE SUBSIDIARY (CONTINUED)
The cost of securities sold is based on the specific identification method.
Sales of securities for the years ended December 31 are summarized below
(dollars in millions).
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Fixed maturities:
Cash proceeds............................................. $341 $364 $287
Gross realized gains...................................... 3 3 3
Gross realized losses..................................... 1 1 3
Equity securities:
Cash proceeds............................................. $308 $249 $135
Gross realized gains...................................... 77 76 27
Gross realized losses..................................... 30 10 13
</TABLE>
NOTE 11 -- LONG TERM DEBT
A summary of long-term debt at December 31 (including related interest
rates for 1998) follows (dollars in millions):
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Senior collateralized debt (rates generally fixed, averaging
9.7%) payable in periodic installments through 2034....... $ 196 $ 247
Senior debt (rates generally fixed, averaging 7.7%) payable
in periodic installments through 2095..................... 4,193 4,283
Bank term loans (floating rates, averaging 6.8%)............ 1,741 --
Bank credit agreements (floating rates, averaging 6.4%)..... 500 4,755
Subordinated debt (rates generally fixed, averaging 6.9%)
payable in periodic installments through 2015............. 123 123
------ ------
Total debt, average life of eleven years (rates averaging
7.4%)..................................................... 6,753 9,408
Less amounts due within one year............................ 1,068 132
------ ------
$5,685 $9,276
====== ======
</TABLE>
Credit Facilities
The Company's revolving credit facility (the "Credit Facility") is
comprised of a $2.0 billion, five-year revolving credit agreement expiring
February 2002. As of December 31, 1998, the Company had $500 million outstanding
under the Credit Facility.
As of February 1999, interest is payable generally at either LIBOR plus
.45% to 1.50% (depending on the Company's credit ratings), the prime lending
rate or a competitive bid rate. The Credit Facility contains customary covenants
which include (i) a limitation on debt levels, (ii) a limitation on sales of
assets, mergers and changes of ownership and (iii) maintenance of minimum
interest coverage ratios.
Significant Financing Activities
1998
During June 1998, the Company's 364 day credit facility was converted into
a one-year term loan maturing in June 1999. The one year term loan, which had a
balance of $741 million at December 31, 1998, was paid off in its entirety in
February 1999.
In July 1998, the Company entered into a $1.0 billion term loan agreement
with several banks which matures in February 2002. Proceeds from the $1.0
billion term loan were used to reduce other borrowings.
F-18
<PAGE> 78
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- LONG TERM DEBT (CONTINUED)
Significant Financing Activities (Continued)
In February 1998, the Company's senior debt rating was downgraded from Baa2
to Ba2 and from BBB+ to BBB- by Moody's Investors Service ("Moody's") and Fitch
IBCA. In February 1999, Standard & Poor's ("S&P") downgraded the Company's
senior debt rating from BBB to BB+. Commercial paper and subordinated debt
ratings were downgraded in similar fashion.
1997
During 1997, the Company's senior debt credit ratings were downgraded from
A2 to Baa2 and from A- to BBB by Moody's and S&P, respectively. The Company's
commercial paper ratings were downgraded from P-1 to P-3 and from A-2 to A-3 by
Moody's and S&P, respectively. The decline in the Company's commercial paper
ratings significantly limited access to this financing source. As such, during
the third quarter of 1997, the Company began replacing amounts outstanding under
its commercial paper programs with borrowings under its bank credit facilities.
In June 1997, Columbia/HCA issued $200 million of 7.00% notes due 2007.
1996
During 1996, Columbia/HCA issued $100 million of 6.875% notes due 2001;
$200 million of 7.25% notes due 2008 and $100 million of 7.75% debentures due
2036.
General Information
Maturities of long-term debt in years 2000 through 2003 (excluding
borrowings under the Credit Facility) are $669 million, $628 million, $512
million and $337 million, respectively.
The estimated fair value of the Company's long-term debt was $6.7 billion
and $9.5 billion at December 31, 1998 and 1997, respectively, compared to
carrying amounts aggregating $6.8 billion and $9.4 billion, respectively. The
estimates of fair value are based upon the quoted market prices for the same or
similar issues of long-term debt with the same maturities.
NOTE 12 -- CONTINGENCIES
Significant Legal Proceedings
Various lawsuits, claims and legal proceedings (see Note
2 -- Investigations and Part I, Item 3: Legal Proceedings, for descriptions of
the ongoing government investigations and other legal proceedings) have been and
are expected to be instituted or asserted against the Company, including those
relating to shareholder derivative and class action complaints; class action
lawsuits filed by patients and payers alleging, in general, improper and
fraudulent billing, coding and physician referrals, as well as other violations
of law; certain qui tam or "whistleblower" actions alleging, in general,
unlawful claims for reimbursement or unlawful payments to physicians for the
referral of patients and other violations and litigation matters. In certain of
these actions the claimants may seek punitive damages against the Company, which
are usually not covered by insurance. While the amounts claimed may be
substantial, the ultimate liability cannot be determined or reasonably estimated
at this time due to the considerable uncertainties that exist. Therefore, it is
possible that results of operations, financial position and liquidity in a
particular period could be materially, adversely affected upon the resolution of
certain of these contingencies.
F-19
<PAGE> 79
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12 -- CONTINGENCIES (CONTINUED)
General Liability Claims
The Company is subject to claims and suits arising in the ordinary course
of business, including claims for personal injuries or wrongful restriction of,
or interference with, physicians' staff privileges. It is management's opinion
that the ultimate resolution of pending claims and legal proceedings will not
have a material adverse effect on the Company's results of operations or
financial position.
NOTE 13 -- CAPITAL STOCK AND STOCK REPURCHASES
Capital Stock
The terms and conditions associated with each class of Columbia/HCA common
stock are substantially identical except for voting rights. All nonvoting common
stockholders may convert their shares on a one-for-one basis into voting common
stock, subject to certain limitations. In addition, certain voting common
stockholders may convert their shares on a one-for-one basis into nonvoting
common stock.
On May 15, 1997, the Board of Directors of the Company authorized the
redemption of all outstanding preferred stock purchase rights. The redemption
price of $.01 per share was paid on September 1, 1997 and was distributed to
stockholders along with the quarterly dividend.
Stock Repurchase Program
In February 1999, the Company announced that its Board of Directors has
authorized the repurchase of up to an additional $1 billion of its common stock.
The Company expects to repurchase its shares through open market purchases,
privately negotiated transactions or through a series of accelerated or forward
purchase contracts.
In July 1998, the Company announced a stock repurchase program under which
up to $1 billion of the Company's common stock would be repurchased, primarily
by entering into a series of forward purchase contracts. Approximately 44
million shares have been purchased at an average cost of approximately $22.65
per share. The majority of these shares were purchased by certain financial
organizations through a series of forward purchase contracts. In accordance with
the terms of the forward purchase contracts which permit settlement on a net
shares basis, the shares purchased remain issued and outstanding until the
forward purchase contracts are settled. The Company expects the forward purchase
contracts will be settled during the first and second quarters of 1999.
In connection with the Company's share repurchase programs, the Company has
recently entered into a Letter of Credit Agreement (the "LOC Agreement") with
the United States Department of Justice (the "DOJ"). As part of the LOC
Agreement, the Company will provide the DOJ with Letters of Credit totaling $1
billion. The LOC Agreement also provides that the Company's repurchase program
announced in February 1999 may be made, at the Company's discretion, through
open market purchases or privately negotiated transactions. The Company and the
DOJ acknowledge that the amount in the LOC Agreement is not based upon the
amount or expected amount of any potential settlement. The LOC Agreement does
not constitute an admission of liability by the Company.
The Company announced in April 1997 that the Company's Board of Directors
authorized the repurchase of up to $1 billion of the Company's common stock. At
December 31, 1997, the Company had completed the repurchase program by acquiring
approximately 29.4 million shares. Repurchased shares are available for
reissuance for general corporate purposes.
F-20
<PAGE> 80
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13 -- CAPITAL STOCK AND STOCK REPURCHASES (CONTINUED)
Other Stock Repurchases
The Board of Directors has authorized the Company to repurchase shares to
be used for stock issuances related to the Company's employee stock benefit
plans. During 1997, the Company repurchased approximately 8.5 million shares (at
a cost of approximately $273 million) to fund employee stock benefit plan
issuances.
NOTE 14 -- STOCK BENEFIT PLANS
The Columbia/HCA Healthcare Corporation 1992 Stock and Incentive Plan (the
"1992 Plan") is the primary plan under which options to purchase common stock
may be granted to officers, employees and directors. In May 1996, the
stockholders approved an amendment to the 1992 Plan which increased the number
of options authorized to 60,000,000 of which 19,062,000 are available for grant
at December 31, 1998. Under the 1992 Plan, options are generally granted at no
less than market price on the date of grant. Options are exercisable in whole or
in part beginning one to five years after the grant and ending ten years after
the grant.
In October 1997, the Compensation Committee of the Company's Board of
Directors modified and amended the 1992 Plan agreements to provide for immediate
and 100% vesting upon a "change of control" (as defined in the amendment) of the
Company. The amendment is applicable for all options available for grant as well
as all options previously issued under the 1992 Plan.
In the past, Columbia/HCA has had various other plans under which options
to purchase common stock have been granted to officers, employees and directors.
Generally, options have been granted at no less than the market price on the
date of grant. Exercise provisions vary, but most options are exercisable in
whole or in part beginning two to four years after the grant and ending four to
fifteen years after grant.
Information regarding these option plans for 1998, 1997 and 1996 is
summarized below (share amounts in thousands):
<TABLE>
<CAPTION>
STOCK OPTION PRICE PER WEIGHTED AVERAGE
OPTIONS SHARE EXERCISE PRICE
------- ---------------- ----------------
<S> <C> <C> <C>
Balances, December 31, 1995................. 26,384 $0.14 to 38.11 $ 19.87
Granted................................... 10,446 26.58 to 38.92 37.13
Exercised................................. (4,329) 0.14 to 35.25 13.27
Cancelled................................. (3,034) 0.40 to 38.11 26.87
-------
Balances, December 31, 1996................. 29,467 0.14 to 38.92 26.23
Granted................................... 23,111 26.42 to 43.50 33.68
Conversion of Value Health Stock
Options................................ 3,189 7.11 to 62.72 32.93
Exercised................................. (4,138) 0.14 to 37.67 16.72
Cancelled................................. (6,614) 0.40 to 55.61 33.70
-------
Balances, December 31, 1997................. 45,015 0.14 to 62.72 30.18
Granted................................... 7,092 22.25 to 33.94 26.57
Exercised................................. (1,629) 0.40 to 32.50 18.59
Cancelled................................. (9,819) 0.14 to 62.72 32.87
-------
Balances, December 31, 1998................. 40,659 0.14 to 43.25 29.36
=======
</TABLE>
F-21
<PAGE> 81
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14 -- STOCK BENEFIT PLANS (CONTINUED)
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Weighted average fair value for options
granted during the year................... $ 8.81 $ 11.98 $ 13.47
Options exercisable.......................... 10,757 8,892 7,552
Options available for grant.................. 19,323 18,436 35,613
</TABLE>
The following table summarizes information regarding the options
outstanding at December 31, 1998 (share amounts in thousands):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ ----------------------
WEIGHTED
AVERAGE WEIGHTED NUMBER WEIGHTED
NUMBER REMAINING AVERAGE EXERCISABLE AVERAGE
RANGE OF OUTSTANDING CONTRACTUAL EXERCISE AT EXERCISE
EXERCISE PRICES AT 12/31/98 LIFE PRICE 12/31/98 PRICE
--------------- ----------- ----------- -------- ----------- --------
<C> <S> <C> <C> <C> <C> <C>
$9.72 to $38.11................. 155 1 year $17.35 154 $17.36
7.73 to 37.13.................. 1,922 4 years 12.81 1,907 12.82
0.14 to 28.92.................. 3,937 5 years 18.82 3,221 17.26
26.42 to 32.50.................. 4,425 6 years 27.49 2,288 27.50
30.73 to 38.47.................. 6,301 7 years 37.03 1,757 37.02
12.86 to 43.25.................. 23,806 9 years 30.97 1,317 27.80
0.14... .......................... 113 15 years 0.14 113 0.14
------ ------
40,659 10,757
====== ======
</TABLE>
The Company has an Employee Stock Purchase Plan ("ESPP") which provides an
opportunity to purchase shares of its common stock at a discount (through
payroll deductions over six month intervals) to substantially all employees.
Shares of common stock reserved for the Company's employee stock purchase plan
were 4,378,000 at December 31, 1998.
The Company applies the provisions of APB 25 in accounting for its stock
options and stock purchase plans, and accordingly, compensation cost is not
recognized in the consolidated statements of operations. As required by
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), the Company has determined the pro forma net income
(loss) and earnings (loss) per share as if compensation cost for the Company's
employee stock option and stock purchase plans had been determined based upon
their fair value at the grant date. These pro forma amounts are as follows
(dollars in millions, except per share amounts):
<TABLE>
<CAPTION>
1998 1997 1996
---- ----- ------
<S> <C> <C> <C>
Net income (loss):
As reported............................................... $379 $(305) $1,505
Pro forma................................................. 346 (344) 1,471
Basic earnings (loss) per share:
As reported............................................... $.59 $(.46) $ 2.24
Pro forma................................................. .54 (.52) 2.19
Diluted earnings (loss) per share:
As reported............................................... $.59 $(.46) $ 2.22
Pro forma................................................. .54 (.52) 2.17
</TABLE>
The pro forma impact only takes into account employee stock options granted
since January 1, 1995 and is likely to increase in future years as additional
options are granted and amortized ratably over the vesting period.
F-22
<PAGE> 82
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 14 -- STOCK BENEFIT PLANS (CONTINUED)
For SFAS 123 purposes, the weighted average fair values of the Company's
stock options granted in 1998, 1997 and 1996 were $8.81, $11.98 and $13.47 per
share, respectively. The fair values were estimated using the Black-Scholes
option valuation model with the following weighted average assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Risk-free interest rate..................................... 4.75% 5.61% 5.81%
Expected volatility......................................... .24 .24 .24
Expected life, in years..................................... 6 6 6
Expected dividend yield..................................... .30% .23% .19%
</TABLE>
The pro forma compensation cost related to the shares of common stock
issued under the ESPP was $13 million, $14 million and $19 million for the years
1998, 1997 and 1996, respectively. These pro forma costs were estimated based on
the difference between the price paid and the fair market value of the stock on
the last day of the subscription period.
NOTE 15 -- EMPLOYEE BENEFIT PLANS
Columbia/HCA maintains noncontributory, defined contribution retirement
plans covering substantially all employees. Benefits are determined as a
percentage of a participant's earned income and are vested over specified
periods of employee service. Retirement plan expense was $170 million for 1998,
$194 million for 1997 and $164 million for 1996. Amounts approximately equal to
retirement plan expense are funded annually.
Columbia/HCA maintains various contributory benefit plans which are
available to employees who meet certain minimum requirements. Certain of the
plans require that Columbia/HCA match an amount ranging from 25% to 100% of a
participant's contribution up to certain maximum levels. The cost of these plans
totaled $21 million for 1998, $19 million for 1997 and $18 million for 1996.
Columbia/HCA contributions are funded periodically during each year.
NOTE 16 -- SEGMENT AND GEOGRAPHIC INFORMATION
Columbia/HCA operates in one line of business which is operating hospitals
and related health care entities. During the years ended December 31, 1998, 1997
and 1996, approximately 30%, 34% and 35%, respectively, of the Company's
revenues related to patients participating in the Medicare program.
In November 1997, Columbia/HCA restructured its operations into five
divisions which are organized geographically. Included in these five divisions
are the East Group made up of 109 consolidated hospitals located in the Eastern
United States and the West Group made up of 97 consolidated hospitals located in
the Western United States. These two divisions make up the Company's core
operations and are typically located in urban areas that are characterized by
highly integrated facility networks. The America Group includes 23 consolidated
hospitals which are located in non-urban areas where, in almost every case the
hospital is the only hospital in the community. The Pacific Group includes 38
consolidated hospitals, approximately three-quarters of which are located in
small cities, generally in the Southern, Western and Southwestern United States
where the hospital is usually the only hospital or one of two hospitals in the
community, and the remainder of Pacific's facilities are located in larger urban
areas typically characterized by a high rate of population growth. Columbia/HCA
has now determined to establish the America Group and the Pacific Group as two
independent, publicly-traded companies. See Note 3-Restructuring of Operations.
The Atlantic Group includes 13 hospitals which are not located in the Company's
core markets and are currently held for sale.
F-23
<PAGE> 83
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 16 -- SEGMENT AND GEOGRAPHIC INFORMATION (CONTINUED)
The geographic distributions of the Company's revenues, EBITDA and assets
are summarized in the following table (EBITDA is defined as income from
continuing operations before depreciation and amortization, interest expense,
gains on sales of facilities, impairment of long-lived assets, restructuring of
operations and investigation related costs, minority interests and income taxes)
(dollars in millions):
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Revenues:
East Group........................................... $ 7,784 $ 7,705 $ 7,714
West Group........................................... 6,853 6,616 6,427
Pacific Group........................................ 1,589 1,609 1,600
America Group........................................ 498 488 464
Atlantic Group....................................... 1,600 2,017 2,035
Corporate and other.................................. 357 384 546
------- ------- -------
$18,681 $18,819 $18,786
======= ======= =======
EBITDA:
East Group........................................... $ 1,590 $ 1,485 $ 1,939
West Group........................................... 998 1,047 1,549
Pacific Group........................................ 149 188 294
America Group........................................ 57 82 111
Atlantic Group....................................... 35 142 277
Corporate and other.................................. 39 (93) 44
------- ------- -------
$ 2,868 $ 2,851 $ 4,214
======= ======= =======
Assets:
East Group........................................... $ 7,030 $ 6,985 $ 7,257
West Group........................................... 7,124 6,685 6,856
Pacific Group........................................ 1,371 1,411 1,426
America Group........................................ 355 398 376
Atlantic Group....................................... 553 1,528 1,694
Corporate and other.................................. 2,996 4,995 3,507
------- ------- -------
$19,429 $22,002 $21,116
======= ======= =======
</TABLE>
NOTE 17 -- OTHER COMPREHENSIVE INCOME
The following table sets forth the components of other comprehensive
income, along with their respective income taxes (benefits) and the
reclassification adjustments needed to exclude the portion of other
comprehensive income already included in net income (loss), (dollars in
millions):
<TABLE>
<CAPTION>
INCOME
PRETAX TAXES AFTER-TAX
AMOUNT (BENEFITS) AMOUNT
------ ---------- ---------
<S> <C> <C> <C>
1998
Unrealized gains (losses) on securities:
Unrealized holding gains arising during the
period........................................... $ 45 $ 17 $ 28
Less: reclassification adjustment for gains
realized in net income........................... (64) (23) (41)
---- ---- ----
Net unrealized losses.............................. (19) (6) (13)
Foreign currency translation adjustments.............. 1 -- 1
---- ---- ----
Other comprehensive loss......................... $(18) $ (6) $(12)
==== ==== ====
</TABLE>
F-24
<PAGE> 84
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 17 -- OTHER COMPREHENSIVE INCOME (CONTINUED)
<TABLE>
<CAPTION>
INCOME
PRETAX TAXES AFTER-TAX
AMOUNT (BENEFITS) AMOUNT
------ ---------- ---------
<S> <C> <C> <C>
1997
Unrealized gains on securities:
Unrealized holding gains arising during the
period........................................... $147 $ 51 $ 96
Less: reclassification adjustment for gains
realized in net income........................... (91) (33) (58)
---- ---- ----
Net unrealized gains............................... 56 18 38
Foreign currency translation adjustments:
Unrealized translation adjustments arising during
the period....................................... 16 6 10
Less: reclassification adjustment for gains
realized in net income........................... (13) (5) (8)
---- ---- ----
Net unrealized translation adjustments............. 3 1 2
---- ---- ----
Other comprehensive income....................... $ 59 $ 19 $ 40
==== ==== ====
1996
Unrealized gains on securities:
Unrealized holding gains arising during the
period........................................... $ 53 $ 20 $ 33
Less: reclassification adjustment for gains
realized in net income........................... (14) (5) (9)
---- ---- ----
Net unrealized gains............................... 39 15 24
Foreign currency translation adjustments.............. (10) (4) (6)
---- ---- ----
Other comprehensive income....................... $ 29 $ 11 $ 18
==== ==== ====
</TABLE>
NOTE 18 -- ACCRUED EXPENSES AND ALLOWANCES FOR DOUBTFUL ACCOUNTS
A summary of other accrued expenses at December 31 follows (in millions):
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Employee benefit plans...................................... $ 211 $ 234
Workers compensation........................................ 63 105
Taxes other than income..................................... 182 209
Professional liability risks................................ 200 200
Interest.................................................... 229 194
Other....................................................... 397 295
------ ------
$1,282 $1,237
====== ======
</TABLE>
A summary of activity in the Company's allowances for doubtful accounts
follows (in millions):
<TABLE>
<CAPTION>
PROVISION ACCOUNTS
BALANCES AT FOR WRITTEN OFF, BALANCES
BEGINNING DOUBTFUL NET OF AT END
OF YEAR ACCOUNTS RECOVERIES OF YEAR
----------- --------- ------------ --------
<S> <C> <C> <C> <C>
Allowances for doubtful accounts:
Year-ended December 31, 1996............. $ 1,165 $ 1,196 $ (981) $ 1,380
Year-ended December 31, 1997............. 1,380 1,420 (1,139) 1,661
Year-ended December 31, 1998............. 1,661 1,442 (1,458) 1,645
</TABLE>
F-25
<PAGE> 85
COLUMBIA/HCA HEALTHCARE CORPORATION
QUARTERLY CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1998
---------------------------------------
FIRST SECOND THIRD FOURTH
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues.................................................... $4,901 $4,781 $4,579 $4,420
Net income (loss):
Income (loss) from continuing operations.................. $ 219 $ 173 $ 163(b) $ (23)(c)
Loss from discontinued operations......................... (22) (95)(a) (17) (19)
------ ------ ------ ------
Net income (loss)................................... $ 197 $ 78 $ 146 $ (42)
====== ====== ====== ======
Basic earnings (loss) per share:
Income (loss) from continuing operations.................. $ .34 $ .27 $ .25 $ (.04)
Loss from discontinued operations......................... (.03) (.15) (.03) (.02)
------ ------ ------ ------
Net income (loss)................................... $ .31 $ .12 $ .22 $ (.06)
====== ====== ====== ======
Diluted (loss) earnings per share:
Income (loss) from continuing operations.................. $ .34 $ .27 $ .25 $ (.04)
Loss from discontinued operations......................... (.03) (.15) (.03) (.02)
------ ------ ------ ------
Net Income (loss)................................... $ .31 $ .12 $ .22 $ (.06)
====== ====== ====== ======
Cash dividends.............................................. $ .02 $ .02 $ .02 $ .02
Market prices:
High...................................................... $32.50 $34.63 $32.44 $27.25
Low....................................................... 24.13 27.75 19.88 17.00
</TABLE>
<TABLE>
<CAPTION>
1997
----------------------------------------
FIRST SECOND THIRD FOURTH
------ ------ ------ -------
<S> <C> <C> <C> <C>
Revenues.................................................... $4,988 $4,845 $4,612 $ 4,374
Net income (loss):
Income (loss) from continuing operations(d)............... $ 455 $ 385 $ 91 $ (749)
Income (loss) from discontinued operations(e)............. 24 27 6 (488)
Cumulative effect of accounting changes................... (56) -- -- --
------ ------ ------ -------
Net income (loss)......................................... $ 423 $ 412 $ 97 $(1,237)
====== ====== ====== =======
Basic earnings (loss) per share:
Income (loss) from continuing operations.................. $ .67 $ .58 $ .15 $ (1.16)
Income (loss) from discontinued operations................ .04 .04 .01 (.76)
Cumulative effect of accounting changes................... (.08) -- -- --
------ ------ ------ -------
Net income (loss)................................... $ .63 $ .62 $ .16 $ (1.92)
====== ====== ====== =======
Diluted earnings (loss) per share:
Income (loss) from continuing operations.................. $ .66 $ .58 $ .15 $ (1.16)
Income (loss) from discontinued operations................ .04 .04 .01 (.76)
Cumulative effect of accounting changes................... (.08) -- -- --
------ ------ ------ -------
Net income (loss)................................... $ .62 $ .62 $ .16 $ (1.92)
====== ====== ====== =======
Cash dividends.............................................. $ .02 $ .02 $ .01 $ .02
Redemption of preferred stock purchase rights............... -- -- .01 --
Market prices(f):
High...................................................... $44.88 $40.00 $40.44 $ 32.13
Low....................................................... 31.25 30.38 26.63 25.75
</TABLE>
- ---------------
(a) Second quarter loss from discontinued operations includes a $73 million
($.11 per basic and diluted share) adjustment to the tax benefit on the loss
incurred upon completion of the disposal of discontinued operations (see
NOTE 5 of the Notes to Consolidated Financial Statements).
(b) Third quarter results include $242 million ($.38 per basic and diluted
share) of gains on sales of facilities, $197 million ($.31 per basic and
diluted share) of charges related to the impairment of long-lived assets and
$13 million ($.02 per basic and diluted share) of costs related to
restructuring and the investigation (see NOTE 3 and NOTE 4 of the Notes to
Consolidated Financial Statements).
(c) Fourth quarter results include $123 million ($.19 per basic and diluted
share) of gains on sales of facilities, $152 million ($.23 per basic and
diluted share) of charges related to the impairment of long-lived assets and
$21 million ($.04 per basic and diluted share) of costs related to
restructuring and the investigation (see NOTE 3 and NOTE 4 of the Notes to
Consolidated Financial Statements).
(d) Fourth quarter results include $290 million ($.45 per basic and diluted
share) of charges related to the impairment of long-lived assets and $55
million ($.08 per basic and diluted share) of costs related to restructuring
and the investigation (see NOTE 3 of the Notes to Consolidated Financial
Statements).
(e) Fourth quarter results include $443 million ($.69 per basic and diluted
share) of charges related to the estimated loss on disposal of discontinued
businesses (see NOTE 5 of the Notes to Consolidated Financial Statements).
(f) Represents high and low sales prices of the Company's common stock which is
traded on the New York Stock Exchange (ticker symbol COL).
F-26
<PAGE> 1
EXHIBIT 10.7(b)
AMENDED AND RESTATED COLUMBIA/HCA HEALTHCARE CORPORATION
1992 STOCK AND INCENTIVE PLAN
1. Purpose of Plan.
This Plan shall be known as the "Amended and Restated
Columbia/HCA Healthcare Corporation 1992 Stock and Incentive Plan" and is
hereinafter referred to as the "Plan." The purpose of the Plan is to aid in
maintaining and developing personnel capable of assuring the future success of
Columbia/HCA Healthcare Corporation, a Delaware corporation (the "Company"), to
offer such personnel additional incentives to put forth maximum efforts for the
success of the business, and to afford them an opportunity to acquire a
proprietary interest in the Company through stock options and restricted stock
awards as provided herein. Options granted under this Plan may be either
incentive stock options ("Incentive Stock Options") within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
options which do not qualify as Incentive Stock Options.
2. Stock Subject to Plan.
Subject to the provisions of Section 7 hereof, the stock to
be subject to options and restricted stock awards under the Plan shall be the
Company's authorized Common Stock, par value $.01 per share (the "Common
Stock"). Such shares may be either authorized but unissued shares or issued
shares which have been reacquired by the Company. Subject to adjustment as
provided in Section 7 hereof, the maximum number of shares which may be issued
pursuant to options and other awards under this Plan shall be 60,000,000
shares. If an option or restricted stock award under the Plan is canceled,
terminates, expires unexercised or is exchanged for other options without the
issuance of shares of Common Stock, the shares of Common Stock shall, to the
extent of such termination or nonuse, again be available for options and
restricted stock awards thereafter granted during the term of the Plan. Any
shares issued by the Company in connection with the assumption or substitution
of outstanding grants from any acquired corporation shall not reduce the shares
available for option grants and restricted stock awards under the Plan.
3. Administration of Plan.
(a) The Plan shall be administered by a Committee (the
"Committee") of two or more directors of the Company, none of whom shall be
officers or employees of the Company and all of whom shall be "disinterested
persons" with respect to the Plan within the meaning of Rule 16b-3(c)(2)(i)
under the Securities Exchange Act of 1934 as in effect on the date this Plan is
adopted by the Board of Directors. The members of the Committee shall be
appointed by and serve at the pleasure of the Board of Directors.
(b) The Committee shall have plenary authority in its
discretion, but subject to the express provisions of the Plan: (i) to determine
the purchase price of the Common Stock covered by each option, (ii) to
determine the persons to whom and the time or times at which such options
<PAGE> 2
or restricted stock awards shall be granted and the number of shares to be
subject to each option or restricted stock award, (iii) to determine the terms
of exercise of each option or receipt of each restricted stock award, (iv) to
accelerate the time at which all or any part of an option may be exercised or
an award may be received, (v) to amend or modify the terms of any option or
award with the consent of the holder of the option or other award, (vi) to
interpret the Plan, (vii) to prescribe, amend and rescind rules and regulations
relating to the Plan, (viii) to determine the terms and provisions of each
option or award agreement under the Plan (any of which agreements need not be
identical), including the designation of those options intended to be Incentive
Stock Options, and (ix) to make all other determinations necessary or advisable
for the administration of the Plan, subject to the exclusive authority of the
Board of Directors under Section 8 herein to amend or terminate the Plan. The
Committee's determinations on the foregoing matters shall be final and
conclusive.
(c) The Committee shall select one of its members as its
Chairperson and shall hold its meetings at such times and places as it may
determine. A majority of its members shall constitute a quorum. All
determinations of the Committee shall be made by not less than a majority of
its members. Any decision or determination reduced to writing and signed by all
of the members of the Committee shall be fully effective as if it had been made
by a majority vote at a meeting duly called and held. The exercise of an option
or receipt of an award shall be effective only if a written agreement shall
have been duly executed and delivered by and on behalf of the Company following
the grant of the option or other award. The Committee may appoint a Secretary
and may make such rules and regulations for the conduct of its business as it
shall deem advisable.
4. Options.
(a) Eligibility. Incentive Stock Options may only be
granted under this Plan to any full or part-time employee (which term as used
herein includes, but is not limited to, officers and directors who are also
employees) of the Company and of its present and future subsidiary corporations
(herein called "subsidiaries"). Any full or part-time employee of the Company
and of its subsidiaries, any full or part-time employee of an affiliated
partnership of the Company, and consultants or independent contractors
providing valuable services to the Company, one of its subsidiaries or one of
its affiliated partnerships who are not also employees thereof, shall be
eligible to receive options which do not qualify as Incentive Stock Options. In
determining the persons to whom options shall be granted and the number of
shares subject to each option, the Committee may take into account the nature
of services rendered by the respective persons, their present and potential
contributions to the success of the Company and such other factors as the
Committee in its discretion shall deem relevant. A person who has been granted
an option under this Plan may be granted an additional option or options under
the Plan if the Committee shall so determine, provided, however, that to the
extent the aggregate fair market value (determined at the time the Incentive
Stock Option is granted) of the Common Stock with respect to which all
Incentive Stock Options are exercisable for the first time by an employee
during any calendar year (under all plans described in subsection (d) of
Section 422 of the Code of his or her employer corporation and its parent and
subsidiary
2
<PAGE> 3
corporations) exceeds $100,000, such options shall be treated as options which
do not qualify as Incentive Stock Options. Notwithstanding the foregoing,
during the term of this Plan no person shall be granted options in respect of
more than an aggregate of 10% of the shares of Common Stock authorized under
this Plan.
(b) Exercise Price. The option price for all Incentive
Stock Options granted under the Plan shall be determined by the Committee but
shall not be less than 100% of the fair market value of the Common Stock at the
date of granting such option. The option price for options granted under the
Plan which do not qualify as Incentive Stock Options shall also be determined
by the Committee but may not be less than 50% of the fair market value of the
Common Stock at the date of granting of such option. For purposes of the
preceding two sentences and for all other valuation purposes under the Plan,
the fair market value of the Common Stock shall be as reasonably determined by
the Committee, but shall not be less than (i) the closing price of the stock as
reported for composite transactions, if the Common Stock is then traded on a
national securities exchange, (ii) the last sale price if the Common Stock is
then quoted on the NASDAQ National Market System or (iii) the average of the
closing representative bid and asked prices of the Common Stock as reported on
NASDAQ on the date as of which fair market value is being determined. If on the
date of grant of any option granted under the Plan, the Common Stock of the
Company is not publicly traded, the Committee shall make a good faith attempt
to satisfy the option price requirement of this Section 4(b) and in connection
therewith shall take such action as it deems necessary or advisable.
(e) Term. Each option and all rights and obligations
thereunder shall, subject to the provisions of Section 4(f), expire on the date
determined by the Committee and specified in the option agreement. The
Committee shall be under no duty to provide terms of like duration for options
granted under the Plan, but the term of an Incentive Stock Option may not
extend more than ten (10) years from the date of granting of such option and
the term of options granted under the Plan which do not qualify as Incentive
Stock Options may not extend more than fifteen (15) years from the date of
granting of such option.
(d) Exercise.
(i) The Committee shall have full and complete
authority to determine, subject to Section 4(f) herein, whether the option will
be exercisable in full at any time or from time to time during the term of the
option, or to provide for the exercise thereof in such installments, upon the
occurrence of such events and at such times during the term of the option as
the Committee may determine.
(ii) The exercise of any option granted
hereunder shall be effective only at such time as the sale of Common Stock
pursuant to such exercise will not violate any state or federal securities or
other laws.
(iii) An optionee electing to exercise an option
shall give written notice to the Company of such election and of the number of
shares subject to such exercise. The full purchase price of such shares shall
be tendered with such notice of exercise. Payment shall be made to the Company
in cash (including bank check, certified check, personal check, or money
order), or,
3
<PAGE> 4
at the discretion of the Committee and as specified by the Committee, (A) by
delivering certificates for the Company's Common Stock already owned by the
optionee having a fair market value as of the date of exercise equal to the
full purchase price of the shares, together with any applicable withholding
taxes, or (B) a combination of cash and such shares; provided, however, that an
optionee shall not be entitled to tender shares of the Company's Common Stock
pursuant to successive, substantially simultaneous exercises of options granted
under this or any other stock option plan of the Company. The fair market value
of such tendered shares shall be determined as provided in Section 4(b) herein.
The Committee may also, in its sole discretion, permit option holders to
deliver a notice of exercise of options and simultaneously to sell the shares
of Common Stock thereby acquired pursuant to a brokerage or similar arrangement
approved in advance by proper officers of the Company, using the proceeds of
such sale as payment of the exercise price. Until such person has been issued
the shares subject to such exercise, he or she shall possess no rights as a
stockholder with respect to such shares.
(e) Accelerated Ownership Feature. An option may, in the
discretion of the Committee, include the right to acquire an accelerated
ownership stock option ("AO Option"). An option which provides for the grant of
an AO Option shall entitle the option holder upon exercise of that option and
payment of the appropriate exercise price in shares of Common Stock that have
been owned by such option holder for not less than six months prior to the date
of exercise, to receive an AO Option. An AO Option is an option to purchase, at
fair market value at the date of grant of the AO Option, a number of shares of
Common Stock equal to the sum of the number of whole shares delivered by the
option holder in payment of the exercise price of the original option and the
number of whole shares, if any, withheld by the Company as payment for
withholding taxes. An AO Option shall expire on the same date that the original
option would have expired had it not been exercised. All AO Options shall be
nonqualified options.
(f) Effect of Termination of Employment or Death.
(i) In the event that an optionee shall cease
to be employed by the Company, its subsidiaries or its affiliated partnerships,
if any, for any reason other than his or her serious misconduct or his or her
death or disability, such optionee shall have the right to exercise the option
to the extent of the full number of shares the optionee was entitled to
purchase under the option on the date of termination, as follows: (A) with
respect to an Incentive Stock Option, such optionee shall have the right to
exercise the option at any time within three (3) months after such termination
of employment, subject to the condition that no option shall be exercisable
after the expiration of the term of the option; and (B) with respect to an
option that does not qualify as an Incentive Stock Option, such optionee shall
have the right to exercise the option at any time within a period determined by
the Committee (which in no event shall be less than three months or more than
five years after such termination), subject to the condition that no option
shall be exercisable after the expiration of the term of the option.
(ii) In the event that an optionee shall cease
to be employed by the Company, its subsidiaries or its affiliated partnerships,
if any, by reason of his or her serious
4
<PAGE> 5
misconduct during the course of his or her employment, the option shall be
terminated as of the date of the misconduct.
(iii) If the optionee shall die while in the
employ of the Company, a subsidiary or an affiliated partnership, if any, or
within three (3) months after termination of employment, for any reason other
than serious misconduct, or if employment is terminated because the optionee
has become disabled (within the meaning of Code Section 22(e)(3)) while in the
employ of the Company, a subsidiary or an affiliated partnership, if any, and
such optionee shall not have fully exercised the option, such option may be
exercised at any time within a period determined by the Committee (which in no
event shall be less than three (3) months or more than five (5) years after his
or her death or date of termination of employment for such disability) by the
optionee, personal representatives, administrators, or guardians of the
optionee, as applicable, or by any person or persons to whom the option is
transferred by will or the applicable laws of descent and distribution, to the
extent of the full number of shares he or she was entitled to purchase under
the option on the date of death, termination of employment, if earlier, or date
of termination for such disability and subject to the condition that no option
shall be exercisable after the expiration of the term of the option.
(iv) The Committee may extend the period during
which an Incentive Stock Option is exercisable following termination of
employment beyond the maximum period set forth in Section 4(f)(i)(A) above up
to five (5) years after such termination of employment, subject to the
condition that no option shall be exercisable after the expiration of the term
of the option; provided, however, that in such event, such option or a portion
of such option may not qualify for treatment as an incentive stock option
within the meaning of Section 422 of the Code.
(v) Nothing in the Plan or in any agreement
thereunder shall confer on any employee any right to continue in the employ of
the Company, any of its subsidiaries or any of its affiliated partnerships or
affect, in any way, the right of the Company, any of its subsidiaries or any of
its affiliated partnerships to terminate his or her employment at any time.
(g) Ten Percent Stockholder Rule. Notwithstanding any
other provisions in the Plan, if at the time an option is otherwise to be
granted pursuant to the Plan the optionee owns directly or indirectly (within
the meaning of Section 424(d) of the Code) Common Stock of the Company
possessing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or its parent or subsidiary corporations,
if any (within the meaning of Section 422(b)(6) of the Code), then any
Incentive Stock Option to be granted to such optionee pursuant to the Plan
shall satisfy the requirements of Section 422(c)(5) of the Code, and the option
price shall be not less than 110% of the fair market value of the Common Stock
of the Company determined as described herein, and such option by its terms
shall not be exercisable after the expiration of five (5) years from the date
such option is granted.
(h) Nontransferability. No option granted under the Plan
shall be transferrable by an optionee, other than by will or the laws of
descent or distribution as provided in Section
5
<PAGE> 6
4(f)(iii) herein. During the lifetime of an optionee the option shall be
exercisable only by such optionee (except as provided in Section 4(f)(iii)
herein).
5. Restricted Stock Awards.
Awards of Common Stock subject to forfeiture and transfer
restrictions may be granted to any full or part-time employee of the Company,
any of its subsidiaries or any of its affiliated partnerships, at any time or
from time to time as determined by the Committee. The restricted stock awards
shall be evidenced by agreements in such form as the Committee shall from time
to time approve, which agreements shall comply with and be subject to the
following terms and conditions and any additional terms and conditions
established by the Committee that are consistent with the terms of the Plan:
(a) Grant of Restricted Stock Awards. Each restricted
stock award made under the Plan shall be for such number of shares of Common
Stock as shall be determined by the Committee and set forth in the agreement
containing the terms of such restricted stock award. Such agreement shall set
forth a period of time during which the grantee must remain in the continuous
employment of the Company in order for the forfeiture and transfer restrictions
to lapse. If the Committee so determines, the restrictions may lapse during
such restricted period in installments with respect to specified portions of
the shares covered by the restricted stock award. The agreement may also, in
the discretion of the Committee, set forth performance or other conditions that
will subject the shares to forfeiture and transfer restrictions. The Committee
may, at its discretion, waive all or any part of the restrictions applicable to
any or all outstanding restricted stock awards.
(b) Delivery of Common Stock and Restrictions. At the
time of a restricted stock award, a certificate representing the number of
shares of Common Stock awarded thereunder shall be registered in the name of
the grantee. Such certificate shall be held by the Company or any custodian
appointed by the Company for the account of the grantee subject to the terms
and conditions of the Plan, and shall bear such a legend setting forth the
restrictions imposed thereon as the Committee, in its discretion, may
determine. The grantee shall have all rights of a stockholder with respect to
the shares, including the right to receive dividends and the right to vote such
shares, subject to the following restrictions: (i) the grantee shall not be
entitled to delivery of the stock certificate until the expiration of the
restricted period and the fulfillment of any other restrictive conditions set
forth in the restricted stock agreement with respect to such shares; (ii) none
of the shares may be sold, assigned, transferred, pledged, hypothecated or
otherwise encumbered or disposed of during such restricted period or until
after the fulfillment of any such other restrictive conditions; and (iii)
except as otherwise determined by the Committee, all of the shares shall be
forfeited and all rights of the grantee to such shares shall terminate, without
further obligation on the part of the Company, unless the grantee remains in
the continuous employment of the Company for the entire restricted period in
relation to which such Common Stock was granted and unless any other
restrictive conditions relating to the restricted stock award are met. Any
Common Stock, any other securities of the Company and any other property
(except for cash dividends) distributed with
6
<PAGE> 7
respect to the shares of Common Stock subject to restricted stock awards shall
be subject to the same restrictions, terms and conditions as such restricted
shares of Common Stock.
(c) Termination of Restrictions. At the end of the
restricted period and provided that any other restrictive conditions of the
restricted stock award are met, or at such earlier time as otherwise determined
by the Committee, all restrictions set forth in the agreement relating to the
restricted stock award or in the Plan shall lapse as to the restricted shares
of Common Stock subject thereto, and a stock certificate for the appropriate
number of shares of Common Stock, free of the restrictions and restricted stock
legend, shall be delivered to the grantee or his or her beneficiary or estate,
as the case may be.
6. Tax Withholding.
The Company shall have the right to deduct from any
settlement, including the delivery or vesting of shares, made under the Plan
any federal, state or local taxes of any kind required by law to be withheld
with respect to such payments or to take such other action as may be necessary
in the opinion of the Company to satisfy all obligations for the payment of
such taxes. If Common Stock is used to satisfy tax withholding, such stock
shall be valued based on the fair market value of such Common Stock when the
tax withholding is required to be made.
7. Dilution and Other Adjustments.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, stock split or other change in corporate
structure affecting the Common Stock, such substitution or adjustment shall be
made in the aggregate number of shares reserved for issuance under the Plan, in
the number and option price of shares subject to outstanding options granted
under the Plan, and in the number of shares subject to other outstanding awards
granted under the Plan as may be determined to be appropriate by the Committee,
in its sole discretion, provided that the number of shares subject to any award
shall always be a whole number.
8. Amendment or Discontinuance of Plan.
The Board of Directors of the Company may amend or
discontinue the Plan at any time. Subject to the provisions of Section 7, no
amendment of the Plan shall, without stockholder approval: (a) increase the
maximum number of shares under the Plan as provided in Section 2 herein, (b)
decrease the minimum option price provided in Section 4(b) herein, (c) extend
the maximum option term under Section 4(c), or (d) materially modify the
eligibility requirements for participation in the Plan. The above
notwithstanding, the Board of Directors may amend the Plan to take into account
changes in applicable securities, federal income tax laws and other applicable
laws. The Board of Directors shall not alter or impair any option other award
theretofore granted under the Plan without the consent of the holder of the
option or other award.
7
<PAGE> 8
9. Additional Restrictions.
The Committee shall have full and complete authority to
determine whether all or any part of the Common Stock of the Company acquired
upon exercise of any of the options or other awards granted under the Plan
shall be subject to restrictions on the transferability thereof or any other
restrictions affecting in any manner the recipient's rights with respect
thereto, but any such restriction shall be contained in the agreement relating
to such options or other awards.
10. Effective Date and Termination of Plan.
(a) The Plan was approved by the Board of Directors
effective as of March 3, 1992, and shall be approved by the stockholders of the
Company within twelve (12) months thereof.
(b) Unless the Plan shall have been discontinued as
provided in Section 8 hereof, the Plan shall terminate on March 3, 2002. No
option or other award may be granted after such termination, but termination of
the Plan shall not, without the consent of the holder of the option or other
award, alter or impair any rights or obligations under any option or other
award theretofore granted.
11. Limited Transferability.
(a) Notwithstanding any other provisions of this Plan
including, but not limited to, Section 4(h), an
optionee, if permitted by his or her option
agreement, may transfer options granted under this
Plan if the option(s) and/or the transfer meet the
following conditions:
(i) The option must be an option which is not
an Incentive Stock Option.
(ii) The option may only be transferred to the
optionee's immediate family, trusts
established solely for the benefit of the
optionee's immediate family or partnerships
of which the only partners are members of
the optionee's immediate family (a
"Permitted Transferee").
(A) "Immediate family" means the
optionee's children and
grandchildren, including adopted
children and grandchildren,
stepchildren, parents, stepparents,
grandparents, spouse, siblings
(including half brothers and
sisters), father-in-law,
mother-in-law, daughters-in-law and
sons-in-law.
8
<PAGE> 9
(B) A trust to which an option is
transferred must: be solely for the
benefit of immediate family
members; be irrevocable; preclude
the optionee from being or becoming
a beneficiary of such trust;
preclude the trustee from paying
the optionee or the optionee's
estate or personal representative
any principal or income to
reimburse the estate or personal
representative for any income tax
liability attributable to the
exercise of the option; preclude
the optionee or his or her spouse
from becoming a trustee of the
trust, voting any shares held by
the trust, exercising any powers of
appointment with respect to the
trust or any powers which would
cause the principal or income of
the trust to be included in the
optionee or the optionee's spouse's
income tax return or gross estate
under any section of the Code or
allow the optionee or the
optionee's spouse to remove or
replace any trustee of the trust.
(iii) The option may be vested or nonvested.
(iv) The Committee must consent to the transfer
on a case by case basis.
(v) The transfer must be for no consideration.
(vi) After the transfer, the transferee will
have sole responsibility for determining
whether and when to exercise the option(s).
(vii) Subsequent transfers of an Option
transferred under this Section 11 shall be
prohibited, other than by will or by the
laws of descent and distribution upon the
death of the transferee.
(viii) The options transferred must remain subject
to all of the other terms and conditions of
this Plan.
(b) Except as otherwise specifically provided in this
Section 11, the transferee of the option shall be
entitled to exercise all rights of an optionee under
this Plan after the transfer.
(c) With respect to options which have been granted
prior to the effective date of this amendment, the
Committee shall obtain the consent of the optionee
to amend the option agreement to include the
provisions of this amendment. Such amendment to the
option agreement must provide that the optionee will
no longer be required or permitted to consent to the
termination, modification or amendment of the Plan
with respect to such options.
9
<PAGE> 10
(d) If in the opinion of counsel to the Company the
transfer of an option under this Plan would
disqualify the option as an exempt performance-based
option under Section 162(m) of the Code.
10
<PAGE> 1
EXHIBIT 10.26
COLUMBIA/HCA HEALTHCARE CORPORATION DIRECTORS' FEES/COMPENSATION
(as revised May 14, 1998)
Amended and Restated Columbia/HCA Healthcare Corporation Outside Directors'
Stock and Incentive Compensation Plan
- - Outside directors have the choice of (i) receiving an annual retainer of
$40,000 payable in restricted stock that vests one year from the date of
grant; or (ii) receiving, in lieu of annual retainers for the next 5 years,
$200,000 in restricted stock units that vest annually over a 5-year period
at a rate 20% per year. Non-Employee Directors first elected after 1998
will be given the choice of a prorated award (for the portion of the 5-year
period they serve) or annual restricted stock retainers. In 1998,
Non-Employee directors will be granted stock options (exercisable at the
shares' fair market value on the date of grant) having an aggregate
exercise price equal to 12.5 times the annual retainer. This grant is in
lieu of an annual stock option grant for the next 5 years and will vest
over a 5-year period at a rate of 20% per year, commencing on the date of
grant.
Other Fees
- - Attendance fees of $1,200 per meeting are paid to non-employee directors
for all scheduled meetings of the Board.
- - Non-employee directors are paid a committee meeting fee of $1,000 per
meeting (Committee Chairpersons $1,200) if such meeting is not held in
conjunction with a regularly scheduled Board meeting. The Board of
Directors has Audit, Compensation, Executive, Finance and Investment,
Nominating and Ethics, Compliance and Corporate Responsibility Committees.
Columbia/HCA Healthcare Foundation, Inc. - Matching Gift Program
- - Effective for 1997 and subsequent years, the Company will match gifts
from each Director to organizations and programs exempt from taxation
(pursuant to Section 501(c)(3) of the Internal Revenue Code), including
civic, cultural, educational and health and human services institutions, on
a dollar-for-dollar basis, from a minimum of $500 per gift, up to an
aggregate maximum of $15,000 annually. The Matching Gift Program will be
administered by the Columbia/HCA Healthcare Foundation, Inc. To qualify for
a matching gift, contributions must be personal gifts from the Director's
own funds (including personal or family foundations and gifts made jointly
with spouses), paid in cash or securities. Pledges do not qualify for
matches. Directors who have retired from service on the Board may
participate in this program through the end of the first year following the
year in which retirement was effective. The Company reserves the right to
determine whether gifts to organizations are within certain guidelines for
qualification for matching.
<PAGE> 1
EXHIBIT 10.31
SEPARATION AGREEMENT
AND GENERAL RELEASE
This Agreement is entered into this 1st day of July, 1998, by and
between Dan Moen (hereinafter "Employee") and Galen Health Care, Inc.
(hereinafter "Company") and replaces the original agreement dated September 12,
1997 and amendment dated February 27, 1998.
In consideration of Employee's agreement to the terms set forth below,
and the mutual benefits to be derived hereunder, it is agreed as follows:
All payments are subject to withholding for federal income tax, FICA,
and other deductions required by law or regulation.
1. Employee is to receive payment equivalent to three year's salary
($1,800,000). Payment shall be paid in a lump sum within 10 days of the
effective date of Employee's resignation, July 31, 1998.
2. In addition to the consideration described above, Employee is to receive
$86,538 payment for all unused Paid Time Off (PTO). Payment shall be paid
in a lump sum within 10 days of the effective date of Employee's
resignation.
3. Vested options may be exercised in accordance with plan provisions.
4. In addition to the consideration described above, Employee is to receive
$8,205 in consideration of COBRA health and dental insurance continuation
for eighteen months. Payment shall be paid in a lump sum within 10 days of
the effective date of Employee's resignation.
5. In addition to the consideration described above, Employee is to receive
$35,000 in consideration of relocation expenses. Payment shall be paid in a
lump sum within 10 days of the effective date of Employee's resignation.
6. In addition to the consideration described above, Employee is to receive
$5,000 in consideration of outplacement services. Payment shall be paid in
a lump sum within 10 days of the effective date of Employee's resignation.
7. In addition to the consideration described above, Employee shall receive a
cash payment equal to either (i) the Fair Market Value on the last day of
employment or (ii) the aggregate amount of the Annual Bonus applied to the
receipt, in either case, of all Restricted Shares held by Employee. Payment
shall be paid in accordance with plan provisions.
8. Employee agrees to sell and the Company agrees to purchase Employee's
minority ownership interest in six (6) Columbia affiliated companies in
Florida at fair market value and in as expeditious a manner as possible,
consistent with similarly situated employees.
The foregoing is in consideration of Employee's agreement that all
promises set forth herein are accepted in full and final release and settlement
of any and all claims of any type relating to Employee's employment or the
operation of the Company which Employee ever had or may now have against
Company, or any of its successors, purchasers, subsidiaries, assigns,
affiliates, or parent, and the officers, agents, directors, or employees of any
of them. Employee hereby agrees to make himself available at the request of the
Company, at reasonable times and upon reasonable notice, to assist the Company
on matters the Company shall designate in connection with issues involving
litigation, compliance and/or any governmental or other investigations involving
the Employee's tenure as an employee. Nothing in this statement shall require
the Employee to act contrary to the advice of counsel. Employee shall be
indemnified by the Company in accordance with, and to the fullest extent allowed
by, the provisions of Delaware law and Article Sixteenth of the Restated
Certificate of Incorporation of the Company and will be provided advancement of
legal fees and costs to the fullest extent provided therein. It is further
agreed that the terms of this agreement will not be revealed to any person not a
party to it, other than as required by law and except for spouse and legal and
financial advisors. Employee also agrees to expressly waive any rights under any
other programs or agreements between Employee and Company including its parent
other than as set forth herein or as provided for under existing company benefit
plans including, but not limited to Employee's 401 (k) plan and Stock Purchase
Plan.
Also, in consideration of the agreements set forth herein, Employee
agrees to bring no lawsuits, claims, or charges of any kind relating to his
employment or separation from employment including, but not limited to claims
under the Age Discrimination in Employment Act. Employee acknowledges to have
read this agreement/release and to understand all of its terms. Each party
agrees to not make any disparaging remarks regarding the other party. Employee
further acknowledges to have been informed of the right to agree or not agree to
the terms set forth herein and has executed this agreement voluntarily with full
knowledge of its significance and consequences. Employee acknowledges to have
been offered at least twenty-one (21) days to consider the terms and conditions
of this document but has voluntarily chosen to execute the document on the date
of its execution, as evidenced by his signature. In addition, Company and
Employee agree that Employee has seven (7) days following the execution of this
document in which to revoke this agreement by written notice.
This agreement/release is binding on and shall inure to the benefit of
Company, its parent and its successors and/or assigns.
If you agree to all of the terms and conditions set forth herein,
please signify by your signature below, and steps will be taken to implement
this agreement.
I acknowledge that I have read the foregoing, have had ample time to
consider it, including ample time to consult with counsel, and voluntarily agree
to all terms set forth herein.
/s/ Dan Moen 7/1/98
- ----------------------------------------- -----------------------
Employee Date
/s/ Neil Hemphill 7/1/98
- ----------------------------------------- -----------------------
Company Date
<PAGE> 1
EXHIBIT 10.32
SEPARATION AGREEMENT
AND GENERAL RELEASE
This Agreement is entered into this 11th day of September, 1998, by and
between David R. White (hereinafter "Employee") and Galen Health Care, Inc.
(hereinafter "Company").
In consideration of Employee's agreement to the terms set forth below, and
the mutual benefits to be derived hereunder, it is agreed as follows:
All payments are subject to withholding for federal income tax, FICA, and
other deductions required by law or regulation and will be made in a lump sum
within ten (10) days following the date of execution of this Agreement. In
consideration of these payments, Employee shall not, without prior written
consent of Company, directly as an employee or employer engage in any business
or render any services to any business that is in direct competition with the
business of Company or any of its successors, purchasers, subsidiaries, assigns,
affiliates, or parent for a period of two (2) years from the effective date of
Employee's resignation. Employee further agrees to not solicit any employee of
Company, its parent, subsidiaries or affiliates for employment for a period of
two (2) years from the effective date of Employee's resignation. Company
acknowledges that nothing in this Agreement is intended to preclude Employee
from investing in or serving as a Director in any entity.
1. Employee is to receive payment equivalent to three year's salary
($1,800,000).
2. Employee is to receive $2,160,000 which represents eighty percent (80%) of
Employee's maximum eligibility for payment under the terms of the
Transaction Bonus Plan. This amount is to be paid by separate check. This
payment is not considered to be severance.
3. Employee is to receive $76,153 payment for all unused Paid Time Off (PTO)
as of the effective date of resignation, September 15, 1998.
4. Employee is to receive $6,728 in consideration of COBRA health insurance
continuation for eighteen months.
5. Employee is to receive $35,000 in consideration of relocation expenses.
6. Employee is to receive $5,000 in consideration of outplacement services.
7. Vested options may be exercised in accordance with plan provisions.
Non-vested options scheduled to vest within twelve months following the
effective date of Employee's resignation will be vested.
The foregoing is in consideration of Employee's agreement that all promises
set forth herein are accepted in full and final release and settlement of any
and all claims of any type relating to Employee's employment or the operation of
the Company which Employee ever had or may now have against Company, or any of
its successors, purchasers, subsidiaries, assigns, affiliates, or parent, and
the officers, agents, directors, or employees of any of them. Employee agrees to
cooperate fully in conjunction with any investigation, dispute, grievance, claim
or litigation which now exists or may arise in the future concerning any matters
with which Employee may have been involved. Nothing in this statement shall
require the Employee to act contrary to the advice of counsel. Employee shall be
indemnified by the Company in accordance with, and to the fullest extent allowed
by, the provisions of Delaware law and Article Sixteenth of the Restated
Certificate of Incorporation of the Company and will be provided advancement of
legal fees and costs to the extent provided therein. It is further agreed that
the terms of this agreement will not be revealed to any person not a party to
it, other than as required by law and except for legal and financial advisors.
Employee also agrees to expressly waive any rights under any other programs or
agreements between Employee and Company including its parent other than as set
forth herein or as provided for under existing company benefit plans.
Also, in consideration of the agreements set forth herein, Employee agrees
to bring no lawsuits of any kind relating to employment or separation from
employment including, but not limited to claims arising under the Fair Labor
Standards Act, Title VII of the Civil Rights Act of 1964, the Age Discrimination
in Employment Act, and the Americans with Disabilities Act. Employee
acknowledges to have read this agreement/release and to understand all of its
terms. Each party agrees to not make any disparaging remarks regarding the other
party. Employee further acknowledges to have been informed of the right to agree
or not agree to the terms set forth herein and has executed this agreement
voluntarily with full knowledge of its significance and consequences. Employee
acknowledges to have been offered at least twenty-one (21) days to consider the
terms and conditions of this document but has voluntarily chosen to execute the
document on the date of its execution, as evidenced by signature. In addition,
Company and Employee agree that Employee has seven (7) days following the
execution of this document in which to revoke this agreement by written notice.
This agreement/release is binding on and shall inure to the benefit of
Company, its parent and its successors and/or assigns.
I acknowledge that I have read the foregoing, have had ample time to
consider it, including ample time to consult with counsel, and voluntarily agree
to all terms set forth herein.
/s/ David R. White 9/14/98
- ----------------------------------------- -----------------------
Employee Date
/s/ Neil Hemphill 9/14/98
- ----------------------------------------- -----------------------
Company Date
<PAGE> 1
EXHIBIT 10.33
October 31, 1997
Robert Waterman
9421 Green Hill Boulevard
Brentwood, Fl 37027
Dear Robert:
We are pleased about the prospect of your joining Columbia/HCA. This letter
serves as formal confirmation of our verbal offer to you for the position of
Senior Vice President and General Counsel, reporting to the CEO. After
employment, your initial pay and benefits will be as follows:
- - A monthly salary of $52,083.33, which is equivalent to an annual salary of
$625,000.
- - Options on 350,000 shares of Columbia/HCA stock. The strike price for these
shares will be set on your first day of employment. Beginning in 1999, you will
be eligible to participate in the annual stock option program. Participation is
subject to plan terms and approval by the Board of Directors.
- - If Columbia/HCA should terminate your employment without cause the following
severance schedule would apply.
- 1998-1999 three years severance
- 2000-2002 two years severance
- 2003 and beyond one years severance
- - Questions regarding your relocation assistance should be directed to Ms. Kara
Cravens, Corporate Relocation Administrator at (615) 344-2425. Columbia/HCA
agrees to provide to one year of temporary living expense and a home purchase
program in addition to our normal relocation policy.
- - You are also entitled to participate in the LifeTimes Benefit Choices
Program which allows you to choose from a number of benefits such as medical,
dental, life, and long-term disability insurance subject to the terms of the
plans. You are eligible for medical, dental and life insurance benefits on the
first day of the month after you complete two calendar months of service. If
you start on or before November 1, 1997, your benefits will begin on January 1,
1998. You will receive a complete packet of benefit instructions within 30 days
of your joining the company.
<PAGE> 2
October 31, 1997
Robert Waterman
Page 2
This offer is contingent on the successful completion of a background
investigation and reference checks. We are in the process of completing those
and hope that there are no delays which might affect your employment date.
In order for Columbia to comply with the Immigration Reform and Control Act of
1986 we require that you bring certain documents with you on your first day of
employment. These documents are identified on the enclosed I-9 form which
should be filled out and brought with you on your first day, along with the
documents requested. We also ask that you complete the enclosed W-4 form which
will ensure that the correct payroll taxes are deducted each pay cycle. If you
have questions about either of these forms, please contact Shana Brandwein at
615-344-2924.
Bob, we look forward to having you as a member of Columbia's team. We know that
your past experience and expertise will have provided the tools for you to make
significant contributions to the success of Columbia and that you will be
rewarded commensurate with your contributions.
Please indicate your acceptance of our offer by signing in the space provided
below and returning the signed original to Human Resources for inclusion in
your regular personnel file. An extra copy of this letter is enclosed for your
records.
Sincerely,
/s/ Thomas F. Frist, Jr., M.D.
Thomas F. Frist, Jr., M.D.
Chairman and CEO
cc: Compensation
Relocation
John Steele
Enclosures: Columbia Corporate Compliance Program - Standards and Procedures
I-9, W-4
I UNDERSTAND AND ACCEPT THE FOREGOING
/s/ Robert Waterman
- -------------------
Name
- -------------------
Date
<PAGE> 1
EXHIBIT 10.34
(COLUMBIA/HCA Healthcare Corporation LOGO)
One Park Plaza
P.O. Box 550 (37202-0550)
Nashville, Tennessee 37203
Phone (615) 344-9551
COLUMBIA/HCA's Home page is http://www.columbiahca.com
January 18, 1999
Mr. Clayton McWhorter
c/o Shirly Newton
310 25th Avenue N., Suite 109
Nashville, TN 37203
Dear Mr. McWhorter:
Per our agreement, in accordance with the terms of the HCA Supplemental
Executive Retirement Plan (SERP), you are entitled to receive a lump sum
distribution in the amount of $227,311.73 from the Plan. This payment will
fulfill all of the Plan's obligations to you. This lump sum distribution is
subject to both income tax and FICA tax withholding. Consequently, in accordance
with applicable law, income taxes in the amount of $63,647.28, and FICA taxes in
the amount of $7,797.22 have been withheld from your lump sum distribution and
will be reported to the Internal Revenue Service on your 1999 Form W-2. The
enclosed check represents the remainder of your lump sum distribution in the
amount of $155,867.23.
If you have any questions whatsoever regarding the enclosed check, please do
not hesitate to call me.
Very truly yours,
/s/ Kimberly K. Sharp
Kimberly K. Sharp
AVP Savings and Retirement
cc: Don Fuson, Director, Corporate Payroll
Phil Patton, Senior Vice President, Human Resources
<PAGE> 1
Exhibit 10.35
COLUMBIA/HCA HEALTHCARE CORPORATION
PERFORMANCE EQUITY INCENTIVE PLAN
Purpose and Administration of the Plan
The Performance Equity Incentive Plan ("Plan") is established to encourage
outstanding performance of employees who are in a position to make substantial
contributions to the success of the Company. This plan is governed by the
Columbia/HCA Healthcare Corporation 1992 Stock and Incentive Plan and is
administered by the Compensation Committee.
Participation
Eligibility to participate in the Plan shall be extended generally to all full
time regular/corporate payroll Director and above with at least three months
employment in the fiscal year ("Participants") subject to approval by the CEO of
Columbia/HCA Healthcare Corporation. For a Participant added during the Fiscal
Year, the consideration shall be determined pursuant to the Plan and prorated.
Proration may also apply to employees who transfer to a position eligible for a
different incentive target. In general, the targets for this plan are
approximately 50% of the Participants 1997 incentive target and range from 10%
to 40%.
Incentive Calculation and Payment
Plan payments for Participants are based on a combination of financial/non
financial measurements (see chart below). As soon as practical, after the Fiscal
Year, when the financial results of the Company are known, the appropriate
senior officer will review and recommend plan payments. The Committee may make
adjustments to performance targets deemed necessary to avoid unwarranted
penalties or windfalls. Such adjustments will recognize uncontrollable outside
factors and will be kept to a minimum. Payments shall be made as soon as
practicable, after the annual audit report has been issued, but in no event
later than three months after the Fiscal Year. Payments will be in the form of
restricted stock that will vest at 50% per year over the following two years.
This Plan is not a "qualified" plan for tax purposes, and any payments are
subject to tax withholding requirements.
Plan Measurements
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
FINANCIAL NON FINANCIAL
- ----------------------------------------------------------------------------------------------------------------------------
SWB as % of Net,
Cash Flow,
AR/Bad Debt Satisfaction
EBITDA (Actual Department Or Supply Corp - Client Individual
to Budget)* Budget*** Expense as % Ops - Patient Specific Goals
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Corporate 25% 25% ** 50%
- ----------------------------------------------------------------------------------------------------------------------------
Operations 50% 20% 15% 15%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* NOTE: EBITDA will have an upside potential of up to 150% for exceeding
budget by 10% (both operations and Corporate).
** Each Corporate participant will have at least one Individual Specific
Goal related to Client Satisfaction.
*** Some Corporate departments may be measured on some other financial
measure as approved by the SVP Human Resources and the Company COO.
1
<PAGE> 2
Termination of Participant
In the event a payment is due pursuant to the Plan and a Participant's
employment with the Company is terminated prior to the payment by reason of
retirement, total and permanent disability or death, such Participant (or estate
in the event of death) shall receive a pro rata payment as soon as practical
after the Fiscal Year, but in no event later than the three months after the
Fiscal Year. The Committee or it's designee shall have authority to accelerate
vesting on all unvested shares. A Participant who is otherwise voluntarily or
involuntarily separated prior to the payment of any incentive compensation shall
cease to be a Participant and shall not have earned any right to receive any
payments pursuant to the Plan. In addition, a Participant will forfeit all
unvested shares at the time of separation.
2
<PAGE> 1
EXHIBIT 10.36
SEVERANCE POLICY FOR AMERICA AND PACIFIC GROUPS
In consideration of risk associated with the spin-off of the America and
Pacific Groups the following severance schedule will be utilized throughout
1999 for the executives at the America and Pacific Groups.
Group President and Senior Vice President Three years
Division President Two Years
Vice President One Year
<PAGE> 1
EXHIBIT 12
COLUMBIA/HCA HEALTHCARE CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(UNAUDITED)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
EARNINGS
Income from continuing operations before minority
interests and income taxes..................... $1,151 $ 538 $2,583 $1,827 $1,580
Fixed charges, exclusive of capitalized
interest....................................... 695 629 616 583 491
------ ------ ------ ------ ------
$1,846 $1,167 $3,199 $2,410 $2,071
====== ====== ====== ====== ======
FIXED CHARGES
Interest charged to expense....................... $ 561 $ 493 $ 488 $ 458 $ 387
Interest portion of rental expense and
amortization of deferred loan costs............ 134 136 128 125 104
------ ------ ------ ------ ------
Fixed charges, exclusive of capitalized
interest....................................... 695 629 616 583 491
Capitalized interest.............................. 21 15 25 28 15
------ ------ ------ ------ ------
$ 716 $ 644 $ 641 $ 611 $ 506
====== ====== ====== ====== ======
Ratio of earnings to fixed charges................ 2.58 1.81 4.99 3.94 4.09
====== ====== ====== ====== ======
</TABLE>
<PAGE> 1
EXHIBIT 18
March 25, 1998
Mr. Kenneth C. Donahey
Senior Vice President and Controller
Columbia/HCA Healthcare Corporation
One Park Plaza
Nashville, Tennessee 37203
Dear Mr. Donahey:
Note 11 of Notes to Consolidated Financial Statements of Columbia/HCA Healthcare
Corporation (the Company) included in its Form 10-K for the year ended December
31, 1997 describes a change in the method of accounting for start-up costs,
which include certain computer system training costs, from capitalizing and
subsequently amortizing the costs to expensing the costs as incurred. You have
advised us that you believe that the change is to a preferable method in your
circumstances because of the changes in the Company's business strategy and
recent guidance issued by accounting and reporting standard setting authorities,
including the Financial Accounting Standards Board Emerging Issues Task Force.
We conclude that the change in the method of accounting for start-up costs is to
an acceptable alternative method which, based on your business judgment to make
this change for the reasons cited above, is preferable in your circumstances.
Very truly yours,
/s/ ERNST & YOUNG LLP
----------------------
Ernst & Young, LLP
<PAGE> 1
EXHIBIT 21
ALABAMA
-------
Alabama-Tennessee Health Network, Inc.
Columbia/HCA Montgomery Healthcare System, Inc.
Community Hospital of Andalusia, Inc.
Andalusia Regional Hospital
Columbia Hospice Southeast Alabama
Crestwood Hospital & Nursing Home, Inc.
Crestwood Hospital Holdings, Inc.
Doctor's Hospital of Mobile, Inc.
Four Rivers Medical Center PHO, Inc.
Galen Medical Corporation
Colonial Manor Professional Building
Metropolitan Hospital
Montgomery Regional Medical Center Allied Health Institute
Shoals Medical Building
Huntsville Physical Therapy, Inc.
Sports Therapy & Rehabilitation of Huntsville
Huntsville Surgery Center, Ltd.
<PAGE> 2
ALABAMA (Cont)
---------------
Maynor Eye Center, Inc.
Montgomery Surgical Center, Ltd.
North Alabama Healthcare System, Inc.
Primesource, L.L.C.
Selma Medical Center Hospital, Inc.
Linden Clinic
P.T. Plus
South Alabama Managed Care Contracting, Inc.
South Alabama Medical Management Services, Inc.
South Alabama Physician Services, Inc.
Madison Medical Center
Surgicare of Huntsville, Inc.
<PAGE> 3
ALASKA
-------
Chugach Physical Therapy, Inc.
Chugach Physical Therapy & Fitness Center
Columbia Behavioral Healthcare, Inc.
North Star Hospital
Columbia North Alaska Healthcare, Inc.
<PAGE> 4
ARIZONA
--------
Arizona ASC Management, Inc.
Columbia Arizona, Inc.
Columbia of Phoenix, Inc.
Galen of Arizona, Inc.
Doctors Medical Plaza-South
HCA Health Services of Arizona, Inc.
Healthwest Holdings, Inc.
Hospital Corporation of Arizona
ReHab Works
Hospital Corporation of Northwest
HTI Tucson Rehabilitation, Inc.
Osborn Ambulatory Surgery Group, Ltd.
Osborn Ambulatory Surgery Center
Paradise Valley Psychiatric Services, Inc.
Senior Horizons
Phoenix Surgical Facilities, Ltd.
<PAGE> 5
ARIZONA (Cont)
---------------
Samaritan Surgicenters of Arizona, L.L.C.
Thunderbird Samaritan Surgicenter
Surgicare of Phoenix, Inc.
Surgicenter of Glendale, Inc.
Glendale Surgicenter
Surgicenters of America, L.P.
Surgicenters of America, Inc.
Surgicenter
Surgicenter Pain Unit
<PAGE> 6
ARKANSAS
--------
Central Arkansas Provider Network, Inc.
Columbia El Dorado, Inc.
Columbia Health System of Arkansas, Inc.
DeQueen Health Services, Inc.
Physician Management Services of DeQueen
HCA Health Services of Arkansas, Inc.
HCMH, Inc.
MCSA, L.L.C.
Medical Center of South Arkansas
Surgicare Outpatient Center of Ft. Smith, Inc.
<PAGE> 7
CALIFORNIA
----------
Beverly Hills Surgical Hospital, Ltd.
Beverly Hills Women's Hospital, Ltd.
Birthing Facility of Beverly Hills, Inc.
C.H.L.H., Inc.
CFC Investments, Inc.
CH Systems
Chino Community Hospital Corporation, Inc.
Columbia Chino Valley Medical Center
The Birthplace A Family Experience
Columbia Fallbrook, Inc.
Columbia Fallbrook Hospital
Columbia Pacific Division, Inc.
Columbia Primecare, LLC
Columbia Psychiatric MSO, LLC
Columbia Riverside, Inc.
<PAGE> 8
CALIFORNIA (Cont)
-----------------
Columbia/HCA San Clemente, Inc.
Community Hospital of Gardena Corporation, Inc.
Encino Hospital Corporation, Inc.
Galen-Soch, Inc.
HCA Allied Health Services of San Diego, Inc.
HCA Health Services of California, Inc.
HCA Hospital Services of San Diego, Inc.
Healdsburg General Hospital, Inc.
Huntington Beach Diagnostic Imaging Associates, Ltd.
Huntington Intercommunity Hospital
Huntington Beach Hospital
Huntington Beach Diagnostic Imaging Center
Kingsbury Capital Partners, L.P.
Las Encinas Hospital
Las Encinas Hospital
LE Corporation
Los Gatos Surgical Center, a California Limited Partnership
Los Robles Regional Medical Center
Los Robles Regional Medical Center
<PAGE> 9
CALIFORNIA (Cont)
-----------------
Los Robles Surgicenter
MCA Investment Company
Mission Bay Memorial Hospital, Inc.
Neuro Affiliates Company
North Anaheim Surgicenter, Ltd.
Notami Hospitals of California, Inc.
Columbia Bay Area Healthcare Network
Columbia Lab Link
Columbia Mission Oaks Hospital
PPO Alliance
Premier Psychiatric Management Company, a California G.P.
Psychiatric Company of California, Inc.
Riverside Healthcare System, L.L.C.
Riverside Community Hospital
Riverside Community Surgi-Center
Samaritan Medical Center-San Clemente, LLC
San Joaquin Surgery Center, Ltd.
San Joaquin Surgical Center, Inc.
San Jose Healthcare System, Inc.
San Leandro Surgery Center, Ltd.
Sebastopol Hospital Corporation
SLCO, Inc.
Columbia Homecare-San Leandro
Columbia San Leandro Surgery Center
<PAGE> 10
CALIFORNIA (Cont)
-----------------
Southwest Center Surgery, Ltd.
Columbia Southwest Surgical Clinic
Southwest Surgical Clinic, Inc.
Surgery Center Management, Ltd.
Surgicare of Beverly Hills, Inc.
Surgicare of Los Gatos, Inc.
Surgicare of Montebello, Inc.
Surgicare of North Anaheim, Inc.
Surgicare of San Leandro, Inc.
Surgicare of West Hills, Inc.
Ukiah Hospital Corporation
Visalia Community Hospital, Inc.
VMC Management, Inc.
VMC-GP, Inc.
West Anaheim Community Hospital
West Hills Hospital
West Hills Hospital & Medical Center
West Los Angeles Physicians' Hospital, Ltd.
West Los Angeles Physicians' Hospital, Inc.
Westminster Community Hospital
Westside Hospital Limited Partnership
<PAGE> 11
COLORADO
--------
Bethesda Psychealth Ventures, Inc,.
Centrum Surgery Center, Ltd.
Centrum Surgery Center
Colorado Healthcare Management, Inc.
Columbia Continental Division, Inc.
Columbia-HealthONE LLC
Air Life, Inc.
Arapahoe Medical Plaza
Belmar Multispecialty, Inc.
Bethesda Community Mental Health Center, Inc.
Bethesda Employee Assistant Services, Inc.
Bethesda Hospital, Inc.
Bethesda Outpatient and Counseling Service, Inc.
Bethesda PsycHealth, Inc.
CallONE
Cardiology Imaging Group Corporation
Centennial Athletic Club, Inc.
Centennial Healthcare Plaza, Inc.
Center for Eating Management, Inc.
Challenge Sport and Spine Center
ChurcHealth, Inc.
ChurcHelp, Inc.
Columbia Aurora Presbyterian Hospital
Columbia Care Manor
Columbia Centennial Healthcare Plaza
Columbia Medical Center of Aurora
Columbia North Suburban Medical Center
Columbia Park Manor
Columbia Progressive Care Center
Columbia Spalding Rehabilitation Hospital
Columbia Swedish Medical Center
Columbia Presbyterian/St. Luke's Medical Center
Columbia-HealthONE Addiction Recovery Units, Inc.
Columbia-HealthONE Aurora Eye Center, Inc.
Columbia-HealthONE Business Health Access, Inc.
Columbia-HealthONE Center for Diabetes Management, Inc.
Columbia-HealthONE Center for Emotional Growth, Inc.
Columbia-HealthONE Cosmetic Surgery Center, Inc.
Columbia-HealthONE Eating Disorders, Inc.
Columbia-HealthONE Emergency Services, Inc.
Columbia-HealthONE Health Access, Inc.
Columbia-HealthONE In Touch, Inc.
Columbia-HealthONE Optifast, Inc.
Columbia-HealthONE Physician Referral Dr. Right, Inc.
Columbia-HealthONE Rocky Mountain Hernia Center, Inc.
Columbia-HealthONE Senior Citizens Health Center, Inc.
Columbia-HealthONE Sleep Disorders Center, Inc.
Columbia-HealthONE TravelCare, Inc.
Columbia-HealthONE Women's Health Access, Inc.
Columbia-HealthONE Women's Services, Inc.
Denver Broncos Sports Medicine, Inc.
Head Pain Center
HealthONE for Children
HeartONE for Children Institute
Holly Clinic, Inc.
Holly Healthcare Bryant, Inc.
Holly Healthcare Stapleton, Inc.
Holly Occupational Medicine, Inc.
HomeHealthONE, Inc.
Lifelong Choices, Inc.
Medical Business Access
Patient Care 2000, Inc.
Peak Performance in the Workplace, Inc.
Positive Lifestyles, Inc.
PresExpress
PREStaurant
PsyCare, Inc.
PsycHealth, Inc.
PsycSave, Inc.
P/SL Blood Donor Center, Inc.
P/SL Bone Marrow Transplant Program, Inc.
P/SL Cardiac Emergency Network, Inc.
P/SL Community Health Services, Inc.
P/SL Hyperbaric Oxygen Medicine, Inc.
P/SL Institute for Limb Preservation, Inc.
P/SL Kidney-Pancreas Transplant Program, Inc.
P/SL Magnetic Resonance Imaging, Inc.
P/SL Medical Center for Children
P/SL Mile High Medical Arts Building, Inc.
P/SL Transplant Program, Inc.
P/SL Professional Pharmacy, Inc.
P/SL Women's and Children's Hospital, Inc.
RapidCare, Inc.
Rocky Mountain Children's Cancer Center, Inc.
Rocky Mountain Gastrointestinal Motility Clinic, Inc.
Rocky Mountain Neurology Center, Inc.
Rose Medical Center
Senior Health Access, Inc.
St. Luke's Professional Plaza, Inc.
Support Line, Inc.
The Denver Spine Institute, Inc.
The Lactation Program, Inc.
The Parent Line, Inc.
Timberline Medical Center, Inc.
United SeniorCare, Inc.
United Services Medical Clinic
Your Partner in Health Care
<PAGE> 12
COLORADO (Cont)
---------------
Columbia/HCA of Denver, Inc.
Columbia/Rose Health System, Inc.
Columbine Psychiatric Center, Inc.
Columbine Psychiatric Center
Conifer MOB, LLC
Denver Mid-Town Surgery Center, Ltd.
Eyecare Providers of Colorado, Inc.
Galen of Aurora, Inc.
Aurora Physicians Building
Health Care Indemnity, Inc.
HealthONE Clinic Services, LLC
Hospital-Based CRNA Services, Inc.
Lakewood Surgicare, Inc.
MOVCO, Inc.
Rose Medical Center, Inc.
Rose POB, Inc.
Southwest MedPro, Ltd.
Surgicare of Denver Mid-Town, Inc.
<PAGE> 13
COLORADO (Cont)
----------------
Surgicare of Southeast Denver, Inc.
Swedish Medpro, Inc.
Swedish MOB, LLC
Swedish MOB II, Inc.
Swedish MOB II, LLC
Swedish MOB III, Inc.
Swedish MOB IV, Inc.
<PAGE> 14
DELAWARE
--------
Alice Hospital, LLC
Alice Physicians and Surgeons Hospital, Inc.
Alice Regional Hospital
Alice Property, LLC
Alice Real Estate, LLC
Alice Surgeons, LLC
Aligned Business Consortium Group, L.P.
AlternaCare Corp.
Amedicorp, Inc.
Columbia The Surgery Center Imaging
Imaging and Surgery Centers of America
America Group Offices, LLC
America Management Companies, LLC
American Medicorp Development Co.
Columbia County Medical Plaza
Doctors Medical Plaza-North
Duluth MedPlus
East Ridge Doctors Building
East Ridge Professional Building
Lilburn MedPlus
MetroImaging
Roswell MedPlus
<PAGE> 15
DELAWARE (Cont)
----------------
AMG-Crockett, LLC
AMG-Hilcrest, LLC
AMG-Hillside, LLC
AMG-Livingston, LLC
AMG-Logan, LLC
AMG-Southern Tennessee, LLC
AMG-Trinity, LLC
AOGN, LLC
Ashley Valley Medical Center, LLC
Ashley Valley Medical Center
Ashley Valley Physician Practice, LLC
Atlanta Healthcare Management, L.P.
Atlanta Market GP, Inc.
Atlanta Orthopaedic Surgical Center, Inc.
Barrow Medical Center, LLC
Barrow Medical Center
<PAGE> 16
DELAWARE (Cont)
----------------
BMC-CT, Inc.
Beaumont Amdeco, L.P.
Beaumont Medical Center, L.P.
Beaumont Regional Medical Center
Beaumont Property, LLC
Beaumont Psychiatric, LLC
Beaumont Real Estate, LLC
Beaumont Regional, LLC
Behavioral Health, LLC
Bourbon Community Hospital, LLC
Bourbon Community Hospital
<PAGE> 17
DELAWARE (Cont)
----------------
Brazos Valley of Texas, L.P.
Brazos Valley Surgical Center
Brazos Valley Surgical Center, LLC
Brownwood Hospital, L.P.
Brownwood Regional Medical Center
Brownwood Medical Center, LLC
Brunswick Hospital, LLC
BVSC, LLC
C/HCA Capital, Inc.
C/HCA Holding Corporation
C/HCA, Inc.
CCN Managed Care, Inc.
Carlsbad Medical Center, LLC
Medical Center of Carlsbad
<PAGE> 18
DELAWARE (Cont)
----------------
Carlsbad Pecos Valley, LLC
Castleview Hospital, LLC
Castleview Hospital
Castleview Physician Practice, LLC
Central Health Holding Company, Inc.
Central Health Services Hospice, Inc.
CHC Finance Co.
CHC Holdings, Inc.
CHC Payroll Agent, Inc.
Claremore Physicians, LLC
Claremore Regional Hospital, LLC
Claremore Regional Hospital
Coastal Bend Hospital, Inc.
North Bay Hospital
Coastal Healthcare Services, Inc.
Coastal Infusion Therapy Pharmacy
Coliseum Health Group, LLC
<PAGE> 19
DELAWARE (Cont)
----------------
Coliseum Medical Center, LLC
Columbia Coliseum Medical Centers
Coliseum Psychiatric Center
Coliseum Psychiatric Center, LLC
College Station Hospital, L.P.
College Station Medical Center
College Station Medical Center, LLC
College Station Property, LLC
College Station Real Estate, LLC
Columbia America RC, Inc.
Columbia Bethany GP, Inc.
Columbia Bethany Holdings, Inc.
Columbia Behavioral Health, LLC
Columbia Destin Management, LLC
Columbia GP, Inc.
Columbia Healthcare Network of Central Kentucky, Inc.
<PAGE> 20
DELAWARE (Cont)
----------------
Columbia Healthcare System of Phoenix Limited Partnership
Columbia Medical Center Phoenix
Columbia Homecare Group, Inc.
KeyStone Integrated Home Care
Premier Health Care
Columbia Hospital (Palm Beaches) Limited Partnership
Columbia Hospital
Columbia Hospital Corporation of Fort Worth
Columbia Hospital Corporation of Houston
Columbia Bellaire Medical Center
Columbia Hospital Corporation - Delaware
Columbia Long Term Care Facility Limited Partnership
Columbia Management Companies, Inc.
Columbia Mesquite Health System, L.P.
Columbia Olympia Management, Inc.
Columbia Pacific RC, Inc.
<PAGE> 21
DELAWARE (Cont)
----------------
Columbia Palm Beach GP, LLC
Columbia Palms West Hospital Limited Partnership
Columbia Rio Grande Healthcare, L.P.
Rio Grande Regional Hospital
Columbia Sentinel GP, Inc.
Columbia Valley Healthcare System, L.P.
Valley Regional Medical Center
Columbia Westbank Healthcare, L.P.
Columbia/HCA Middle East Management Company
Columbia/JFK Medical Center Limited Partnership
JFK Medical Center
Transitional Care Unit
CoralStone Management, Inc.
Coronado Hospital, LLC
Crestwood Healthcare, L.P.
Crestwood Medical Center
Crockett Hospital, LLC
Crockett Hospital
<PAGE> 22
DELAWARE (Cont)
----------------
CSMC, LLC
Dallas PHY Service, LLC
Dallas Physician Practice, L.P.
Danforth Hospital, Inc.
Columbia Mainland Medical Center
Davis Community Hospital, LLC
Delaware Psychiatric Company, Inc.
DeQueen Regional Medical Center, LLC
DeQueen Regional Medical Center
Detar Hospital, LLC
DFW Physerv, LLC
DHL Corporation
Doctors Hospital of Augusta, Inc.
Augusta Diagnostic Associates
Columbia Augusta Medical Center
Columbia County Urgent Care Center
West Augusta Imaging Center
West Augusta Radiation Oncology Center
Doctors Medical Center, LLC
Doctors of Laredo, LLC
<PAGE> 23
DELAWARE (Cont)
----------------
Doctors' Hospital of Laredo, Inc.
Douglas Medical Center, LLC
Douglas Medical Center
Drake Development Company
Drake Development Company II
Drake Development Company III
Drake Development Company IV
Drake Development Company V
Drake Development Company VI
Drake Management Company
EarthStone HomeHealth Company
E.D. Clinics, LLC
EDC San Antonio, L.P.
Northwest Imaging Center
EDI Alice Physicians and Surgeons, L.P.
EDI Barrow, LLC
EDI Mission Bay, LLC
EDI Sherman, L.P.
<PAGE> 24
DELAWARE (Cont)
----------------
Edison Homes-Southeast, Inc.
Edmond Regional Medical Center, LLC
Edmond Regional Medical Center
El Dorado Medical Center, LLC
El Dorado Hospital
El Dorado Property, LLC
EMMC, LLC
EP Alice Property GP, LLC
EP Alice Property LP, LLC
EP Alice Propertyco, L.P.
EP Barrow Propertyco, LLC
EP Claremore Propertyco, LLC
EP Medical Park Propertyco, LLC
EP Mission Bay Propertyco, LLC
EP Riverview Propertyco, LLC
EP Sherman Property GP, LLC
EP Sherman Property LP, LLC
EP Sherman Propertyco, L.P.
<PAGE> 25
DELAWARE (Cont)
----------------
EPIC Development, Inc.
EPIC Diagnostic Centers, Inc.
First Care Clinics
EPIC Healthcare Group, Inc.
EPIC Healthcare Management Company
EPIC Holdings, Inc.
EPIC Surgery Centers, Inc.
Extendicare Properties, Inc.
Eye Institute of Southern Arizona, LLC
The Eye Institute of Southern Arizona
FHAL, LLC
Florida Surgery Center, LLC
Forest Park Surgery Pavilion, Inc.
Forest Park Surgery Pavilion, L.P.
Fort Bend Hospital, Inc.
Fort Bend Medical Center
<PAGE> 26
DELAWARE (Cont)
----------------
Galen BH, Inc.
Galen GOK, LLC
Galen Health Care, Inc.
Brandenburg Primary Care Center
Columbia/Galen
Galen Holdings, Inc.
Galen Hospital, LLC
Huntington Leasing Company
Galen Hospital Alaska, Inc.
Alaska Regional Hospital
Galen Hospital Corporation, Inc.
Columbia Women's Hospital of Indianapolis
Floresville Medical Clinic
Southwest Fertility Institute
Township Line Pharmacy
<PAGE> 27
DELAWARE (Cont)
----------------
Galen KY, LLC
Galen MCS, LLC
Galen MRMC, LLC
Galen NMC, LLC
Galen NSH, LLC
Galen SOM, LLC
Galen SSH, LLC
Galen Texas, LLC
Galendeco, Inc.
Garden Park Community Hospital, L.P.
Coastal Imaging Center of Gulfport
Columbia Garden Park Hospital
Columbia Outpatient Surgical Center
GCMC, LLC
General Health Services, Inc.
Georgetown Community Hospital, LLC
Georgetown Community Hospital
<PAGE> 28
DELAWARE (Cont)
----------------
Georgetown Rehabilitation, LLC
Georgetown Rehabilitation Center
Georgia, L.P.
GH Texas, LLC
GHC Huntington Beach, LLC
GHC San Leandro, LLC
GHI Crockett, LLC
GHI Sunrise Hospital, LLC
GHT College Station, L.P.
Good Samaritan Hospital, L.P.
Good Samaritan Hospital
Good Samaritan Hospital, LLC
Greenbrier Realty, LLC
Greenbrier Valley Medical Center, LLC
Greene & Kellogg, Inc.
Greystone Healthcare, Inc.
GKI Lawrence, LLC
Gulf Coast Hospital, L.P.
Gulf Coast Medical Center
<PAGE> 29
DELAWARE (Cont)
----------------
Gulf Coast Medical Center, LLC
H.H.U.K., Inc.
Halstead Hospital, LLC
Halstead Hospital
HCA-Hospital Corporation of America
HCA Health Services of Midwest, Inc.
Columbia Health System of Arkansas
Columbia Weber Clinic
HCA Investments, Inc.
HCA Psychiatric Company (DE)
HCA Wesley Rehabilitation Hospital, Inc.
HCA, Inc.
HCK Logan Memorial, LLC
HDP Andalusia, LLC
HDP DeQueen, LLC
HDP Detar Hospital, L.P.
<PAGE> 30
DELAWARE (Cont)
----------------
HDP El Dorado, LLC
HDP Georgetown, LLC
HDP Longview Medical, LLC
HDP Longview Real Estate, LLC
HDP Med (Longview), L.P.
HDP Northwest, LLC
HDP Plains, L.P.
HDP Property, LLC
HDP Real Estate, LLC
HDP Smith County, LLC
HDP Texas, LLC
HDP Victoria, LLC
HDP Woodland Heights, L.P.
HDP Woodland Property, LLC
HDPWH, LLC
Healdsburg of California, LLC
<PAGE> 31
DELAWARE (Cont)
----------------
Health Services (Delaware), Inc.
Health Services Acquisition Corp.
Healthcare Technology Assessment Corporation
Healthtrust, Inc.- The Hospital Company
Hearthstone Home Health, Inc.
Heloma Operations, LLC
HHNC, LLC
Hillside Hospital, LLC
Columbia Hillside Hospital
Hobbs Physician Practice, LLC
Hospital Development Properties, Inc.
Columbia Edmond Medical Building
Murchison Medical Building
Murchison Medical Plaza
<PAGE> 32
DELAWARE (Cont)
----------------
Hospital of Beaumont, LLC
Hospital of South Valley, LLC
HSD Mission Bay Leaseco, LLC
HSD Riverview, LLC
HST Physician Practice, LLC
HTI Georgetown, LLC
HTI PineLake, LLC
Huntington Beach Amdeco, LLC
Independence Regional Amdeco, LLC
Independence Regional Health Center, LLC
Indian Path, LLC
Integrated Health Corporation
Integrated Physician Services, LLC
JCSH, LLC
JCSHLP, LLC
Katy Medical Center, Inc.
Columbia Katy Medical Center
<PAGE> 33
DELAWARE (Cont)
----------------
Kendall Regional Medical Center, LLC
Kentucky MSO, LLC
Lake City Health Centers, Inc.
Lake Cumberland Regional Hospital, LLC
Lake Cumberland Regional Hospital
Lakeland Medical Center, LLC
Lakeland Medical Center
Lakeview Medical Center, LLC
Laredo Hospital, L.P.
Lawrence Amdeco, LLC
Lawrence Medical, LLC
Mt. Oread Surgery Centers
Lea Regional Hospital, LLC
Lea Regional Hospital
Lewis-Gale Medical Center, LLC
Columbia Lewis-Gale Medical Center
Livingston Regional Hospital, LLC
Livingston Regional Hospital
Logan Memorial Hospital, LLC
Logan Memorial Hospital
Longview Medical Center, L.P.
Longview Regional Hospital
<PAGE> 34
DELAWARE (Cont)
----------------
Loon Investments, Inc.
LRH, LLC
LW-VHI, Inc.
Macon Healthcare, LLC
Macon Northside Health Group, LLC
Macon Northside Hospital, LLC
Mallard Finance Company
Marion Holdings, LLC
MCI Overland Park, LLC
MCI Panhandle Surgical, L.P.
Meadowview Physician Practice, LLC
Meadowview Regional Medical Center, LLC
Meadowview Regional Medical Center
Meadowview Rights, LLC
<PAGE> 35
DELAWARE (Cont)
----------------
Medical Arts Hospital of Texarkana, Inc.
Medical Care America, Inc.
Medical Care Financial Services Corp.
Medical Care International, Inc.
Medical Care Real Estate Finance, Inc.
Medical Center at Terrell, LLC
Medical Center of Brownwood, LLC
Medical Center of Sherman, LLC
Medical Corporation of America
Medical Park Hospital, LLC
Medical Park Hospital
Medical Park MSO, LLC
Medical Specialties, Inc.
Coral Springs Family Medicine
Parkway Medical Associates
Medistone Healthcare Ventures, Inc.
Columbia Hospice Fort Worth
Columbia Hospice Waco
Medistone Management Company
<PAGE> 36
DELAWARE (Cont)
----------------
MediVision of Mecklenburg County, Inc.
MediVision of Tampa, Inc.
MediVision, Inc.
Columbia Greater New Orleans Surgery Center
Columbia Lake Worth Surgery Center
Omni Eye Services
Omni Eye Services of Chattanooga
The Eye Institute of Southern Arizona
The Eye Surgery Center of the Rio Grande Valley
MedNet USA, Inc.
Memorial Hospital, LLC
Microwave Scalpel, Inc.
Mid-Continent Health Services, Inc.
Columbia Medical Supply/Pharmacy
Middle Georgia Hospital, LLC
Mission Bay Memorial Hospital, LLC
Mobile Corps, Inc.
Mount Oread Surgery Center, LLC
Mount Oread Surgery Center
MRT&C, Inc.
Navarro Hospital, L.P.
Navarro Regional Hospital
<PAGE> 37
DELAWARE (Cont)
----------------
Navarro Regional, LLC
North Texas Medical Center, Inc.
Northwest Amdeco, LLC
Northwest Florida Home Health Services, Inc.
Northwest Hospital, LLC
Northwest Hospital
Northwest Real Estate, LLC
Notami Hospitals, LLC
Notami Holdco, Inc.
Notami Service Company
NRH, LLC
NTGP, Inc.
NTMC Ambulatory Surgery Center, L.P.
Columbia Surgery Center of McKinney
NTMC Management Company
NTMC Venture, Inc.
Odessa, LLC
Orlando Outpatient Surgical Center, Inc.
Overland Park Amdeco, LLC
<PAGE> 38
DELAWARE (Cont)
----------------
Pacific East Division Office, L.P.
Pacific Physicians Services, LLC
Pampa Hospital, L.P.
Medical Center of Pampa
Pampa Medical Center, LLC
Panhandle Medical Center, LLC
Panhandle Property, LLC
Panhandle Surgical Hospital, L.P.
Panhandle, LLC
Paragon SDS, Inc.
Paragon WSC, Inc.
Parkway Cardiac Center Management Company
Parkway Hospital, Inc.
Columbia North Houston Medical Center-Airline Campus
Columbia North Houston Medical Center
<PAGE> 39
DELAWARE (Cont)
----------------
Pecos Valley of New Mexico, LLC
Phoenix Amdeco, LLC
Physicians and Surgeons Hospital of Alice, L.P.
Alice Physicians and Surgeons Hospital
PineLake Physician Practice, LLC
PineLake Regional Hospital, LLC
Columbia PineLake Regional Hospital
Piney Woods Healthcare System, L.P.
Woodland Heights Medical Center
Plantation General Hospital Limited Partnership
Plantation General Hospital
POH Holdings, LLC
Poitras Practice, LLC
PMM, Inc.
Augusta Womens Medical Group
Preferred Works, Inc.
Primary Care Acquisition, Inc.
<PAGE> 40
DELAWARE (Cont)
----------------
Primary Medical Management, Inc.
Agoura Hills Medical Group
Biltmore Women's Health
Columbia Management Services Organization
DeSoto Family Practice
LaGrange Memorial Treatment Pavilion
Louisburg Medical Group
Mount Oread Family Care
Northside Clinic
Olathe Medical Group
Park Medical Center
Saguaro Medical Center
The Carrollton Center for Family Health Care
Westbrook Medical Practice
Westlake Women's Health Management Clinic
Psychiatric Services of Paradise Valley, LLC
R. Kendall Brown Practice, LLC
RCH, LLC
Regional Hospital of Longview, LLC
Riverside Hospital, Inc.
COSMC
Northwest Regional Hospital
South Texas Pain Management Center
Riverton Memorial Hospital, LLC
Rivertown Memorial Hospital
Riverton Physician Practices, LLC
<PAGE> 41
DELAWARE (Cont)
----------------
Riverview Medical Center, LLC
Riverview Medical Center
Round Rock Hospital, Inc.
SACMC, LLC
Samaritan, LLC
San Angelo Community Medical Center, LLC
San Angelo Hospital, L.P.
San Angelo Community Medical Center
San Diego Hospital, L.P.
Mission Bay Memorial Hospital
Mission Bay Health Center
San Jose, LLC
San Jose Hospital, L.P.
San Jose Medical Center
San Jose Medical Center, LLC
San Leandro Hospital, L.P.
San Leandro Hospital
San Leandro Medical Center, LLC
SDH, LLC
Select Healthcare, LLC
<PAGE> 42
DELAWARE (Cont)
----------------
Sherman Hospital, L.P.
Community Medical Center Sherman
Sherman Medical Center, LLC
Sherman Property, LLC
Sherman Real Estate, LLC
Siletchnik Practice, LLC
Silsbee Doctors Hospital, L.P.
Silsbee Doctors Hospital
Silsbee Medical Center, LLC
SJMC, LLC
SLH, LLC
SMCH, LLC
Smith County Memorial Hospital, LLC
Smith County Memorial Hospital
South Arkansas Clinic, LLC
South Valley Hospital, L.P.
South Valley Hospital
Southern Tennessee EMS, LLC
Southern Tennessee Medical Center, LLC
Southern Tennessee Medical Center
<PAGE> 43
DELAWARE (Cont)
----------------
Southwestern Medical Center, LLC
Southwestern Medical Center
Spalding Rehabilitation, L.L.C.
Springhill Medical Center, LLC
Springhill Medical Center
Springhill MOB, LLC
Springview KY, LLC
Stones River Hospital, LLC
Stones River Hospital
Suburban Medical Center at Hoffman Estates, Inc.
Sun Bay Medical Office Building, Inc.
Sunrise Hospital and Medical Center, LLC
Sunrise Hospital and Medical Center
Surgical Center of Amarillo, LLC
Surgicare Corporation
SVH, LLC
Swedish MOB Acquisition, Inc.
<PAGE> 44
DELAWARE (Cont)
----------------
Terrell Hospital, L.P.
Medical Center at Terrell
Terrell Medical Center, LLC
Texas Psychiatric, LLC
The Coltree Corporation
THM Physician Practice, LLC
TPC Beaumont Regional, L.P.
Trinity Hospital, LLC
Trinity Hospital
Value Health Management, Inc.
VHI Venturer, Inc.
Vicksburg Healthcare, LLC
Victoria Hospital, LLC
Victoria of Texas, L.P.
DeTar Hospital
<PAGE> 45
DELAWARE (Cont)
----------------
Wagoner Community Hospital, LLC
Wagoner Community Hospital
WAMC, LLC
Wesley Medical Center, LLC
Wesley Medical Center
West Anaheim Amdeco, LLC
West Anaheim Hospital, L.P.
West Anaheim Medical Center
West Anaheim Medical Center, LLC
West Virginia Mobile Services, LLC
Westbury Hospital, Inc.
Western Plains Regional Hospital, LLC
WHMC, LLC
Willamette Valley Clinics, LLC
Willamette Valley Medical Center, LLC
Willamette Valley Medical Center
WJHC, LLC
Women & Children's Hospital, LLC
Women & Children's Hospital
Woodland Heights Medical Center, LLC
<PAGE> 46
FLORIDA
-------
All About Staffing, Inc.
Columbia Staffing Services
Ambulatory Laser Associates, GP
Ambulatory Surgery Center Group, Ltd.
Ambulatory Surgery Center
Bay Hospital, Inc.
Gulf Coast Medical Center
Belleair Surgery Center, Ltd.
Belleair Surgery Center
Big Cypress Medical Center, Inc.
Bonita Bay Surgery Center, Inc.
Bonita Bay Surgery Center, Ltd.
Surgery Center Bonita Bay
Brandon Regional Imaging, Inc.
Brandon Surgi-Center Joint Venture
Brandon Surgery Center
Broward Healthcare System, Inc.
Broward Physician Practices, Ltd.
Cape Coral Surgery Center, Inc.
Cape Coral Surgery Center, Ltd.
Cape Coral Surgery Center
<PAGE> 47
FLORIDA (Cont)
--------------
CCH Management, Inc.
CCH-GP, Inc.
Cedarcare, Inc.
Cedars BTW Program, Inc.
Cedars Healthcare Group, Ltd.
Cedars Medical Center
Victoria Pavilion
Central Florida Division Practice, Inc.
Central Florida Regional Hospital, Inc.
Central Florida CORF - Deltona
Central Florida Regional Hospital
Central Florida Rehabilitation - Deltona
Columbia Rehab Management
Lake Mary Imaging
Women's Wellness Center
Charlotte Community Hospital, Inc.
Clearwater Community Hospital Limited Partnership
Clearwater Community Hospital
Collier County Home Health Agency, Inc.
<PAGE> 48
FLORIDA (Cont)
--------------
Columbia Behavioral Health, Ltd.
Doral Palms Hospital
Columbia Behavioral Healthcare of South Florida, Inc.
Columbia Cancer Research Network of Florida, Inc.
Columbia Central Florida Division, Inc.
Columbia Credentialing Services, Inc.
Columbia Deland Imaging Services, Inc.
Columbia Development of Florida, Inc.
Santa Rosa Emergency Medical Services
Columbia Eye & Specialty Surgery Center, Ltd.
Tampa Eye & Specialty Surgery Center
Columbia Florida Group, Inc.
Columbia Gulf Coast Network, Inc.
Columbia Homecare - Central Florida, Inc.
Columbia Homecare - North Florida, Inc.
Columbia Homecare of Tampa Bay, Inc.
Columbia Hospital Corporation of Central Miami
Columbia Hospital Corporation of Kendall
Columbia Hospital Corporation of Miami
Columbia Hospital Corporation of Miami Beach
<PAGE> 49
FLORIDA (Cont)
--------------
Columbia Hospital Corporation of North Miami Beach
Columbia Hospital Corporation of South Broward
Columbia Hospital Corporation of South Dade
Columbia Hospital Corporation of South Florida
Florida Physicians Group
Columbia Hospital Corporation of South Miami
Columbia Hospital Corporation of Tamarac
Columbia Hospital Corporation - SMM
Columbia Integrated Services, Inc.
Columbia Jacksonville Healthcare System, Inc.
Columbia Lake Worth Surgical Center Limited Partnership
Columbia Medical Alert Systems of Tampa Bay, Inc.
Columbia Medical Group of Volusia County, Inc.
Atlantic Medical Centers
Family Medical Associates
Columbia Memorial Diagnostic Services, Inc.
Columbia North Central Florida Health System Limited Partnership
Columbia North Florida Division, Inc.
Columbia North Florida Regional Medical Center Limited Partnership
Columbia Ocala Regional Medical Center Physician Group, Inc.
CORMC Physician Group
<PAGE> 50
FLORIDA (Cont)
--------------
Columbia of Pinellas County, Inc.
Columbia Park Healthcare System, Inc.
Columbia Palm Beach Healthcare System Limited Partnership
Columbia Park Medical Center, Inc.
Lucerne Medical Center
Columbia Physician Services - Florida Group, Inc.
Columbia Behavioral Health
Columbia Company Care
Columbia Physician Services
Columbia Senior Health Center
Columbia Specialty Services
Columbia Resource Network, Inc.
Columbia South Florida Division, Inc.
Columbia Tampa Bay Division, Inc.
Columbia-Osceola Imaging Center, Inc.
Columbia/HCA of Treasure Coast, Inc.
Columbia/Bartow Healthcare System, Ltd.
Bartow Memorial Hospital
Company Care, Inc.
Coral Springs Surgi-Center, Ltd.
Surgery Center at Coral Springs
<PAGE> 51
FLORIDA (Cont)
--------------
Countryside Surgery Center, Ltd.
Countryside Surgery Center
Dade Physician Practices, Ltd.
Daytona Medical Center, Inc.
Atlantic Medical Center - Daytona
Columbia CORF - Daytona
Port Orange Medical Associates
Daytona Physician Practices, Ltd.
Deland Surgery Center, Ltd.
Diagnostic Breast Center, Inc.
Diagnostic Breast Center
Doctor's Physicians Care, Inc.
Doctors Osteopathic Medical Center, Inc.
Doctors Family Clinic
Gulf Coast Hospital
Gulf Coast Pediatrics
Gulf Shore Pediatrics
Doctors Pediatric Clinic, Inc.
Doctors Same Day Surgery Center, Inc.
Doctors Same Day Surgery Center, Ltd.
Doctors Same Day Surgery Center
Doctors' Special Surgery Center of Jacksonville, Ltd.
Single Day Surgery Center
East Pointe Hospital, Inc.
Columbia Healthlink
East Pointe Hospital
Lehigh Pediatrics
East Point PHO, Inc.
East Pointe Physician Management, Inc.
<PAGE> 52
FLORIDA (Cont)
--------------
Ed White Physician Clinic, Inc.
Edward White Hospital, Inc.
Edward White Hospital
Physician Offices of Ed White
Emergency Physician Services, Inc.
Englewood Community Health Care Group, Inc.
Englewood Community Hospital, Inc.
Columbia Englewood Community Hospital
Fawcett Memorial Hospital, Inc.
Fawcett Memorial Hospital
Columbia/HCA Spine & Arthritis Centers
The Memory Center
First Physicians Care, Inc.
Florida Home Health Services - Private Care, Inc.
Columbia Staffing Services
Florida Medical Collection Services, Inc.
Florida MRI Services, Inc.
Florida Outpatient Surgery Center, Ltd.
Florida Surgery Center
Florida Primary Physicians, Inc.
Florida Psychiatric Company, Inc.
<PAGE> 53
FLORIDA (Cont)
--------------
Fort Pierce Surgery Center, Ltd.
Fort Walton Beach Medical Center, Inc.
Fort Walton Beach Medical Center
Galen Diagnostic Multicenter, Ltd.
Medical Park Diagnostic Center
Galen Hospital - Pembroke Pines, Inc.
Memorial Hospital Pembroke
Galen of Florida, Inc.
Bushnell Family Practice Center
Columbia Rehab Center - Daytona
Dade City Professional Building
Normandy Manor Transitional Living Facility
Orange Park Medical Center
Pasco Community Hospital
Pasco Community Medical Park
Seminole Family Health Centers
St. Petersburg Medical Center
West Central Florida OB/GYN
Galencare, Inc.
Brandon Regional Hospital
Community Cancer Center of Brandon Regional Hospital
Northeast Family Practice Center
Northside Hospital
Tampa Bay Vascular Institute
West Central Florida - Shared Services
<PAGE> 54
FLORIDA (Cont)
--------------
Grant Center Hospital of Ocala, Inc.
Columbia North Florida Regional MSO
Physician Care
Greater Ft. Myers Physician Practices, Ltd.
Gulf Coast Health Technologies, Inc.
Gulf Coast Physicians, Inc.
Hamilton Memorial Hospital, Inc.
Hamilton Medical Center
HCA Family Care Center, Inc.
Columbia Imaging Services Nova
HCA Health Services of Florida, Inc.
Bayonet Point Physician Practice
Blake Medical Center
Columbia Medical and Financial Management
Columbia North Florida Radiation Oncology
Columbia Regional Medical Center Bayonet Point
Columbia Treasure Coast Physician Services
Oak Hill Hospital
Saint Lucie Medical Center
HCA of Florida, Inc.
HD&S Corp. Successor, Inc.
Homecare North, Inc.
Hospital Corporation of Lake Worth
Palm Beach Regional Hospital
<PAGE> 55
FLORIDA (Cont)
--------------
Hospital Development & Services Corp.
Imaging and Surgery Center of Florida, Inc.
Clearwater Imaging
Imaging Corp. of the Palm Beaches, Inc.
Jacksonville Physician Practices, Ltd.
Jacksonville Surgery Center, Ltd.
Columbia Jacksonville Surgery Center
JFK Real Properties, Ltd.
Kendall Healthcare Group, Ltd.
First Health Center
Kendall Medical Center
Kendall Outpatient Rehabilitation Facility
The Atrium at Kendall Regional Medical Center
Kendall Therapy Center, Ltd.
Kendall Therapy Center
Kissimmee Surgicare, Ltd.
Columbia Kissimmee Surgery Center
Lake City Homecare, Inc.
Lake Worth MRI, Limited
Largo Medical Center, Inc.
Largo Medical Center
<PAGE> 56
FLORIDA (Cont)
--------------
Lawnwood Medical Center, Inc.
Harbour Shores of Lawnwood
Lawnwood Pavilion
Lawnwood Regional Medical Center
Lawnwood Regional Cancer Center Limited Partnership
Lehigh Physician Practice, Ltd.
M & M of Ocala, Inc.
Manatee Surgicare, Ltd.
Gulf Coast Surgery Center
Marion Community Hospital, Inc.
Ocala Regional Medical Center
Medical Center of Port St. Lucie, Inc.
Medical Center of Santa Rosa, Inc.
Atlantic Medical Center - Ormond
Columbia CORF - Peninsula
Columbia Practice Management Services
Medivision Properties of Hillsborough County, Inc.
MedPlan, Inc.
<PAGE> 57
FLORIDA (Cont)
--------------
Memorial Healthcare Group, Inc.
Memorial Hospital Jacksonville
Specialty Hospital Jacksonville
Memorial Surgicare, Ltd.
Plaza Surgery Center
MHS Partnership Holdings JSC, Inc.
MHS Partnership Holdings SDS, Inc.
Miami Beach Healthcare Group, Ltd.
Aventura Comprehensive Cancer Center
Aventura Health Center
Aventura Hospital and Medical Center
Aventura Hospital Senior Health Center
Aventura Outpatient Rehabilitation Center
Children's After Hours Walk-In Clinic
Miami Heart Institute and Medical Center
Hallandale Health Center
North Miami Beach Surgical Center
Wound Healing Center
Miami Heart Medical Management Services, Inc.
Naples Physician Practices, Ltd.
Naples Rehabilitative Health Services, Inc.
Naples Rehab Center
<PAGE> 58
FLORIDA (Cont)
--------------
New Port Richey Hospital, Inc.
Community Hospital of New Port Richey
New Port Richey Physician Hospital Organization, Inc.
New Port Richey Surgery Center, Ltd.
New Port Richey Surgery Center
NMS of Florida, Inc.
North Beach Hospital, Inc.
North Central Florida Health System, Inc.
North Central Florida Physician Practices, Ltd.
Pediatric Associates of Gainesville
North Florida Division Practice, Inc.
North Florida GI Center, Ltd.
North Florida GI Center GP, Inc.
North Florida Immediate Care Center, Inc.
North Florida Infusion Corporation
North Florida Physician Services, Inc.
<PAGE> 59
FLORIDA (Cont)
--------------
North Florida Practice Management, Inc.
North Florida Regional Imaging Center, Ltd.
North Florida Regional Investments, Inc.
North Florida Regional Medical Center, Inc.
North Florida Regional Medical Center
North Palm Beach County Surgery Center, Ltd.
North County Surgicenter
North Tampa Physician Practices, Ltd.
Family Medical Care
South Bay Family Medical Center
Northwest Florida Healthcare Systems, Inc.
Northwest Medical Center, Inc.
Bayview Senior Health Center
Behavioral Health Systems of North Broward
Cypress Medical Office Building
Northwest Medical Center
Senior Health Center of Ft. Lauderdale
Notami (Clearwater), Inc.
CCH Healthcare Centers
Notami Hospitals of Florida, Inc.
Lake City Medical Center
Oak Hill Acquisition, Inc.
Columbia Oak Hill Ambulatory Surgery and Endoscopy Center
Ocala Regional Outpatient Services, Inc.
<PAGE> 60
FLORIDA (Cont)
--------------
Okaloosa Hospital, Inc.
Twin Cities Hospital
Okeechobee Hospital, Inc.
Raulerson Hospital
OneSource Health Network of South Florida, Inc.
OneSource Health Network
OPMC Physician Group, Inc.
Orange Park Medical Center, Inc.
Orlando Depression Center, Inc.
Orlando Depression Center
Orlando Physician Practices, Ltd.
Orlando Surgicare, Ltd.
Columbia Same Day Surgicenter of Orlando
Osceola Regional Hospital, Inc.
Kissimmee Imaging
Osceola Regional Medical Center
Outpatient Surgical Services, Ltd.
Outpatient Surgical Services
Palm Beach Healthcare System, Inc.
Palm Beach Physician Practices, Ltd.
Palms West Physician Hospital Organization, Inc.
Panhandle Physician Practices, Ltd.
Paragon PHO of North Florida, Inc.
<PAGE> 61
FLORIDA (Cont)
--------------
PCMC Physician Group, Inc.
Physical Therapy of Orlando, Inc.
Central Florida Physical Therapy
Kissimmee Physical Therapy
Orlando Hand & Microvascular
Pinellas Surgery Center, Ltd.
Center for Special Surgery
Plantation Physicians, Ltd.
Port St. Lucie Surgery Center, Ltd.
St. Lucie Surgery Center
Premier Medical Management, Ltd.
Premier Family Care
Women's Health Specialists
Premier Providers Network of Pinellas County, Inc.
Premier Providers Network
Premier Providers of Hillsborough County, Inc.
Primary Care Medical Associates, Inc.
Putnam Hospital, Inc.
Putnam General Hospital
San Pablo Surgery Center, Ltd.
San Pablo Surgery Center
<PAGE> 62
FLORIDA (Cont)
--------------
Sarasota Doctors Hospital, Inc.
Advanced Womens Care
Doctors Data Center
Doctors Hospital of Sarasota
Doctors Medical Lab
Midtown Nuclear Medicine
Midtown Radiology
MRI of Sarasota
Paragon Associates in Internal Medicine
Sarasota Rehabilitation Center
Sarasota Vascular Lab
The Center for Breast Care
South Bay Physician Clinics, Inc.
South Broward Medical Practice Partners, Ltd.
South Broward Practices, Inc.
South Dade Healthcare Group, Ltd.
Deering Hospital
Grant Center of Deering
International Travel Health Center
South Florida Division Practice, Inc.
South Seminole Hospital, Inc.
Healthworks Plus
South Seminole Community Hospital
South Tampa Physician Practices, Ltd.
Southwest Florida Division Practice, Inc.
Southwest Florida Health System, Inc.
Consult-A-Nurse
Healthcare Referral
Southwest Florida Management Associates, Inc.
Southwest Florida Medical Ventures, Inc.
<PAGE> 63
FLORIDA (Cont)
--------------
Southwest Florida Regional Medical Center, Inc.
Columbia Care
Columbia Center for Cosmetic Surgery
Columbia Health Services at Belmont Woods
Mature Adult Counseling Center
Southwest Florida Regional Medical Center
The Memory Center
Space Coast Surgical Center, Ltd.
Columbia Surgery Center Merritt Island
St. Augustine Hospital, Inc.
Stuart Outpatient Surgery Center, Ltd.
Columbia Surgery Center of Stuart
Sun City Hospital, Inc.
South Bay Hospital
South Bay Physician Clinic
South Bay Rehab Center
South Bay Transitional Care Unit
Surgical Center Associates, Ltd.
Winter Park Ambulatory Surgery Center
Surgical Park Center, Ltd.
Radial Keratomy Institute of Surgical Park
Surgical Park Center
Surgiscopic Center at Surgical Park
Surgicare America - Winter Park, Inc,
Surgicare of Altamonte Springs, Inc.
Surgicare of Brandon, Inc.
Surgicare of Central Florida, Inc.
Surgicare of Central Florida, Ltd.
Central Florida Surgicenter
Surgicare of Countryside, Inc.
<PAGE> 64
FLORIDA (Cont)
--------------
Surgicare of Deland, Inc.
Surgicare of Florida, Inc.
Tampa Bay Area Anesthesia
Surgicare of Ft. Pierce, Inc.
Surgicare of Kissimmee, Inc.
Surgicare of Manatee, Inc.
Surgicare of Merritt Island, Inc.
Surgicare of New Port Richey, Inc.
Surgicare of Orange Park, Inc.
Orange Park Surgery Center
Surgicare of Orange Park, Ltd.
Surgicare of Orlando, Inc.
Surgicare of Pinellas, Inc.
Surgicare of Plantation, Inc.
Surgicare of Port St. Lucie, Inc.
Surgicare of St. Andrews, Inc.
Surgicare of St. Andrews, Ltd.
Surgery Center at St. Andrews
<PAGE> 65
FLORIDA (Cont)
--------------
Surgicare of Stuart, Inc.
Surgicare of Tallahassee, Inc.
Surgicare of West Palm Beach, Ltd.
Surgicare of Zephyrhills, Inc.
Systems Medical Management, Inc.
OneSource Health Network
PPO Alliance
The Health Advantage Network
Tallahassee Community Network, Inc.
Tallahassee Medical Center, Inc.
Tallahassee Community Hospital
Tallahassee Orthopaedic Surgery Partners, Ltd.
Tallahassee Outpatient Surgery Center
Tallahassee Physician Practices, Ltd.
Tamarac Acquisition Corporation
Tamarac Hospital Corporation, Inc.
Tampa Bay Division Practice, Inc.
Tampa Bay Health System, Inc.
Tampa Surgi-Centre, Inc.
TCH Physician Group, Inc.
The Pinellas Healthcare Alliance, Inc.
Treasure Coast Centers, Inc.
Columbia Emergi-Center Jensen Beach
Columbia Emergi-Center St. Lucie West
Treasure Coast Physician Practices, Ltd.
University Hospital, Ltd.
A Center for Women
University Hospital & Medical Center
University Pavilion
University Parkway Healthcare Associates, Inc.
<PAGE> 66
FLORIDA (Cont)
--------------
University Physicians Pavilion Association, Inc.
University Psychiatric Center, Inc.
Victoria Hospital Partnership
Visual Health and Surgical Center, Inc.
Visual Health and Surgical Center
Visual Health Plantation
Visual Health/Bentz Eye Center
Volusia Healthcare Network, Inc.
West Broward Outpatient GI Center, Inc.
West Florida Division, Inc.
West Florida Regional Medical Center, Inc.
Okaloosa Cancer Care Center
West Florida Regional Medical Center
West Palm Beach Eye Surgery, Ltd.
Westside Surgery Center, Ltd.
Columbia Parkside Surgery Center
Winter Park Healthcare Group, Ltd.
Park Infusion
Winter Park Memorial Hospital
Winter Park Physician Services, Inc.
Women's and Children's Health Connection, Inc.
<PAGE> 67
GEORGIA
-------
Amisub of Georgia, Inc.
AOA Gulf Coast Partners, Ltd.
AOSC Sports Medicine, Ltd.
AOSC Sports Medicine, Inc.
Northside Sports Medicine & Rehabilitation
Atlanta Home Care, L.P.
Atlanta Outpatient Surgery Center, Inc.
Atlanta Surgery Center, Ltd.
Augusta Physician Practice Company
Augusta Primary Care
Barrow Physician Network, Inc.
Cartersville Physician Practice Network, Inc.
Center for Health and Management at W.P.F., L.P.
Central Health Services, Inc.
Central Home Health Care of Chattanooga, Inc.
Chatsworth Hospital Corporation
Church Street Doctors Buildings, Ltd.
Church Street Partners, G.P.
Coliseum Health Group, Inc.
<PAGE> 68
GEORGIA (Cont)
--------------
Coliseum Park Hospital, Inc.
Columbia Coliseum Medical Centers
Columbia Coliseum Same Day Surgery Center, Inc.
Columbia Health Systems of Georgia Resource Network, Inc.
Columbia Northlake Surgical Center, Ltd.
Columbia Physicians Services, Inc.
Columbia Polk General Hospital, Inc.
Polk Medical Center
Emergency Physicians of Polk Hospital
Columbia Redmond Occupational Health, Inc.
Columbia Surgicare of Augusta, Ltd.
Columbia-Georgia PT, Inc.
Columbus Cardiology, Inc.
Columbus Doctors Hospital, Inc.
Doctors Hospital
Columbus Management Group, Inc.
Community Home Nursing Care, Inc.
Cumberland Physician Corporation
Dekalb Home Health Services, Inc.
Diagnostic Services, G.P.
Doctors-I, Inc.
Doctors-II, Inc.
<PAGE> 69
GEORGIA (Cont)
--------------
Doctors-III, Inc.
Doctors-IV, Inc.
Doctors-IX, Inc.
Doctors-V, Inc.
Doctors-VI, Inc.
Doctors-VII, Inc.
Doctors-VIII, Inc.
Doctors-X, Inc.
Dublin Community Hospital, Inc.
Columbia Fairview Park Hospital
Dunwoody Physician Practice Network, Inc.
Eastside Physician Practice Network, Inc.
Fairview Physician Practice Company
Gainesville Cardiology, Inc.
Georgia Psychiatric Company, Inc.
Greater Gwinnett Physician Corporation
Gwinnett Community Hospital, Inc.
Eastside Medical Center
<PAGE> 70
GEORGIA (Cont)
--------------
HCA Health Services of Georgia, Inc.
Hughston Sports Medicine Hospital
Northlake Regional Medical Center
Health Care Management Corporation
Stewart Webster
Healthfield Services of Middle Georgia, Inc.
Hospital Corporation of Lanier, Inc.
Lanier Park Hospital
Lanier Physician Practice Network, Inc.
Lanier Physician Services, Inc.
Lanier Park Primary Care
Magnetic Resonance Imaging Associates II, Ltd.
Marietta Outpatient Medical Building, Inc.
Marietta Outpatient Surgery, Ltd.
Marietta Surgical Center
Marietta Surgical Center, Inc.
Med Corp., Inc.
Med-Care, Inc.
MedFirst, Inc.
Medical Center-West, Inc.
Parkway Medical Center
MOSC Sports Medicine, Inc.
SportsSouth Sports Medicine & Rehabilitation
Newnan Hospitals, L.L.C.
North Cobb Physical Therapy, Inc.
North Cobb Physical Therapy
<PAGE> 71
GEORGIA (Cont)
--------------
North Georgia Home Health Agency, Inc.
Northlake Physician Practice Network, Inc.
Northlake Surgery Center, Inc.
Northlake Surgical Center
Orthopaedic Specialty Associates, L.P.
Orthopaedic Sports Specialty Associates, Inc.
Palmyra Park Hospital, Inc.
Columbia Palmyra Medical Centers
Parkway Physician Practice Company
Peachtree Corners Surgery Center, Ltd.
Peachtree Physician Practice Network, Inc.
Polk Physician Practice Network, Inc.
Redmond ER Services, Inc.
Redmond P.D.N., Inc.
Redmond Park Health Services, Inc.
Redmond Park Hospital, Inc.
Redmond Regional Medical Center
Emergency Physicians of CRRMS
The Surgery Center of Rome
Redmond Physician Practice Company
Redmond Prime Health
<PAGE> 72
GEORGIA (Cont)
--------------
Redmond Physician Practice Company II
Redmond Physician Practice Company III
Redmond Physician Practice Company IV
Redmond Physician Practice Company V
Redmond Physician Practice Company VI
Rome Imaging Center Limited Partnership
Southeast Division, Inc.
Surgery Center of Rome, Inc.
Surgicare of Augusta, Inc.
Augusta Surgical Center
Surgicare Outpatient Center of Brunswick, Inc.
The Guild of Augusta Regional Medical Center
The Rankin
Tugaloo Home Health Agency, Inc.
Urology Center of North Georgia, LLC
West Paces Ferry Hospital, Inc.
West Paces Medical Center
West Paces Imaging Associates, L.P.
West Paces Physician Services, Inc.
West Paces Services, Inc.
<PAGE> 73
IDAHO
-----
Eastern Idaho Health Services, Inc.
Eastern Idaho Regional Behavioral Health Center
Eastern Idaho Regional Medical Center
West Valley Medical Center, Inc.
Columbia West Valley Medical Center
<PAGE> 74
ILLINOIS
--------
Chicago Grant Hospital, Inc.
COFH, Inc.
Columbia Chicago Division, Inc.
Columbia Chicago Homecare, Inc.
Columbia Chicago Osteopathic Hospitals, Inc.
Columbia Chicago Northside Hospital, Inc.
Columbia Chicago Northside Hospital
Columbia Health Partners, Inc.
Columbia LaGrange Hospital, Inc.
Grant Square Imaging
Columbia Physician Partners Management, Inc.
Columbia Surgicare - North Michigan Ave., L.P.
Michael Reese North - One Day Surgery
Galen Hospital Illinois, Inc.
Galen of Illinois, Inc.
Community Medical Plaza
Illinois Psychiatric Hospital Company, Inc.
Chicago Lakeshore Hospital
Columbia Behavioral Health Provider Organization
Columbia Chicago Lakeshore Hospital South Campus
Riveredge Hospital
<PAGE> 75
ILLINOIS (Cont)
---------------
Smith Laboratories, Inc.
Surgicare of North Michigan Avenue, Inc.
Surgicare of Palos Heights, Inc.
<PAGE> 76
INDIANA
-------
BAMI-COL, INC.
Basic American Medical, Inc.
Columbia PhysicianCare Outpatient Surgery Center, Ltd.
Columbia PhysicianCare Outpatient Surgery Center
F & E Community Developers of Florida, Inc.
North Clark Community Hospital
Jeffersonville MediVision, Inc.
Surgicare of Indianapolis, Inc.
Surgicare of Jeffersonville, L.L.C.
John-Kenyon Surgery Center
Terre Haute Regional Hospital, Inc.
Indiana Institute for Lung Disease and Exercise Physiology
Regional Family Medical Center
Terre Haute Regional Hospital
Terre Haute Regional Physician Hospital Organization, Inc.
Thomasville Hospital, Inc.
<PAGE> 77
KANSAS
------
Columbia Mid-West Division, Inc.
Columbia/HCA of Dodge City, Inc.
Day Surgery, Inc.
Dodge City Healthcare Group, L.P.
Medical Heights Hospitele
Western Plains Regional Hospital
Galen of Kansas, Inc.
La Cygne Rural Health Clinic
Womens Healthcare Group
Galichia Laboratories, Inc.
HCA Health Services of Kansas, Inc.
Kansas Healthcare Laboratories
OB-GYN Diagnostics, Inc.
Overland Park Homecare Services, Inc.
Surgicare of Wichita, Ltd.
Columbia Surgicare of Wichita
Surgicare of Wichita, Inc.
Surgicenter of Johnson County, Inc.
Surgicenter of Johnson County, Ltd.
Columbia Surgicenter of Johnson County
Total Healthcare, Inc.
Western Plains Regional Hospital, Inc.
Western Plains Quickcare
Womens's Healthcare Management Group, LLC
<PAGE> 78
KENTUCKY
--------
A.C. Medical, Inc.
B.G. MRI, Inc.
Buffalo Trace Radiation Oncology Center Associates, L.L.C.
Caretenders of Louisville, Inc.
CHCK, Inc.
Samaritan Hospital
Kentucky Center for Reproductive Medicine
LifeTek Home Infusion
Primary Care Partners of Lexington
Columbia Behavioral Health Network, Inc.
Columbia Kentucky Division, Inc.
Columbia Medical Group - Frankfort, Inc.
Columbia Medical Group - Greenview, Inc.
Columbia Medical Group - Logan Memorial, Inc.
Columbia Medical Group - Louisville, Inc.
Columbia Medical Group - Pinelake, Inc.
Columbia/Kentucky Services, Inc.
Community Hospital, Inc.
Columbia PineLake Regional Hospital
Frankfort Hospital, Inc.
Bluegrass Regional Primary Care Centre
Frankfort Regional Medical Center
Galen International Holdings, Inc.
Galen of Kentucky, Inc.
<PAGE> 79
KENTUCKY (Cont)
---------------
GALENCO, Inc.
Greenview Hospital, Inc.
Greenview Regional Hospital
Hospital Corporation of Kentucky
Scott Family Medicine
Kentucky IMS, Inc.
Lake Cumberland Health Care, Inc.
Logan Memorial Hospital, Inc.
Logan Memorial Hospital
Physicians Medical Management, L.L.C.
South Central Kentucky Corp.
Spring View Health Alliance, Inc.
Springview Hospital, Inc.
Subco of Kentucky, Inc.
Surgicare of Owensboro, Inc.
Tri-County Community Hospital, Inc.
<PAGE> 80
LOUISIANA
---------
Acadiana Care Center, Inc.
Acadiana Practice Management, Inc.
Acadiana Regional Pharmacy, Inc.
B.R.A.S.S. Partnership in Commendam
Columbia B.R.A.S.S.
BRASS East Surgery Center Partnership in Commendam
Columbia Outpatient Surgery Center of Baton Rouge
The Outpatient Surgery Center for Sight
Caddo-Bossier Regional Clinic, L.L.C.
Family First
Columbia Healthcare System of Louisiana, Inc.
Associates of Internal Medicine
Physician Practice Management
The Women's Center
Columbia Lakeview Surgery Center, L.P.
Columbia West Bank Hospital, Inc.
Columbia/HCA Healthcare Corporation of Central Louisiana, Inc.
Columbia/HCA of Baton Rouge, Inc.
Capital Area Provider Alliance
Columbia/HCA of New Orleans, Inc.
Columbia Regional Healthcare Network
Columbia/Lakeview, Inc.
Dauterive Hospital Corporation
Circle of Support
Dauterive Hospital
Physio-Industrial Network
<PAGE> 81
LOUISIANA (Cont)
----------------
Doctors Hospital of Opelousas Limited Partnership
Doctors' Hospital of Opelousas
Galen of Louisiana, Inc.
Cotton Valley Medical Clinic
Cullen Rural Health Clinic
Plain Dealing Medical Clinic
Taylor Rural Health Clinic
Hamilton Medical Center, Inc.
HCA Health Services of Louisiana, Inc.
North Monroe Hospital
HCA Highland Hospital, Inc.
Highland Hospital
Lake Area Medical Center, Inc.
Lake Area Women's Clinic
Lake Area Surgicare, a Partnership in Commendam
Columbia Surgicare of Lake Charles
Lake Charles Surgery Center, Inc.
Lakeview Radiation Oncology, L.L.C.
Louisiana Psychiatric Company, Inc.
Columbia DePaul Hospital
Medical Center of Baton Rouge, Inc.
Columbia Lakeside Hospital
New Orleans Surgicare, Inc.
<PAGE> 82
LOUISIANA (Cont)
----------------
Notami (Opelousas), Inc.
Notami Hospitals of Louisiana, Inc.
Riverview Medical Center
Ponchartrain Regional Healthcare Network, Inc.
Select Healthcare Services, Inc.
Surgicare Merger Company of Louisiana
Surgicare of Lafayette, Inc.
Surgicare of Lakeview, Inc.
Mandeville Surgery Center
Surgicare Outpatient Center of Baton Rouge, Inc.
Surgicare Outpatient Center of Lake Charles, Inc.
Surgicenter of East Jefferson, Inc.
University Healthcare System, L.C.
Tulane University Hospital and Clinic
Ville Platte Acquisition Corporation
WGH, Inc.
Williamson Eye Center, In Commendam
Women's and Children's Hospital, Inc.
Columbia Women's and Children's Hospital
<PAGE> 83
MASSACHUSETTS
-------------
Columbia Homecare, Limited Partnership
Columbia Homecare of Massachusetts, Inc.
Columbia Hospital Corporation of Massachusetts, Inc.
Columbia Neponset Healthcare System, Inc.
Health Imaging Center of Boston, Inc.
Orlando Outpatient Surgical Center, Ltd.
MediVision of Orlando
Same Day Surgicare of New England, Inc.
Same Day Surgicare of New England
Surgicare of Suburban, Inc.
Surgicenter Limited Partnership
Waltham Surgicare, Inc.
<PAGE> 84
MISSISSIPPI
-----------
Brookwood Medical Center of Gulfport, Inc.
Coastal Imaging Center of Gulfport, Inc.
Coastal Imaging Center, L.P.
Galen of Mississippi, Inc.
Garden Park Investments, L.P.
Garden Park Physician Services Corporation
GOSC, LP
GOSC-GP, Inc.
Gulf Coast Medical Ventures, Inc.
HTI Health Services, Inc.
Lakeland Physicians Medical Building, Inc.
Vicksburg Diagnostic Services, L.P.
VIP, Inc.
<PAGE> 85
MISSOURI
--------
Business Health Services, Inc.
Keystone Family Medical Clinic
Clinical Management Services, Inc.
CareNow
Clinical Specialties, Inc.
PRO-LAB
Eye Care Surgicare, Ltd.
Galen Sale Corporation
HCA Health Services of Missouri, Inc.
HEI Missouri, Inc.
HEI Sullivan, Inc.
Kansas City Surgicenters, Ltd.
Surgicenter of Kansas City
Kensington Care Services, Inc.
American Nursing Services-Overland Park
M.W.A, Inc.
Medical Diagnostic Center Associates Limited Partnership
Metropolitan Providers Alliance, Inc.
<PAGE> 86
MISSOURI (Cont)
---------------
Midwest Psychiatric Center, Inc.
Missouri Healthcare System, L.P.
Notami Hospitals of Missouri, Inc.
Oak Grove Medical Clinic, Inc.
Oak Grove MMP
Odessa MMP
Ozarks Medical Services, Inc.
Physical Therapy Affiliates, Inc.
Physical Therapy Affiliates
PRI-MED, Inc.
Surgicare of Antioch Hills, Inc.
North Hills Medical & Surgical Center
Surgicenter of Gladstone
Surgicare of Independence, Inc.
Truman-Forest Pharmacy, Inc.
<PAGE> 87
NEBRASKA
--------
Omaha Healthcare System, Inc.
<PAGE> 88
NEVADA
------
CHC Venture Co.
CHCA Capital GP, Inc.
C/HCA Capital, Limited Partnership
Columbia Hospital Corporation of West Houston
Columbia Southwest Division, Inc.
Columbia-SDH Holdings, Inc.
Columbia/TSP Holdings, Inc.
Consolidated Las Vegas Medical Centers
Desert Physical Therapy, Inc.
Columbia Desert Physical Therapy
HCA Health Services of Nevada, Inc.
Health Service Partners, Inc.
James Bros., Inc.
Las Vegas Physical Therapy, Inc.
Lynn Maguire Physical Therapy
Las Vegas Surgical Center, Ltd.
<PAGE> 89
NEVADA (Cont)
-------------
Las Vegas Surgicare, Inc.
Las Vegas Surgicare, Ltd., a Nevada Limited Partnership
Las Vegas Surgery Center
MHI, Inc.
National Care Services Corp. of Nevada
Columbia Sunrise Diagnostic Center
Kids Healthcare
Sunrise Professional Pharmacy
Nevada Psychiatric Company, Inc.
Pasadena Holdings, Inc.
Rio Grande/Piney Woods Holdings (Nevada), Inc.
Sahara Outpatient Surgery Center, Ltd., a Nevada Limited Partnership
Sahara Surgery Center
Sunrise Clinical Research Institute, Inc.
Sunrise Flamingo Surgery Center, Limited Partnership
Flamingo Surgery Center
Sunrise Hospital
Columbia Henderson Clinic/Real Estate
Columbia Precision Imaging
Columbia Sunrise Health Strategies
Sunrise Children's Hospital
Sunrise Hospital & Medical Center
<PAGE> 90
NEVADA (Cont)
-------------
Sunrise Mountainview Hospital, Inc.
MountainView Hospital
Sunrise Outpatient Services, Inc.
Surgicare of Green Valley, Inc.
Surgicare of Las Vegas, Inc.
Value Health Holdings, Inc.
VH Holdco, Inc.
VH Holdings, Inc.
Western Plains Capital, Inc.
<PAGE> 91
NEW HAMPSHIRE
-------------
HCA Health Services of New Hampshire, Inc.
Columbia Parkland Rehabilitation Services - Salem
Columbia Portsmouth Pavilion
Columbia Portsmouth Regional Hospital
Londonderry Physical Therapy Center
Main Street Medical Park
Parkland Eldercare
Parkland Medical Center
Parkland Rehabilitation Services - Londonderry
Windham Pediatrics
Health Imaging Asset Management, Inc.
Health Imaging Centers, Inc.
Occupational Health Solutions of New England Limited Partnership
Occupational Health Solutions of New England
Regional Psychiatric Company, Inc.
<PAGE> 92
NEW MEXICO
----------
HCA Health Services of New Mexico, Inc.
Healthcare Corporation of Southern New Mexico
Columbia Medical Center of Carlsbad
Hobbs Community Hospital, Inc.
New Mexico Psychiatric Company, Inc.
Heights Psychiatric Hospital
Pecos Valley, Inc.
<PAGE> 93
NEW YORK
--------
Critical Care America of New York, Incorporated
<PAGE> 94
NORTH CAROLINA
--------------
CareOne Home Health Services, Inc.
Columbia Cape Fear Healthcare System, Limited Partnership
Columbia Davis Holdings, Inc.
Columbia North Carolina Division, Inc.
Columbia Network Healthcare
Columbia-CFMH, Inc.
Cumberland Medical Center, Inc.
Columbia Highsmith-Rainey Memorial Hospital
Hope Mills Family Medicine Center
Galen of North Carolina, Inc.
HCA-Raleigh Community Hospital, Inc.
Health Plus
Heritage Hospital, Inc.
Northeastern Rehabilitation Center
Hospital Corporation of North Carolina
Brunswick Community Hospital
Columbia Care (NC)
Intra-Net
<PAGE> 95
NORTH CAROLINA (Cont)
---------------------
HTI Health Services of North Carolina, Inc.
Carolinas Bone & Joint Institute
Carolinas Neuroscience Center
Carolinas Neuroscience Institute
Carolinas Orthopaedic & Sports Institute
Carolinas Orthopaedic & Sports Medicine Center
Carolinas Orthopaedic Institute
Carolinas Physical Achievement Institute
Carolinas Sports Medicine Institute Children's Work Out
Orthopaedic Hospital & Center for Human Performance
Orthopaedic Hospital & Center for Physical Achievement
Orthopaedic Institute
Orthopaedic Institute & Center for Research
Southeast Bone & Joint Institute
Southeast Orthopedic & Human Performance Institute
Southeast Orthopaedic & Sports Medicine Center
Southeast Orthopaedic & Sports Medicine Institute
Southeastern Neuroscience Institute
Southeastern Orthopaedic Institute
Mecklenburg Surgical Land Development, Ltd.
Old FDC Limited Partnership
Optical Shop, Inc.
The Optical Shop
Raleigh Community Physical Therapy & Sports Medicine Center, Inc.
Raleigh Community Primary Care Network, Inc.
Raleigh Community Medical Office Building Ltd.
Salem Optical Company, Inc.
Salem Optical Co.
Southeastern Eye Center, Inc.
Southeastern Eye Center
Wake Psychiatric Hospital, Inc.
Holly Hill Hospital
<PAGE> 96
OHIO
----
AHN Holdings, Inc.
Columbia Beachwood Surgery Center, Ltd.
Columbia-CSA/HS Greater Canton Area Healthcare System, L.P.
Columbia Homecare Mercy Medical Center
Mercy Medical Center
Columbia-CSA/HS Greater Cleveland Area Healthcare System, L.P.
Caritas Healthcare Partnership
St. Vincent Charity Hospital
Saint Lukes' Medical Center
St. John West Shore Hospital
Columbia Dayton Surgery Center, Ltd.
Columbus Health Imaging Partnership
Columbia Ohio Division, Inc.
Columbia/Deaconess, Ltd., an Ohio Limited Liability Company
Montgomery Surgery Center
Columbia/Deaconess Surgery Center, Ltd.
Columbia/HCA Healthcare Corporation of Northern Ohio
E.N.T. Services, Inc.
Lorain County Surgery Center, Ltd.
The Surgery Center Lorain
Middleburg Heights Surgical Center, Inc.
Ohio Health Choice Ventures, Inc.
Southwest Dual Diagnostic Center, G.P.
Surgicare of Beachwood, Inc.
Surgicare of Dayton, Inc.
Surgicare of Lorain County, Inc.
Surgicare of North Cincinnati, Inc.
Surgicare of Westlake, Inc.
The Surgery Center Laboratory, Inc.
The Surgery Center Laboratory
The Surgery Center, an Ohio Limited Partnership
The Surgery Center
The Surgery Center Radiology, Inc.
The Surgery Center Radiology
The Surgery Center West, Ltd.
Westlake Surgicare, L.P.
<PAGE> 97
OKLAHOMA
--------
Bethany PHO, Inc.
Claremore Regional Hospital, Inc.
Corporate Advantage
Columbia Crest, L.L.C.
Columbia Doctors Hospital of Tulsa, Inc.
Columbia Oklahoma Division, Inc.
Columbia South Tulsa Hospital Company, Inc.
Columbia/Edge Mobile Medical, L.L.C.
Edmond Physician Hospital Organization, Inc.
Green Country Anesthesiology Group, Inc.
HCA Health Services of Oklahoma, Inc.
Bethany Health Center
Capstone Medical Group
Columbia Presbyterian Hospital
Presbyterian Center for Healthy Living
Rogers Occupational Clinic
University Health Partners
Health Partners of Oklahoma, Inc.
Healthcare Oklahoma, Inc.
Integrated Management Services of Oklahoma, Inc.
Lake Region Health Alliance Corporation
Medical Imaging, Inc.
Millennium Health are of Oklahoma, Inc.
Seminole Medical Center
Notami Hospitals of Oklahoma, Inc.
Columbia Behavioral Health Center of Lawton
<PAGE> 98
OKLAHOMA (Cont)
---------------
Oklahoma Outpatient Surgery Limited Partnership
Columbia Oklahoma Surgicare
Oklahoma Surgicare, Inc.
Plains Healthcare System, Inc.
Presbyterian Office Building, Ltd.
Rogers County PHO, Inc.
Southwestern Medical Center, Inc.
Stephenson Laser Center, L.L.C.
Surgicare of Northwest Oklahoma, LP
Surgicare of Oklahoma City-Midtown, LP
Columbia Surgicare-Midtown
Surgicare of Tulsa, Inc.
Columbia Surgicare of Tulsa
Wagoner Medical Group, Inc.
<PAGE> 99
OREGON
------
Hospital Corporation of Douglas, Inc.
Northern Oregon Healthcare Corporation
Central Coast Counseling
Roseburg Surgicenter, Ltd.
<PAGE> 100
PENNSYLVANIA
------------
Basic American Medical Equipment Company, Inc.
Chestnut Hill Surgical Investors, Inc.
Chestnut Hill Hospital Outpatient Surgical Center
Surgicare of Philadelphia, Inc.
<PAGE> 101
RHODE ISLAND
------------
Atwood Surgicare, Inc.
Blackstone Valley Surgicare, Inc.
Columbia Blackstone Valley Surgicare
Columbia Northeast Corporation
Columbia Rhode Island Healthcare, Inc.
Johnston Ambulatory Surgical Associates, Ltd.
Pawtucket Outpatient Medical Building, Inc.
Surgicare at the Crossing Limited, a Rhode Island Limited Partnership
Warwick Surgicare, Inc.
Wayland Square Surgicare, Inc.
Columbia Wayland Square Surgicare
<PAGE> 102
SOUTH CAROLINA
--------------
C/HCA Development, Inc.
Columbia Chicago Osteopathic Hospital & Medical Center
Olympia Fields Osteopathic Hospital
Carolina Behavioral Health, LLC
Carolina Regional Surgery Center, Inc.
Carolina Regional Surgery Center, Ltd.
Carolina Regional Surgery Center
Chesterfield General Hospital, Inc.
Coastal Carolina Home Care, Inc.
Colleton Ambulatory Care, LLC
Columbia Carolinas Division, Inc.
Columbia Charleston Healthcare System, Inc.
Columbia-CSA/HS Greater Columbia Area Healthcare System, LP
Providence Hospital
Columbia/HCA Healthcare Corporation of South Carolina
DMH Spartanburg, Inc.
Doctors Memorial Hospital, Inc.
Doctor's Memorial Hospital of Spartanburg, L.P.
Edisto Multispecialty Associates, Inc.
Colleton Internal Medicine
Colleton Pediatric Associates
Edisto Ear, Nose and Throat
Edisto Orthopaedics and Sports Medicine
Walterboro Internal Medicine
<PAGE> 103
SOUTH CAROLINA (Cont)
---------------------
HTI South Carolina, Inc.
Marlboro Park Hospital
Low Country Health Services, Inc. of the Southeast
Myrtle Beach Hospital, Inc.
Grand Strand Regional Medical Center
North Trident Regional Hospital, Inc.
Summerville Medical Center
Trident Medical Center
Trident Medical Services, Inc.
Walterboro Community
Colleton Medical Center
Colleton Regional Non-Emergent Clinic
Pulaski Medical Center
<PAGE> 104
SWITZERLAND
-----------
Permanence de L'Hopital de la Tour
Geneva Outpatient Clinic
Columbia Hopital de la Tour S.A.
Hospital de la Tour et Pavilion Gourgas
<PAGE> 105
TENNESSEE
---------
America's Group, Inc.
Appalachian OB/GYN Associates, Inc.
Athens Community Hospital, Inc.
Athens Regional Medical Center
Atrium Memorial Surgical Center, Ltd.
Atrium Memorial Surgical Center
Availis Health Products, Inc.
Availis
Central Credentialing Services, Inc.
Central Tennessee Hospital Corporation
Columbia Cheatham Medical Center
Horizon Medical Center
Horizon Academy
Regional Hospital of Jackson
Charter North Star Behavioral Health System, LLC
Chattanooga Healthcare Network Partner, Inc.
Chattanooga Healthcare Network, L.P.
Columbia Behavioral Health of Tennessee, L.L.C.
Columbia Eastern Group, Inc.
Columbia Health Management, Inc.
Columbia Healthcare Network
Columbia Psychiatric Network
The Health Advantage Network of Tennessee
Columbia Healthcare Network of Tri-Cities, Inc.
Columbia Healthcare Network of West Tennessee, Inc.
Columbia Information Systems, Inc.
<PAGE> 106
TENNESSEE (Cont)
----------------
Columbia Integrated Health Systems, Inc.
Columbia Medical Group - Athens, Inc.
Athens Medical Group
Columbia Medical Group - Centennial, Inc.
Columbia Medical Group - Chatsworth, Inc.
Columbia Medical Group - Crockett, Inc.
Medical Practice Associates
Columbia Medical Group - Daystar, Inc.
Columbia Medical Group - Dickson, Inc.
Horizon Medical Group
Waverly Healthcare Services
Columbia Medical Group - Eastridge, Inc.
Columbia Medical Group - Franklin Medical Clinic, Inc.
Columbia Medical Group - Hendersonville, Inc.
Family Medical Center-Goodlettsville
Family Medical Center-Portland
Family Medical Center-White House
Portland Community Health Center
Columbia Medical Group - Hilcrest, Inc.
Columbia Medical Group - Hillside, Inc.
The Pediatric Center
University Medical Associates
Columbia Medical Group - Indian Path, Inc.
Indian Path Medical Group
<PAGE> 107
TENNESSEE (Cont)
----------------
Columbia Medical Group - Livingston, Inc.
Family Practice Associates of Gainesboro
Overton County Medical Center
Twin Lake Otolaryngology
Upper Cumberland Medical Associates
Columbia Medical Group - Nashville Memorial, Inc.
Internal Medicine Group
Memorial Family Medicine
Columbia Medical Group - North Side Specialty, Inc.
Family Physicians of Johnson City
Columbia Medical Group - Parkridge, Inc.
East Brainerd Medical Center
Family & Sports Medicine
Four Corners Medical Center
Gunbarrel Medical
Signal Mountain Medical Center
St. Elmo Medical Center
Columbia Medical Group - Parthenon, Inc.
Columbia Medical Group - Regional, Inc.
Jackson Regional Pediatric Center
Columbia Medical Group - River Park, Inc.
McMinnville Medical Physicians
Medical Group of McMinnville
River Park Clinic
Columbia Medical Group - South Pittsburg, Inc.
Columbia Medical Group - Southern Hills, Inc.
Columbia Cool Springs Medical Center
Family Practice Associates of Southern Hills
Internal Medicine Associates of Southern Hills
Pediatric Associates of Southern Hills
<PAGE> 108
TENNESSEE (Cont)
----------------
Columbia Medical Group - Southern Medical Group, Inc.
Columbia Medical Group - Southern Tennessee, Inc.
Southern Tennessee Medical Clinic of Monteagle
Columbia Medical Group - Stones River, Inc.
Stones River Family Medicine
Columbia Medical Group - Summit, Inc.
Summit Family Practice
Columbia Medical Group - Sycamore Shoals, Inc.
Avoca Family Health Center
Hampton Family Medical Center
Columbia Medical Group - The Frist Clinic, Inc.
The Frist Clinic
Columbia Medical Group - Trinity, Inc.
North Clarksville Medical Clinic
Trinity Family Clinic
Columbia Medical Group - Volunteer, Inc.
Martin Specialty Clinic
Columbia Medical Group - Woodbury, Inc.
Columbia Mid-America Group, Inc.
Columbia Mid-Atlantic Division, Inc.
Columbia Nashville Division, Inc.
Columbia Northeast Division, Inc.
Columbia Regional Medical Center, L.L.C.
Columbia Volunteer Division, Inc.
<PAGE> 109
TENNESSEE (Cont)
----------------
Crockett General Hospital, Inc.
Cumberland Division, Inc.
Donelson MRI Associates, L.P.
Eastern Idaho Regional, L.L.C.
Eastern Tennessee Medical Services, Inc.
General Care Corp.
Regional Hospital of Jackson
GMC Management Services Organization, L.L.C.
HCA Crossroads Residential Centers, Inc.
HCA Development Company, Inc.
HCA Health Services of Tennessee, Inc.
Centennial Medical Center/Parthenon Pavilion
Smyrna Medical Center
Southern Hills Medical Center
Summit Medical Center
HCA Home and Clinical Services, Inc.
HCA International Company
HCA Medical Services, Inc.
HCA Psychiatric Company
HCA Realty, Inc.
Healthcare Management Research and Development, Inc.
Healthtrust, Inc.-The Hospital Company (TN)
<PAGE> 110
TENNESSEE (Cont)
----------------
Hendersonville Hospital Corporation
Bluegrass Urgent Care Center
Columbia Hendersonville Hospital
Westmoreland Family Clinic
Holly Hill/Charter Behavioral Health System, L.L.C.
Hometrust Management Services, Inc.
Horizon Occupational Health Services Corporation
Hospital Corporation of Smith and Overton County
Livingston Regional Hospital
Hospital Corporation of Tennessee
Columbia Volunteer General Hospital
Martin Pediatric and Adolescent Clinic
Hospital Realty Corporation
HTI Memorial Hospital Corporation
Columbia Nashville Memorial Hospital
Columbia Subacute Services of Tennessee
HTI Tri-Cities Rehabilitation, Inc.
Indian Path Hospital, Inc.
Columbia Indian Path Surgery Center
Superior Home Medical Equipment
Indian Path Hospital, L.L.C.
<PAGE> 111
TENNESSEE (Cont)
----------------
Indian Path Rehabilitation Center, Inc.
IPN Services, Inc.
Johnson City Eye & Ear Hospital, Inc.
Judy's Foods, Inc.
Knoxville Surgicare, Ltd.
Columbia Sullins Surgery Center
Medical Resource Group, Inc.
Medical Center of Southwest Louisiana, L.P.
Medical Center of Southwest Louisiana
Medical Center Surgery Associates, L.P.
Medical Plaza Ambulatory Surgery Center Associates, L.P.
Plaza Day Surgery
Medical Plaza MRI, L.P.
Middle Tennessee Medical Services Corporation
Masterpiece Healthcare Services
TriMed Healthcare Services
Nashville Psychiatric Company, Inc.
North Florida Regional Freestanding Surgery Center, L.P.
North Side Hospital, Inc.
Northeast Tennessee Medical Center
Parkridge Hospital, Inc.
Columbia East Ridge Hospital
Columbia Parkridge Medical Center
Columbia Valley Hospital
Parkside Surgery Center, Inc.
Parthenon Financial Services, Inc.
Parthenon Travel Services, Inc.
Plano Ambulatory Surgery Associates, L.P.
Columbia Surgery Center of Plano
Quantum Innovations, Inc.
Rio Grande Surgery Center Associates, L.P.
Rio Grande Surgery Center
River Park Hospital, Inc.
River Park Hospital (TN)
<PAGE> 112
TENNESSEE (Cont)
----------------
Rivergate Surgery Center, Limited Partnership
Sanford Land Partnership
SCMH Corporation
The Renewal Center at Smith County Memorial Hospital
Southern Tennessee Ambulance Services, Inc.
SP Acquisition Corp.
Columbia Grandview Medical Center
Columbia South Pittsburg Hospital
Columbia Whitwell Medical Center
St. Mark's Ambulatory Surgery Associates, L.P.
St. Mark's Outpatient Surgery Center
Stones River Hospital, Inc.
Southern Tennessee Skilled Facility
Sullins Surgical Center, Inc.
Surgicare of Madison, Inc.
Surgicare Outpatient Center of Jackson, Inc.
Sycamore Shoals Hospital, Inc.
Tennessee Healthcare Management, Inc.
Brentwood Primary Care
Columbia Care Medical Center
Columbia CorpCare Advantage
Columbia Physician Services (TN)
Manchester Family Medicine
Marshall Medical Group
Medical Associates of Athens
Medical Group of Sparta
Primary Care Associates
Southern Tennessee Medical Center of Tracy City
The Englewood Clinic
Winchester Pediatrics
The Charter Cypress Behavioral Health System, L.L.C.
Cypress Hospital
The Psychiatric Hospital at Vanderbilt Limited Partnership
The Psychiatric Hospital at Vanderbilt
Tri-City Lithotripsy
Trident Ambulatory Surgery Center, L.P.
<PAGE> 113
TEXAS
-----
Ambulatory Endoscopy Clinic of Dallas, Ltd.
Columbia Endoscopy Clinic of Dallas
Arlington Diagnostic South, Inc.
Austin Medical Center, Inc.
Austin Diagnostic Clinic
Bailey Square Ambulatory Surgical Center, Ltd.
Bailey Square Outpatient Surgical Center, Inc.
Barrow Medical Center CT Services, Ltd.
Bay Area Healthcare Group, Ltd.
Columbia On Call
Rehabilitation Hospital of South Texas
The Corpus Christi Medical Center - Bay Area
The Corpus Christi Medical Center - Bayview
The Corpus Christi Medical Center - Doctors Regional
The Corpus Christi Medical Center - Heart Hospital
Bay Area Surgical Investors, Ltd.
Bay Area Surgicare Center, Inc.
Beaumont Healthcare System, Inc.
Beaumont Hospital, Inc.
Columbia Beaumont Medical Center
Fannin Pavilion
Bedford-Northeast Community Hospital, Inc.
Institute of Sports Rehabilitation and Fitness
Northeast Community Hospital Skilled Nursing Unit
Bellaire Imaging, Inc.
Brazos Acquisition Corp.
Brownsville-Valley Regional Medical Center, Inc.
<PAGE> 114
TEXAS (Cont)
------------
Brownwood Regional Hospital, Inc.
Columbia One Source Health Center - Comanche
Columbia One Source Health Center - Cross Plains
Columbia One Source Health Center - Dublin
Columbia One Source Health Center - Early
Columbia One Source Health Center - Rising Star
Columbia One Source Health Center - San Saba
Doctors Medical Clinic
BVMC, Inc.
Brazos Valley Medical Center - Bremond
Columbia Treatment Center
The Surgical Center
Central San Antonio Surgery Center, Ltd.
Methodist Ambulatory Surgery Center Central san Antonio
Central San Antonio Surgical Center Investors, Ltd.
CHC Management, Ltd.
C.E.P. Physical Therapy Centers, Inc.
CHC Payroll Company
CHC Realty Company
CHC-El Paso Corp.
CHC Psychiatric Management, Ltd.
CHC-Miami Corp.
Clear Lake Regional Medical Center, Inc.
Columbia Alvin Medical Center
Columbia Clear Lake Regional Medical Center
Clear lake Surgicare, Ltd.
Coastal Bend Hospital CT Services, Ltd.
COL - NAMC Holdings, Inc.
Columbia Ambulatory Surgery Division, Inc.
<PAGE> 115
TEXAS (Cont)
------------
Columbia Bay Area Realty, Ltd.
Columbia BVMC, Inc.
Columbia Call Center, Inc.
Columbia Call Center
Columbia Central Group, Inc.
Columbia Central Texas Division, Inc.
Columbia Central Verification Services, Inc.
Columbia Champions Treatment Center, Inc.
Columbia GP of Mesquite, Inc.
Columbia Greater Houston Division, Inc.
Greater Houston Division Creative Services
Greater Houston Emergency Services, Inc.
Columbia Greater Houston Division Healthcare Network, Inc.
Columbia Healthcare Network (Houston)
Columbia Hospital at Medical City Dallas Subsidiary, L.P.
Green Oaks Hospital
Medical City Dallas Hospital
Columbia Hospital Corporation at the Medical Center
Columbia Hospital Corporation of Arlington
Columbia Hospital Corporation of Bay Area
Columbia Hospital Corporation of Corpus Christi
<PAGE> 116
TEXAS (Cont)
------------
Columbia Hospital Securities Corporation
Columbia Hospital - Arlington(WC), Ltd.
Columbia Hospital - El Paso, Ltd.
Columbia Lone Star/Arkansas Division, Inc.
Columbia Medical Arts Hospital Subsidiary, L.P.
Columbia Medical Center at Lancaster Subsidiary, LP
Medical Center at Lancaster
Columbia Medical Center at Terrell, Subsidiary, LP
Columbia Medical Center Dallas Southwest Subsidiary, LP
Dallas Southwest Medical Center
Columbia Medical Center of Arlington Subsidiary, LP
Medical Center of Arlington
Columbia Medical Center of Denton Subsidiary, LP
Denton Regional Medical Center
Denton Regional Medical Center - Little Elm
Denton Regional Medical Center - Pilot Point
Denton Regional Medical Center - Valley View
Flow Rehabilitation Hospital
Professional Health Care Services
Columbia Medical Center of Las Colinas, Inc.
Las Colinas Medical Center
Columbia Medical Center of Lewisville Subsidiary, LP
Medical center of Lewisville
Columbia Medical Center of McKinney Subsidiary, LP
North Central Medical Center
<PAGE> 117
TEXAS (Cont)
------------
Columbia Medical Center of Plano Subsidiary, LP
Medical Center of Plano
Columbia Medical Center of Sherman Subsidiary, LP
Columbia Navarro Regional Hospital Subsidiary, LP
Columbia North Hills Hospital Subsidiary, LP
Columbia Physicians Daysurgery Center
Columbia North Texas Division, Inc.
Columbia North Texas Healthcare System, L.P.
Columbia North Texas Subsidiary GP, LLC
Columbia North Texas Surgery Center Subsidiary, L.P.
Columbia Northwest Medical Center, Inc.
Columbia Patient Account Services, Inc.
Columbia PDC of Dallas, Ltd.
Columbia Physicians Daysurgery Center
Columbia Plaza Medical Center of Fort Worth Subsidiary, LP
Plaza Medical Center of Fort Worth
Plaza Medical Center - East
Columbia Psychiatric Management Co.
Columbia South Texas Division, Inc.
Columbia Specialty Hospital of Dallas Subsidiary, LP
Columbia Specialty Hospitals, Inc.
Columbia Surgery Group, Inc.
Columbia-Quantum, Inc.
Columbia/HCA Healthcare Corporation of Central Texas
<PAGE> 118
TEXAS (Cont)
------------
Columbia/HCA Heartcare of Corpus Christi, Inc.
Columbia/HCA International Group, Inc.
Columbia/HCA of Houston, Inc.
Columbia/HCA of North Texas, Inc.
Columbia/HCA of San Angelo, Inc.
Columbia/HCA Western Group, Inc.
Columbia/Pasadena Healthcare System, L.P.
Columbia/St. David's Healthcare System, L.P.
Columbia Central Texas Imaging Center
Columbia/St. David's Medicenters
Lifeway Home Health (Austin, TX)
Lifeway Home Health (Austin, TX-2)
Lifeway Home Health (Bastrop, TX)
Lifeway Home Health (Giddings, TX)
Lifeway Home Health (La Grange, TX)
Lifeway Home Health (Lockhart, TX)
Lifeway Home Health (Marble Falls, TX)
Lifeway Home Health (Round Rock, TX)
Lifeway Home Health (San Marcos, TX)
Round Rock Medical Center
South Austin Hospital
St. David's Healthcare Partnership
St. David's Home Health Care
St. David's Home Health Services
St. David's Medical Center
St. David's Pavillion
St. David's Rehabilitation Center
The Pavillion at St. David's
Conroe Hospital Corporation
Conroe Regional Medical Center
Corpus Christi Healthcare Group, Ltd.
Corpus Christi Surgery, Ltd.
Surgicare of Corpus Christi
Coronado Community Hospital, Inc.
Coronado Health Network
<PAGE> 119
TEXAS (Cont)
------------
Credentialing Center of South Texas, Inc.
Crossroads Healthcare Management, LLC
Cy-Fair Surgery Center, Ltd.
Columbia Cy-Fair Surgery Center
Doctor's Hospital of Laredo Limited Partnership
Columbia Doctors Hospital of Laredo
Columbia Homecare - Doctors Hospital of Laredo
DFW Physician Services Corporation
Columbia Practice Management Services (DFW)
Doctors Hospital (Conroe), Inc.
E.P. Physical Therapy Centers, Inc.
El Paso Nurses Unlimited, Inc.
Nurses Unlimited of El Paso
El Paso Pathology Group, P.A.
El Paso Physical Therapy Centers, Ltd.
Columbia Physical Therapy Center
El Paso Surgery Center, Limited Partnership
El Paso Surgicenter, Inc.
Columbia Surgical Center of El Paso
Endoscopy Clinic of Dallas, Inc.
EPIC Properties, Inc.
EPIC/Alliance of North Texas, Ltd.
EyeCare Providers of America, Inc.
Fort Worth Investments, Inc.
<PAGE> 120
TEXAS (Cont)
------------
Galen Hospital of Baytown, Inc.
Galen Hospitals of Texas, Inc.
Dunwoody Medical Center
WellHealth Center
Gallagher Park Surgicenter, Ltd.
Columbia Surgery Center of Sherman
Gramercy Surgery Center, Ltd.
Columbia Gramercy Outpatient Surgery Center
Greater Houston Emergency Services, Inc.
Greater Houston Preferred Provider Option, Inc.
Greater Houston PPO
Gulf Coast Provider Network, Inc.
HCA Health Services of Texas, Inc.
HCA Alliance Airport Clinic
McAllen Regional Imaging Center
Med Alliance
HCA Plano Imaging, Inc.
Heart Center of Fort Worth, Ltd.
Heartcare of Texas, Ltd.
HEI Construction, Inc.
HEI Orange, Inc.
HEI Publishing, Inc.
HEI Sealy, Inc.
Houston Northwest Surgical Partners, Inc.
<PAGE> 121
TEXAS (Cont)
------------
HTI Gulf Coast, Inc.
Kingwood Surgery Center, Ltd.
Columbia Kingwood Medical Center
KPH-Consolidation, Inc.
Laredo Imaging II, Ltd.
Las Colinas Surgery Center, Ltd.
Columbia Surgery Center of Las Colinas
Longview Regional Hospital, Inc.
Longview Regional Physician Hospital Organization, Inc.
Mansfield Hospital, Inc.
Med Plus of El Paso, Inc.
Med-Center Hosp./Houston, Inc.
Medical Care Surgery Center, Inc.
Medical Center Healthcare Alliance, Inc.
Medical City Dallas Hospital, Inc.
Arlington Clinic
Columbia Children's Hospital at Medical City Dallas
Comfort Health Care Services
Las Colinas Clinic
MediPurchase, Inc.
<PAGE> 122
TEXAS (Cont)
------------
Methodist Healthcare System of San Antonio, Ltd.
Bandera Medical Clinic
Care One (Kerrville, TX)
Care One (Kerrville,TX Private Duty)
Care One (North Central San Antonio,TX)
Care One (North East San Antonio, TX)
Care One (San Antonio,TX)
Care One (San Antonio, TX private duty)
Care One (Seguin, TX)
Care One (South East San Antonio)
Methodist Homecare Health Alternatives
Metropolitan Hospital (TX)
Northeast Methodist Hospital
San Antonio Regional
Hospital Southwest Texas Methodist Hospital
Women's and Children's Hospital(TX)
Metroplex Surgicenters, Inc.
MGH Medical, Inc.
Metropolitan Transitional Care Unit
MHS Surgery Centers, L.L.C.
Mid-Cities Surgi-Center, Inc.
Midway Park Health Network, Inc.
Navarro Memorial Hospital, Inc.
Cedar Creek Medical Associates
Kerens Clinic
North Hills Surgicare, LP
North Richland Hills Surgery Center, Inc.
North Texas General, L.P.
<PAGE> 123
TEXAS (Cont)
------------
North Texas Technologies, Ltd.
Northeast Methodist Surgicare, Ltd.
Methodist Ambulatory Surgery Center - Northeast
Northeast PHO, Inc.
Northeast Texas Imaging Center, Ltd.
Oakwood Surgery Center, Ltd.
Oakwood Surgery Center
Orthopedic Hospital, Ltd.
Texas Orthopedic Hospital
Paragon of Texas Health Properties, Inc.
Paragon Physicians Hospital Organization of South Texas, Inc.
Paragon Surgery Centers of Texas, Inc.
Park Central Surgery Center, Ltd.
Parkway Cardiac Center, Ltd.
Pasadena Bayshore Hospital, Inc.
Columbia Bayshore Medical Center
Piney Woods Holdings, Inc.
Qualitycare Network of Greater Houston, Inc.
Quantum/Bellaire Imaging, Ltd.
Rim Building Partners, L.P.
Rio Grande Regional Hospital, Inc.
<PAGE> 124
TEXAS (Cont)
------------
Rio Grande Regional Investments, Inc.
Rosewood Medical Center, Inc.
Columbia Rosewood Medical Center
MRI Southwest
Rosewood Professional Office Building, Ltd.
S.A. Medical Center, Inc.
Salt Lake MRI Services, Ltd.
San Antonio Regional Hospital, Inc.
Silsbee Hospital, Inc.
Silsbee Doctors Hospital
South Texas Ambulatory Surgery Hospital, Ltd.
Methodist Ambulatory Surgical Hospital - Northwest
South Texas Surgicare, Inc.
Southwest Houston Surgicare, Inc.
Spring Branch Medical Center, Inc.
Columbia Spring Branch Medical Center
Sam Houston Memorial Hospital
Sprocket Medical Management, Inc.
Sugar Land Surgery Center, Ltd.
Sun Towers/Vista Hills Holding Co.
Sunbelt Regional Medical Center, Inc.
East Houston Regional Medical Center
<PAGE> 125
TEXAS (Cont)
------------
Surgical Center of Dallas, Inc.
Surgical Center of Irving, Inc.
Surgical Center of Southeast Texas, Ltd.
Columbia Surgical Center of Southeast Texas
Surgical Center of Wichita Falls, Inc.
Surgical Facility of West Houston, LP.
West Houston Outpatient Surgicare Center
Surgicare of Amarillo, Inc.
Surgicare of Central San Antonio, Inc.
Surgicare of Gramercy, Inc.
Surgicare of Kingwood, Inc.
Surgicare of North San Antonio, Inc.
Surgicare of Northeast San Antonio, Inc.
Surgicare of Round Rock, Inc.
Surgicare of Sherman, Inc.
Surgicare of Southeast Texas, Inc.
Surgicare of Sugar Land, Inc.
Surgicare of Travis Center, Inc.
Columbia Travis Centre Outpatient Surgery
Surgicare of Victoria, Inc.
Surgicare of Victoria, Ltd.
<PAGE> 126
UTAH
----
Brigham City Community Hospital, Inc.
Brigham City Community Hospital
Brigham City Health Plan, Inc.
Brigham City Physicians Group, Inc.
Castleview Hospital, Inc.
Columbia Mountain Division, Inc.
Columbia Ogden Medical Center, Inc.
Columbia Ogden Regional Medical Center
Columbia Utah Division, Inc.
Eastern Utah Health Plan, Inc.
General Hospitals of Galen, Inc.
Columbia Cartersville Medical Center
Davis Hospital and Medical Center
Peachtree Health and Fitness Center
Peachtree Regional Hospital
Healthcare of Central Utah, Inc.
Healthtrust Utah Management Services, Inc.
Hospital Corporation of Utah
Bountiful Laundry
Lakeview Hospital
HTI Homemed of Utah, Inc.
HTI of Utah, Inc.
HTI Physician Services of Utah, Inc.
HTI Utah Data Corporation
Lakeview Health Plan, Inc.
Medico Home Health Equipment, Ltd.
MHHE Corporation
<PAGE> 127
UTAH (Cont)
-----------
Mountain View Health Plan, Inc.
Mountain View Hospital, Inc.
Mountain View Catering
Mountain View Hospital
Timpanogos Regional Hospital
Mountain View Medical Office Building, Ltd.
Northern Utah Healthcare Corporation
Columbia St. Mark's Hospital
Ogden Regional Health Plan, Inc.
Pioneer Valley Hospital, Inc.
Columbia Jefferson Medical Center
Pioneer Valley Hospital
Premier Medical Network, Inc.
Salt Lake City Surgicare, Inc.
Southridge Professional Plaza, L.L.C.
St. Mark's Ambulatory Surgery Associates, L.P.
St. Mark's Ambulatory Surgery Center
St. Mark's Investments, Inc.
St. Mark's Physicians, Inc.
The Wasatch Endoscopy Center, Ltd.
West Jordan Hospital Corporation
<PAGE> 128
VIRGINIA
--------
Alleghany Primary Care, Inc.
Ambulatory Services Management Corp. of Chesterfield County, Inc.
Behavioral Health of Virginia Corporation
Chicago Medical School Hospital, Inc.
Chippenham and Johnston-Willis Hospitals, Inc.
Amelia Healthcare Clinic
Chippenham Medical Center
Johnston-Willis Hospital
Tucker Pavilion
Columbia Arlington Healthcare System, LLC
Arlington Hospital
Columbia Dominion Hospital
Columbia Fairfax Imaging
Columbia Fairfax Surgical Center
Columbia Reston Hospital Center
Northern Virginia Homecare
Columbia Central Atlantic Division, Inc.
Columbia Healthcare of Central Virginia
Bon Air Family Practice
Columbia Practice Services
Columbia Primary Care
Medical Office Services
Richmond Specialty Group
South Richmond Family Physicians
<PAGE> 129
VIRGINIA (Cont)
---------------
Columbia Home Therapies of Virginia, Inc.
Columbia Medical Group - Southwest Virginia
Columbia Pentagon City Hospital, L.L.C.
Columbia Pentagon City Hospital
Columbia Physicians Services, Inc.
Columbia Primary Care Associates, Ltd.
Ashburn Medical Center
Associates in Medicine - Burke
Associates in Medicine - Carlin Springs
Associates in Medicine - Centerville
Associates in Medicine - Fairfax
Associates in Medicine - Fairlington
Associates in Medicine - Falls Church
Associates in Medicine - Falls Church East
Associates in Medicine - Merrifield
Associates in Medicine - Reston
Associates in Medicine - Vienna
Purceville Medical Center
Purceville Urgent Care
Reston Town Center Internal Medicine
Tysons Corner Medical Center
Tysons Pediatrics
Union Mill Medical Center
<PAGE> 130
VIRGINIA (Cont)
---------------
Columbia Richmond Division, Inc.
Columbia South Little Rock, Inc.
Columbia/Alleghany Regional Hospital, Inc.
Alleghany Healthcare Services
Alleghany Regional Hospital
Columbia/HCA John Randolph, Inc.
Columbia John Randolph Medical Center River Bend
Columbia John Randolph Medical Center
Columbia/HCA Retreat Hospital, Inc.
Columbia Retreat Hospital
Galen of Virginia
Galen Virginia Hospital Corporation
Galen-Med, Inc.
Columbia Clinch Valley Medical Center
Columbia Lake Area Surgicare
<PAGE> 131
VIRGINIA (Cont)
---------------
HCA Health Services of Virginia, Inc.
Greater Richmond Physician Referral Service
HCA Chester Office
Henrico Doctors Hospital
Lewis-Gale Psychiatric Center
Petersburg Psychiatric Hospital
Reston Town Center Pediatrics
Imaging and Surgery Centers Of Virginia, Inc.
Insight Clinic Services, LC
Lewis-Gale Hospital, Inc.
Management Services of the Virginias, Inc.
Medical Imaging & Technology Associates
Montgomery Regional Hospital, Inc.
Blue Ridge Health Clinic
Montgomery Regional Hospital
MOS Temps, Inc.
MRI of Reston Limited Partnership
New River Healthcare Plan, Inc.
NOCO, Inc.
<PAGE> 132
VIRGINIA (Cont)
---------------
Northern Virginia Hospital Corporation
Preferred Care of Richmond, Inc.
Preferred Hospitals, Inc.
Primary Health Group, Inc.
Pulaski Community Hospital, Inc.
Pulaski Community Hospital
Reston Hospital Lithotripter, J.V.
Richmond Medical Commons, LLC
Surgicare of Virginia, Inc.
United Ambulance Service, Inc.
Virginia Hematology & Oncology Associates, Inc.
Virginia Psychiatric Company, Inc.
Barcroft Institute
Peninsula Behavioral Center
Peninsula Hospital
Perspectives Health Services of Canada
Poplar Springs Hospital
<PAGE> 133
WASHINGTON
----------
ACH, Inc.
Capital Network Services, Inc.
Columbia Capital Medical Center Limited Partnership
<PAGE> 134
WEST VIRGINIA
-------------
Charleston Hospital, Inc.
Columbia St. Francis Hospital
St. Francis Health Clinic
Columbia Parkersburg Healthcare System, Inc.
Columbia/HCA WVMS Member, Inc.
Columbia Mobile Services
Columbia-S.J. Ventures Properties, Limited Partnership
Columbia-St. Joseph's Healthcare System, Limited Partnership
St. Joseph's Hospital
Galen of West Virginia, Inc.
Columbia Home Infusion Services
Galen Shared Services
St. Lukes Hospital
HCA Health Services of West Virginia, Inc.
Hospital Corporation of America
Raleigh General Hospital
All Care Medical Supply
Beckley Hospital
Raleigh General Hospital
St. Luke's Princeton, LLC
Teays Valley Health Services Corp.
Putnam General Hospital
Tri Cities Health Services Corp.
Columbia River Park Hospital (WVA)
<PAGE> 135
WEST VIRGINIA (Cont)
--------------------
West Virginia Management Services Organization, Inc.
Columbia Behavioral Health Network
Physicians Care of The Virginias
Zone, Incorporated
<PAGE> 136
WISCONSIN
---------
Psychiatric Company of Dane County, Inc.
<PAGE> 137
WYOMING
-------
Riverton MSO, Inc.
Wyoming Health Services, Inc.
<PAGE> 1
EXHIBIT 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
on Forms S-3 (File Nos. 333-05005,333-01337, 33-64105, 33-53661, 33-53409,
33-52379, and 33-50985) and Forms S-8 (File Nos. 333-64479, 333-33881,
333-18169, 33-62309, 33-62303, 33-55511, 33-55509, 33-55272, 33-55270,
33-52253, 33-51114, 33-51082, 33-51052, 33-50151, 33-50147, 33-49783 and
33-36571) of our report dated February 19, 1999 with respect to the consolidated
financial statements included in this Annual Report (Form 10-K) of Columbia/HCA
Healthcare Corporation for the year ended December 31, 1998.
/s/ ERNST & YOUNG LLP
Nashville, Tennessee
March 26, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENTS OF INCOME AND BALANCE SHEETS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 297
<SECURITIES> 0
<RECEIVABLES> 3,741
<ALLOWANCES> 1,645
<INVENTORY> 434
<CURRENT-ASSETS> 3,863
<PP&E> 15,644
<DEPRECIATION> 6,195
<TOTAL-ASSETS> 19,429
<CURRENT-LIABILITIES> 3,559
<BONDS> 5,685
0
0
<COMMON> 6
<OTHER-SE> 7,575
<TOTAL-LIABILITY-AND-EQUITY> 19,429
<SALES> 0
<TOTAL-REVENUES> 18,681
<CGS> 0
<TOTAL-COSTS> 10,712
<OTHER-EXPENSES> 3,771
<LOSS-PROVISION> 1,442
<INTEREST-EXPENSE> 561
<INCOME-PRETAX> 1,081
<INCOME-TAX> 549
<INCOME-CONTINUING> 532
<DISCONTINUED> (153)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 379
<EPS-PRIMARY> .59
<EPS-DILUTED> .59
</TABLE>
