LifePoint Hospitals, Inc.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2005
or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___to ___
Commission file number: 000-51251
(Exact Name of Registrant as Specified in its Charter)
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Delaware
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20-1538254 |
(State or Other Jurisdiction of
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(I.R.S. Employer |
Incorporation or Organization)
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Identification No.) |
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103 Powell Court, Suite 200
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37027 |
Brentwood, Tennessee
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(Zip Code) |
(Address Of Principal Executive Offices) |
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(615) 372-8500
(Registrants Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
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Common Stock, par value $.01 per share
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Preferred Stock Purchase Rights |
(Title of Class)
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(Title of Class) |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act. Yes o No þ
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 þ No o
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 registrants 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. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Act). Yes o No þ
The aggregate market value of the shares of registrants Common Stock held by non-affiliates
as of June 30, 2005, was approximately $2.6 billion.
As of January 31, 2006, the number of outstanding shares of the registrants Common Stock was
57,112,862.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for our 2006 annual meeting of stockholders are
incorporated by reference into Part III of this report.
PART I
Item 1. Business.
Overview of Our Company
LifePoint Hospitals, Inc. is one of the largest owners and operators of general acute care
hospitals in non-urban communities in the United States. LifePoint Hospitals, Inc. is a holding
company. Its subsidiaries own, lease and operate their respective facilities and other assets.
Unless the context otherwise indicates, references in this report to LifePoint, the Company,
we, our or us are references to LifePoint Hospitals, Inc., and/or its wholly-owned and
majority-owned subsidiaries. Any reference herein to our hospitals, facilities or employees refers
to the hospitals, facilities or employees of subsidiaries of LifePoint Hospitals, Inc.
At December 31, 2005, we operated 53 hospitals, including one hospital that was disposed of
effective January 1, 2006 and two hospitals that are part of discontinued operations not yet
divested. In all but four of the communities in which our hospitals are located, we are the only
provider of acute care hospital services. Our hospitals are geographically diversified across 20
states: Alabama, Arizona, California, Colorado, Florida, Indiana, Kansas, Kentucky, Louisiana,
Mississippi, Nevada, New Mexico, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia,
West Virginia and Wyoming. We generated $1,855.1 million, $996.9 million and $875.6 million in
revenues from continuing operations during 2005, 2004 and 2003, respectively.
We were formed as a division of HCA Inc. (HCA) in November 1997 to operate general acute
care hospitals in non-urban communities. We became an independent, publicly traded company on May
11, 1999 when HCA distributed all outstanding shares of our common stock to its stockholders. As
part of this transaction, we entered into agreements with HCA to define our ongoing relationships
following the distribution and to allocate tax, employee benefits and other liabilities and
obligations arising from periods prior to May 11, 1999.
Business Combination with Province Healthcare Company
On April 15, 2005, we completed our business combination with Province Healthcare Company
(Province). Province was a public company that, as of April 15, 2005, operated 21 general acute
care hospitals in non-urban communities in the United States. As a result of the Province business
combination, we acquired all of the outstanding capital stock of each of Province and Historic
LifePoint (formerly LifePoint Hospitals, Inc.). We issued 15.0 million shares of our common stock
and paid $586.3 million in cash to the then-existing stockholders of Province. In addition, each
share of common stock of Historic LifePoint was converted into a share of our common stock
(Company Common Stock) on a one-for-one basis without any action required to be taken by the
holders of such shares of Historic LifePoint common stock.
As a result of the Province business combination, we became the successor issuer to Historic
LifePoint under the Securities Exchange Act of 1934, as amended (the Exchange Act), and succeeded
to Historic LifePoints reporting obligations thereunder. All $28.9 million of Historic LifePoint
treasury stock were retired as of the effective date of the Province business combination.
In connection with the closing of the Province business combination, shares of Historic
LifePoint common stock, which had been listed and traded on the Nasdaq National Market under the
ticker symbol LPNT, ceased to be listed and traded on the
Nasdaq National Market. However, immediately upon the closing of the
Province business combination, shares
of Company Common Stock became listed and traded on the Nasdaq National Market under the ticker
symbol LPNT.
We believe that the Province business combination has provided and will continue to provide
efficiencies and enhance our ability to compete effectively. As a result of the Province business
combination, we are more geographically and financially diversified in our asset base. In addition,
we believe that we have greater resources and increased opportunities for growth and margin
expansion. The results of operations of Province are included in our results of operations
beginning April 16, 2005.
1
Availability of Information
Our
website is www.lifepointhospitals.com. We make available free of charge on this website
under Investor Information SEC Filings our annual reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished as soon
as reasonably practicable after we electronically file such materials with, or furnish them to, the
United States Securities and Exchange Commission (SEC).
Operating Philosophy
We are committed to operating hospitals in non-urban markets. As a result, we adhere to an
operating philosophy that is focused on the unique patient and provider needs and opportunities in
these communities. Our philosophy includes a commitment to:
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increasing the scope and improving the quality of available healthcare
services; |
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providing physicians a positive environment in which to practice medicine, with
access to necessary equipment, office space and resources needed to operate their
practices; |
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providing an outstanding work environment for employees; |
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recognizing and expanding the hospitals role as a community asset; and |
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continuing to improve each hospitals financial performance. |
The Non-Urban Healthcare Market
We believe that non-urban communities present opportunities for us because of the following
factors:
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Less Competition than Urban Markets. Because non-urban communities have smaller
populations, they generally have fewer hospitals and other healthcare service providers.
Additionally, because non-urban hospitals are generally sole providers or one of a small
group of providers in their markets, there is limited competition. However, we are
experiencing an increase in competition from other specialized care providers, including
outpatient surgery, oncology, physical therapy and diagnostic centers, as well as competing
services rendered in physician offices. |
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Community Focus. We believe that the local hospital generally is viewed as an integral
part of the community. In addition, we believe that non-urban communities are generally
characterized by a high level of patient and physician loyalty that fosters cooperative
relationships among the local hospitals, physicians, employees and patients. |
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Acquisition Opportunities. Currently, not-for-profit and governmental entities own
most non-urban hospitals. These entities often have limited access to the capital needed to
keep pace with advances in medical technology. In addition, these entities sometimes lack
the management resources necessary to control hospital expenses, recruit and retain
physicians, expand healthcare services and comply with increasingly complex reimbursement
and managed care requirements. As a result, patients may migrate, be referred by local
physicians, or be encouraged by managed care plans to travel to hospitals in larger, urban
markets. We believe that, as a result of these pressures, many not-for-profit and
governmental owners of non-urban hospitals who wish to maximize the value of their
community assets and preserve the local availability of quality healthcare services are
interested in selling or leasing these hospitals to a company like ours, that is committed
to the local delivery of healthcare and that has greater access to capital and management
resources. Of the 35 hospitals that we have acquired since our spin-off from HCA in 1999
and that Province acquired prior to our business combination with Province in April 2005,
28 were acquired from either not-for-profit or governmental entities. |
2
Business Strategy
We manage our hospitals in accordance with our operating philosophy and have developed the
following strategies tailored for each of our markets:
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Expand Breadth of Services and Attract Community Patients. We strive to increase revenues by
broadening the scope and improving the quality of healthcare services available at our
facilities and by recruiting physicians with a broader range of specialties. We believe that
our expansion of available treatments, our emphasis on quality and our community focus will
encourage residents in the non-urban communities we serve to seek care locally at our
facilities rather than at facilities outside the area. To broaden our services, we have
entered into outpatient joint ventures in a few of our communities. In addition, we have
undertaken projects in a majority of our hospitals that are targeted at expanding specialty
services. Capital expenditures related to these projects were as follows for the years
presented (dollars in millions): |
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Number of |
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Expansion or Renovation Project |
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Projects |
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2001 |
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2002 |
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2003 |
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2004 |
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2005 |
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Operating room expansions |
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18 |
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$ |
11.8 |
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$ |
10.4 |
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$ |
8.7 |
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$ |
0.8 |
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$ |
0.7 |
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New/replacement hospitals |
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3 |
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29.2 |
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MRI additions |
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20 |
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4.1 |
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8.5 |
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4.9 |
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3.1 |
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4.1 |
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Medical office building additions |
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20 |
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1.1 |
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4.8 |
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6.3 |
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4.1 |
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11.8 |
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Patient room additions |
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3 |
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1.5 |
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7.2 |
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9.3 |
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15.6 |
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CT scanner additions |
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15 |
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3.6 |
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0.7 |
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2.1 |
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5.2 |
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Emergency room expansions |
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8 |
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0.7 |
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0.5 |
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3.8 |
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7.6 |
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10.3 |
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Rehabilitation additions |
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7 |
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2.8 |
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1.8 |
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2.3 |
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Cardiac catheterization lab additions |
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5 |
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3.1 |
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2.0 |
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Miscellaneous expansions |
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14 |
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0.5 |
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5.7 |
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8.8 |
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21.1 |
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23.3 |
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113 |
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$ |
21.8 |
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$ |
38.0 |
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$ |
43.5 |
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$ |
50.4 |
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$ |
100.2 |
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This table reflects approved expansion projects and is updated as incremental costs are incurred
on projects previously approved. |
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Strengthen Physician Recruiting and Retention. We believe that
recruiting physicians who are interested in practicing in local
communities is critical to increasing the quality of healthcare and
the breadth of available services at our facilities. Our physician
recruitment program is currently focused on recruiting additional
specialty care physicians and primary care physicians. Our local
management teams are focused on working more effectively with
individual physicians and physician practices. We believe that
expansion of the range of available treatments at our hospitals should
also assist in physician recruiting and contribute to the sense that
our hospitals are community assets. |
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Improve Expense Management. We seek to control costs by, among other
things, attempting to improve employee productivity and decrease the
use of contract labor, controlling supply expenses through the use of
a group purchasing organization, controlling professional and general
liability insurance expenses through the utilization of risk
management and quality care programs, and reducing uncollectible
revenues. We have implemented cost control initiatives that include
efforts to adjust staffing levels according to patient volumes,
modifying supply purchases according to usage patterns and providing
support to hospital staff in more efficient billing and collection
processes. We believe that as our company grows, we should benefit
from our ability to spread certain fixed costs over a larger base of
operations. |
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Retain and Develop Stable Management. We seek to retain the executive
teams at our hospitals to enhance medical staff relations and maintain
continuity of relationships within the community. We focus our
recruitment of managers on those who wish to live and practice in the
communities in which our hospitals are located and we allow our
hospital executives to participate in our stock incentive plans. |
3
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Improve Managed Care Revenues. We continue to strive to improve our
revenues from managed care plans by negotiating facility-specific
contracts with these payors on terms appropriate for non-urban
markets. |
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Acquire Other Hospitals. We continue to pursue a selective
acquisition strategy and seek to identify and acquire hospitals in
non-urban markets that are the sole or significant market provider of
healthcare services in the community. By implementing our operating
strategies, we believe that we may attract many of the patients in
these markets that historically have sought care elsewhere. From time
to time, we may evaluate our facilities and sell assets that we
believe, for various reasons, may no longer fit within our long-term
strategy. |
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We believe that our strategic goals align our interests with those of the local communities
served by our hospitals. We believe that the following qualities enable us to compete
successfully for acquisitions: |
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our commitment to maintaining the local availability of quality healthcare services; |
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our practice of providing market-specific, broader-based healthcare; |
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our focus on physician recruiting and retention; |
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our managements operating experience; |
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our access to financing and our liquidity; and |
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our ability to provide the necessary equipment and resources for physicians. |
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Develop New Hospitals and Replace Existing Hospitals. We continue to focus on improving the operations of our new
hospitals as well as seeking additional opportunities. Consistent with our operating strategies, we continually evaluate
the communities we serve and our existing facilities to determine where replacement facilities would be beneficial. |
4
Acquisitions
Since our inception in 1999, we have acquired the following hospitals (dollars in millions):
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Acquired |
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Acquisition |
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Purchase |
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Licensed |
Hospital Name |
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Location |
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Price (a) |
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Beds |
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Danville Regional Medical Center (b) |
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July 1, 2005 |
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Danville, VA |
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$ |
210.0 |
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350 |
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Wythe County Community Hospital (b) |
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June 1, 2005 |
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Wytheville, VA |
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49.8 |
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104 |
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Province business combination: |
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1,797.6 |
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2,529 |
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Ashland Regional Medical Center (b), (d) |
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April 15, 2005 |
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Ashland, PA |
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N/A |
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123 |
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Bolivar Medical Center (b) |
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April 15, 2005 |
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Cleveland, MS |
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N/A |
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165 |
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Coastal Carolina Medical Center |
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April 15, 2005 |
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Hardeeville, SC |
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N/A |
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41 |
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Colorado Plains Medical Center (b) |
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April 15, 2005 |
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Fort Morgan, CO |
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N/A |
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50 |
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Colorado River Medical Center (b) |
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April 15, 2005 |
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Needles, CA |
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N/A |
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49 |
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Doctors Hospital of Opelousas |
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April 15, 2005 |
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Opelousas, LA |
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N/A |
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171 |
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Ennis Regional Medical Center (b) |
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April 15, 2005 |
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Ennis, TX |
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N/A |
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45 |
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Eunice Community Medical Center (b) |
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April 15, 2005 |
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Eunice, LA |
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N/A |
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72 |
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Havasu Regional Medical Center (b) |
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April 15, 2005 |
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Lake Havasu City, AZ |
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N/A |
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138 |
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Los Alamos Medical Center (b) |
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April 15, 2005 |
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Los Alamos, NM |
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N/A |
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47 |
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Medical Center of Southern Indiana (b), (d) |
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April 15, 2005 |
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Charlestown, IN |
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N/A |
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96 |
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Memorial Hospital of Martinsville (b) |
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April 15, 2005 |
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Martinsville, VA |
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N/A |
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237 |
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Memorial Medical Center (b) |
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April 15, 2005 |
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Las Cruces, NM |
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N/A |
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286 |
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Minden Medical Center |
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April 15, 2005 |
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Minden, LA |
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N/A |
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159 |
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Northeastern Nevada Regional Hospital (b) |
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April 15, 2005 |
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Elko, NV |
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N/A |
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75 |
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Palestine Regional Medical Center (b) |
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April 15, 2005 |
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Palestine, TX |
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N/A |
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249 |
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Palo Verde Hospital (b), (e) |
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April 15, 2005 |
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Blythe, CA |
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N/A |
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51 |
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Parkview Regional Hospital (b) |
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April 15, 2005 |
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Mexia, TX |
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N/A |
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59 |
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Starke Memorial Hospital (b) |
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April 15, 2005 |
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Knox, IN |
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N/A |
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53 |
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Teche Regional Medical Center (b) |
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April 15, 2005 |
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Morgan City, LA |
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N/A |
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149 |
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Vaughan Regional Medical Center (b) |
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April 15, 2005 |
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Selma, AL |
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N/A |
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214 |
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River Parishes Hospital |
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July 1, 2004 |
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LaPlace, LA |
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24.0 |
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106 |
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Spring View Hospital (b) |
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October 1, 2003 |
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Lebanon, KY |
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16.1 |
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113 |
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Logan
Regional Medical Center (b) and Guyan Valley Hospital (b) |
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December 1, 2002 |
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Logan, WV |
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87.5 |
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151 |
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Lakeland
Community Hospital (b) and Northwest Medical Center (b) |
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December 1, 2002 |
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Haleyville, AL |
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22.1 |
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170 |
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Russellville Hospital (b) |
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October 3, 2002 |
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Russellville, AL |
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19.8 |
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100 |
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Ville Platte Medical Center (b) |
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December 1, 2001 |
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Ville Platte, LA |
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11.1 |
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116 |
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Athens Regional Medical Center |
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October 1, 2001 |
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Athens, TN |
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17.0 |
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118 |
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Bluegrass Community Hospital (b), (c) |
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January 2, 2001 |
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Versailles, KY |
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3.2 |
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25 |
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Lander Valley Medical Center |
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July 1, 2000 |
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Lander, WY |
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29.8 |
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102 |
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Putnam Community Medical Center |
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June 16, 2000 |
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Palatka, FL |
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43.5 |
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141 |
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(a) |
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Excluding working capital, except for the Province business combination. |
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(b) |
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Immediately prior to the acquisition of this hospital by Province or us, it was owned by
a not-for-profit or governmental entity. |
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(c) |
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Initially an operating lease; we exercised our option to purchase Bluegrass Community
Hospital for $3.2 million in January 2005. |
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(d) |
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Held-for-sale hospital. |
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(e) |
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Divested effective January 1, 2006. |
5
Dispositions
Since our inception in 1999, we have disposed of the following hospitals (dollars in millions):
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Sale |
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Licensed |
Hospital Name |
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Disposition Date |
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Location |
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Price |
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Beds |
Palo Verde Hospital |
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January 1, 2006 |
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Blythe, CA |
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51 |
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Bartow Memorial Hospital |
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March 31, 2005 |
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Bartow, FL |
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$ |
33.0 |
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56 |
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Springhill Medical Center |
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November 17, 2000 |
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Springhill, LA |
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5.7 |
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63 |
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Barrow Medical Center |
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September 1, 2000 |
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Barrow, GA |
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2.2 |
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56 |
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Riverview Medical Center |
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August 1, 2000 |
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Gonzales, LA |
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20.7 |
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104 |
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Halstead Hospital |
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April 1, 2000 |
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Halstead, KS |
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177 |
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Trinity Hospital |
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February 1, 2000 |
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Erin, TN |
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2.4 |
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40 |
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In addition to the above dispositions, we have two hospitals classified in discontinued
operations that we have not yet divested. The two hospitals to be divested
in the first half of 2006 are Ashland Regional Medical Center and Medical Center of Southern
Indiana. We have entered into a definitive agreement to sell both of these hospitals.
Operations
Our hospitals provide the range of medical and surgical services commonly available in
hospitals in non-urban markets. These services generally include general surgery, internal
medicine, obstetrics, emergency room care, radiology, oncology, diagnostic care, coronary care,
rehabilitation services, pediatric services, behavioral health services, psychiatric care and, in
some of our hospitals, specialized services such as open-heart surgery, skilled nursing and
neuro-surgery. We also provide outpatient services such as one-day surgery, laboratory, x-ray,
respiratory therapy, imaging and lithotripsy.
Each of our hospitals has a local board of trustees that includes members of the hospitals
medical staff as well as community leaders. The board establishes policies concerning medical,
professional and ethical practices, monitors these practices, and is responsible for reviewing
these practices in order to determine that they conform to established standards. We maintain
quality assurance programs to support and monitor quality of care standards and to meet
accreditation and regulatory requirements. We also monitor patient care evaluations and other
quality of care assessment activities on a regular basis.
Like most hospitals located in non-urban markets, our hospitals do not engage in extensive
medical research and medical education programs. However, two of our hospitals have an affiliation
with medical schools, including the clinical rotation of medical students and one of our hospitals
owns and operates a school of health professions with a nursing program and a radiologic technology
program.
In addition to providing access to capital resources, we make available a variety of
management services to our hospitals. These services include, among other things:
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accounting, financial, tax, managed care and reimbursement management; |
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clinical management; |
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construction oversight and management; |
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corporate ethics and compliance; |
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education and training; |
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employee benefit strategies; |
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HIPAA compliance; |
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human resources management; |
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information and clinical systems; |
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internal auditing and consulting; |
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legal management; |
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managed care contracting; |
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materials management; |
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physician recruiting; |
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physician services management; |
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quality resource management; |
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risk management; and |
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revenue cycle management. |
We participate along with other healthcare companies in a group purchasing organization,
HealthTrust Purchasing Group, which makes certain national supply and equipment contracts available
to our facilities. We own approximately a 4.5% equity interest in this group purchasing
organization.
Seasonality
We typically experience higher patient volumes and revenues in the first and fourth quarters
of each year. We typically experience these seasonal volume and revenue peaks because more people
generally become ill during the winter months, resulting in an increased number of patients we
treat during those months.
7
Properties
The following table presents certain information with respect to our hospitals as of December
31, 2005:
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Licensed Beds |
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Acquisition/ |
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Operational |
Hospital Name |
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Acute |
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Psychiatric |
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Rehabilitation |
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SNF (a) |
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Total |
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Swing (b) |
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Opening/Lease Date |
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Status |
Alabama |
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Andalusia Regional Hospital |
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101 |
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12 |
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113 |
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HCA Spin-off |
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Own |
Lakeland Community Hospital (c) |
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50 |
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50 |
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10 |
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12/1/2002 |
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Own |
Northwest Medical Center |
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61 |
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10 |
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71 |
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12/1/2002 |
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Own |
Russellville Hospital |
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100 |
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100 |
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10 |
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10/3/2002 |
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Own |
Vaughan Regional Medical Center |
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175 |
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175 |
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4/15/2005 (g) |
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Own |
Arizona |
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Havasu Regional Medical Center (c) |
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119 |
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19 |
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138 |
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4/15/2005 (g) |
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Own |
Valley View Medical Center |
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50 |
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10 |
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60 |
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11/8/2005 |
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Own |
California |
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Colorado River Medical Center (f) |
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25 |
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25 |
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4/15/2005 (g) |
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Lease |
Palo Verde Hospital (c), (e) |
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51 |
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51 |
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4/15/2005 (g) |
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Lease |
Colorado |
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Colorado Plains Medical Center (c), (h) |
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40 |
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10 |
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50 |
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4/15/2005 (g) |
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Lease |
Florida |
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Putnam Community Medical Center |
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131 |
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10 |
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141 |
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6/16/2000 |
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Own |
Indiana |
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Medical Center of Southern Indiana (d) |
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78 |
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18 |
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96 |
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4/15/2005 (g) |
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Own |
Starke Memorial Hospital |
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45 |
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8 |
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53 |
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6 |
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4/15/2005 (g) |
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Lease |
Kansas |
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Western Plains Regional Hospital (c) |
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74 |
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16 |
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9 |
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99 |
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HCA Spin-off |
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Own |
Kentucky |
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Bluegrass Community Hospital (f) |
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25 |
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25 |
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15 |
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1/2/2001 |
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Own |
Bourbon Community Hospital |
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33 |
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25 |
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58 |
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10 |
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HCA Spin-off |
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Own |
Georgetown Community Hospital |
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75 |
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75 |
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10 |
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HCA Spin-off |
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Own |
Jackson Purchase Medical Center |
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107 |
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107 |
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10 |
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HCA Spin-off |
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Own |
Lake Cumberland Regional Hospital (c) |
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186 |
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34 |
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27 |
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12 |
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259 |
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HCA Spin-off |
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Own |
Logan Memorial Hospital |
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92 |
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92 |
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10 |
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HCA Spin-off |
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Own |
Meadowview Regional Medical Center |
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101 |
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101 |
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10 |
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HCA Spin-off |
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Own |
Spring View Hospital |
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75 |
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75 |
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6 |
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10/1/2003 |
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Own |
Louisiana |
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Doctors Hospital of Opelousas (h) |
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117 |
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32 |
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22 |
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171 |
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4/15/2005 (g) |
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Own |
Eunice Community Medical Center (h) |
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72 |
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72 |
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4/15/2005 (g) |
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Lease |
Minden Medical Center |
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127 |
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20 |
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12 |
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159 |
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4/15/2005 (g) |
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Own |
River Parishes Hospital |
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106 |
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106 |
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7/1/2004 |
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Own |
Teche Regional Medical Center (c) |
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140 |
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9 |
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149 |
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4/15/2005 (g) |
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Lease |
Ville Platte Medical Center |
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95 |
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95 |
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10 |
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12/1/2001 |
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Own |
Mississippi |
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Bolivar Medical Center (c) |
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153 |
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12 |
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165 |
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4/15/2005 (g) |
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Lease |
Nevada |
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Northeastern Nevada Regional Hospital (c) |
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75 |
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75 |
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4/15/2005 (g) |
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Own |
New Mexico |
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Los Alamos Medical Center (c) |
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47 |
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47 |
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6 |
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4/15/2005 (g) |
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Own |
Memorial Medical Center |
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|
274 |
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12 |
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286 |
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4/15/2005 (g) |
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Lease |
Pennsylvania |
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Ashland Regional Medical Center (d) |
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83 |
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40 |
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123 |
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4/15/2005 (g) |
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Own |
South Carolina |
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Coastal Carolina Medical Center |
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31 |
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10 |
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41 |
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4/15/2005 (g) |
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Own |
Tennessee |
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Athens Regional Medical Center |
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118 |
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118 |
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10 |
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10/1/2001 |
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Own |
Crockett Hospital |
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|
97 |
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10 |
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107 |
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HCA Spin-off |
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Own |
Emerald-Hodgson Hospital |
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21 |
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20 |
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41 |
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HCA Spin-off |
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Own |
Hillside Hospital |
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|
81 |
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14 |
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95 |
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5 |
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HCA Spin-off |
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Own |
Livingston Regional Hospital |
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|
100 |
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14 |
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114 |
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14 |
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HCA Spin-off |
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Own |
Smith County Memorial Hospital |
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|
53 |
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10 |
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63 |
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|
10 |
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HCA Spin-off |
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Own |
Southern Tennessee Medical Center |
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|
107 |
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|
12 |
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|
12 |
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|
26 |
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|
|
157 |
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HCA Spin-off |
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Own |
8
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Licensed Beds |
|
Acquisition/ |
|
Operational |
Hospital Name |
|
Acute |
|
Psychiatric |
|
Rehabilitation |
|
SNF (a) |
|
Total |
|
Swing (b) |
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Opening/Lease Date |
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Status |
Texas |
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Ennis Regional Medical Center |
|
|
45 |
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|
45 |
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|
|
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|
4/15/2005 (g) |
|
Lease |
Palestine Regional Medical Center (c) |
|
|
163 |
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|
|
38 |
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|
|
39 |
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|
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|
|
|
240 |
|
|
|
|
|
|
4/15/2005 (g) |
|
Own |
Parkview Regional Hospital (c), (h) |
|
|
49 |
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|
10 |
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|
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|
59 |
|
|
|
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4/15/2005 (g) |
|
Lease |
Utah |
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Ashley Valley Medical Center (c) |
|
|
39 |
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|
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|
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|
|
|
|
|
|
39 |
|
|
|
39 |
|
|
HCA Spin-off |
|
Own |
Castleview Hospital (c) |
|
|
84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84 |
|
|
|
12 |
|
|
HCA Spin-off |
|
Own |
Virginia |
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|
|
|
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|
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|
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|
|
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|
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Danville Regional Medical Center |
|
|
245 |
|
|
|
35 |
|
|
|
10 |
|
|
|
60 |
|
|
|
350 |
|
|
|
|
|
|
7/1/2005 |
|
Own |
Memorial Hospital of Martinsville |
|
|
225 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
237 |
|
|
|
|
|
|
4/15/2005 (g) |
|
Own |
Wythe County Community Hospital (c) |
|
|
96 |
|
|
|
|
|
|
|
|
|
|
|
8 |
|
|
|
104 |
|
|
|
9 |
|
|
6/1/2005 |
|
Lease |
West Virginia |
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|
|
|
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Guyan Valley Hospital (f) |
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19 |
|
|
|
19 |
|
|
12/1/2002 |
|
Own |
Logan Regional Medical Center (c) |
|
|
124 |
|
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
132 |
|
|
|
|
|
|
12/1/2002 |
|
Own |
Wyoming |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lander Valley Medical Center (c), (h) |
|
|
66 |
|
|
|
15 |
|
|
|
8 |
|
|
|
|
|
|
|
89 |
|
|
|
|
|
|
7/1/2000 |
|
Own |
Riverton Memorial Hospital (c), (h) |
|
|
70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70 |
|
|
|
|
|
|
HCA Spin-off |
|
Own |
|
|
|
|
|
|
|
|
|
|
4,916 |
|
|
|
296 |
|
|
|
257 |
|
|
|
197 |
|
|
|
5,666 |
|
|
|
231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Skilled nursing facility licensed beds. |
|
(b) |
|
The federal swing-bed program allows certain rural hospitals to provide a mix of acute,
skilled and intermediate care without obtaining a change in their licenses. |
|
(c) |
|
Designated by Medicare as a sole community hospital.
|
|
(d) |
|
Held-for-sale hospital.
|
|
(e) |
|
Divested effective January 1, 2006. |
|
(f) |
|
Critical-access hospital. |
|
(g) |
|
Hospital acquired as a result of the Province business combination. |
|
(h) |
|
Hospital is certified by the State and Medicare to use swing beds. However, the State
licensure does not assign a specific number of swing beds to a hospital. |
We operate medical office buildings in conjunction with many of our hospitals. We own the
majority of these medical office buildings. These office buildings are primarily occupied by
physicians who practice at our hospitals.
Our corporate headquarters are located in approximately 76,600 square feet of leased space in
one office building in Brentwood, Tennessee. Our corporate headquarters, hospitals and other
facilities are suitable for their respective uses and are generally adequate for our present needs.
The
following are brief narratives of each of our hospitals as of
February 6, 2006, listed alphabetically by the state
where they are located, describing their location relative to the nearest urban area, their nearest
competitors and any associated leases.
ALABAMA
Andalusia Regional Hospital is located in Andalusia, which is approximately 94 miles south of
Montgomery. Its nearest competitors are Mizell Memorial Hospital, a 99-bed facility located
approximately 17 miles away in Opp, and Florala Memorial Hospital, a 23-bed facility located
approximately 27 miles away in Florala. Additionally, there are two competing diagnostic imaging
centers located in the community.
Lakeland Community Hospital is located in Haleyville, which is approximately 78 miles
northwest of Birmingham. Lakeland Community Hospital is located approximately 25 miles away from
our own Russellville Hospital and approximately 36 miles away from our own Northwest Medical
Center. Its nearest competitors are Marion Regional Medical Center, a 57- bed facility located
approximately 24 miles away in Hamilton, and Walker Baptist Medical Center, a 267-bed facility
located approximately 42 miles away in Jasper.
9
Northwest Medical Center is located in Winfield, which is approximately 72 miles northwest of
Birmingham. Northwest Medical Center is located approximately 48 miles away from our own
Russellville Hospital and approximately 36 miles away from our own Lakeland Community Hospital. Its
nearest competitors are Fayette
Medical Center, a 61-bed facility located approximately 17 miles away in Fayette, and Marion
Regional Medical Center, a 57-bed facility located approximately 19 miles away in Hamilton.
Russellville Hospital is located in Russellville, which is approximately 100 miles northwest
of Birmingham. Russellville Hospital is located approximately 25 miles away from our own Lakeland
Community Hospital and approximately 48 miles away from our own Northwest Medical Center. Its
nearest competitors are Shoals Hospital, a 128-bed facility located approximately 23 miles away in
Muscle Shoals, and Helen Keller Hospital, a 152-bed facility located approximately 20 miles away in
Sheffield.
Vaughan Regional Medical Center is located in Selma, which is approximately 50 miles west of
Montgomery and 90 miles south of Birmingham. Its nearest competitors are Prattville Baptist
Hospital, a 47-bed facility located approximately 40 miles away in Prattville, and J. Paul Jones
Hospital, a 32-bed facility located approximately 43 miles away in Camden. Vaughn Regional Medical
Center is owned by a limited liability company in which a subsidiary of ours owns a 99% Class A
membership interest and a non-affiliated entity owns a 1% Class B membership interest.
Additionally, there is one competing diagnostic imaging center located in the community.
ARIZONA
Havasu Regional Medical Center is located in Lake Havasu City, which is approximately 150
miles south of Las Vegas, Nevada. It is located approximately 42 miles southeast of our own
Colorado River Medical Center and approximately 57 miles south of our own Valley View Medical
Center. Its nearest competitors are La Paz Regional Hospital, a 39-bed facility located
approximately 40 miles away in Parker, and Kingman Regional Medical Center, a 153-bed facility
located approximately 62 miles away in Kingman. Additionally, there are two competing diagnostic
imaging centers and one competing surgery center located in the community.
Valley View Medical Center is located in Ft. Mohave, which is approximately 108 miles south of
Las Vegas, Nevada. Valley View is located approximately 14 miles north of our own Colorado River
Medical Center and approximately 57 miles north of our own Havasu Regional Medical Center. Its
nearest competitors are Western Arizona Regional Medical Center, a 123-bed facility located
approximately nine miles away in Bullhead City, and Kingman Regional Medical Center, a 153-bed
facility located approximately 46 miles away in Kingman. We recently completed construction on
this new hospital and opened it for service on November 8, 2005.
CALIFORNIA
Colorado River Medical Center is located in Needles, which is approximately 112 miles south of
Las Vegas, Nevada. It is located approximately 14 miles south of our own Valley View Medical Center
and approximately 42 miles northwest of our own Havasu Regional Medical Center. Its nearest
competitor is Western Arizona Regional Medical Center, a 123-bed facility located approximately 24
miles away in Bullhead City, Arizona. The lease for Colorado River Medical Center expires in July
2012 and is subject to three five-year renewal terms. We have a right of first refusal to purchase
Colorado River Medical Center. This lease is accounted for as a capital lease.
COLORADO
Colorado Plains Medical Center is located in Fort Morgan, which is approximately 85 miles
northeast of Denver. Its nearest competitors are East Morgan County Hospital, a 15-bed critical
access facility located approximately 8 miles away in Brush, Sterling Regional Medical Center, a
36-bed facility located approximately 45 miles away in Sterling, and Northern Colorado Medical
Center, a 326-bed facility located 50 miles away in Greeley. On March 15, 2005, the existing lease
for Colorado Plains Medical Center, which was set to expire in April 2014, was amended and is now a
prepaid capital lease that expires in March 2035 and is subject to two five-year renewal terms. We
have a right of first refusal to purchase Colorado Plains Medical Center.
10
FLORIDA
Putnam Community Medical Center is located in Palatka, which is approximately 45 miles
southeast of Gainesville and 60 miles south of Jacksonville. Its nearest competitors are Flagler
Hospital, a 271-bed facility located approximately 26 miles away in St. Augustine, and Orange Park
Medical Center, a 196-bed facility located approximately 42 miles away in Orange Park.
Additionally, there is one competing diagnostic imaging center and one competing cardiac
catheterization lab located in the community.
INDIANA
Medical Center of Southern Indiana is located in Charlestown, which is approximately 19 miles
northwest of Louisville, Kentucky. Its nearest competitors are Clark Memorial, a 241-bed facility
located approximately 15 miles away in Jeffersonville, and Floyd Memorial Hospital, a 215-bed
facility located approximately 18 miles away in New Albany. We have
entered into a definitive agreement to sell Medical Center of
Southern Indiana in the first half of 2006.
Starke Memorial Hospital is located in Knox, which is approximately 53 miles southwest of
South Bend. Its primary competitors are La Porte Regional Health System, a 227-bed facility located
approximately 25 miles away in La Porte, and Porter Memorial Hospital, a 276-bed facility located
approximately 32 miles away in Valparaiso. The lease for Starke Memorial Hospital expires in
September 2016 and is subject to two ten-year renewal terms at our option. We have a right of first
refusal to purchase Starke Memorial Hospital. This lease is accounted for as a prepaid capital
lease.
KANSAS
Western Plains Regional Hospital is located in Dodge City, which is approximately 155 miles
west of Wichita. Its nearest competitors are Minneola District Hospital, a 15-bed facility located
approximately 24 miles away in Minneola, and St. Catherine Hospital, a 132-bed facility located
approximately 53 miles away in Garden City. Additionally, there are two competing diagnostic
imaging centers and one competing surgery center located in the community.
KENTUCKY
Bluegrass Community Hospital is located in Versailles, which is approximately 13 miles west of
Lexington. Bluegrass Community Hospital is located approximately 18 miles from our own Georgetown
Community Hospital and approximately 32 miles from our own Bourbon Community Hospital. Its nearest
competitors are Saint Joseph Hospital, a 297-bed facility, and Samaritan Hospital, a 302-bed
facility, both of which are located approximately 13 miles away in Lexington.
Bourbon Community Hospital is located in Paris, which is approximately 20 miles northeast of
Lexington. Bourbon Community Hospital is 20 miles from our own Georgetown Community Hospital and 32
miles from our own Bluegrass Community Hospital. Its nearest competitors are University of
Kentucky Medical Center, a 414-bed facility, and Central Baptist Hospital, a 357-bed facility, both
of which are located approximately 20 miles away in Lexington.
Georgetown Community Hospital is located in Georgetown, which is approximately 11 miles
northwest of Lexington. Georgetown Community Hospital is 20 miles from our own Bourbon Community
Hospital and 18 miles from our own Bluegrass Community Hospital. Its nearest competitors are
Samaritan Hospital, a 219-bed facility located approximately 11 miles away in Lexington, and
University of Kentucky Medical Center, a 414-bed facility, and Central Baptist Hospital, a 357-bed
facility, both of which are located approximately 14 miles away in Lexington. Additionally, there
is one competing diagnostic imaging center located in the community.
Jackson Purchase Medical Center is located in Mayfield, which is approximately 150 miles
northwest of Nashville, Tennessee. Jackson Purchase Medical Centers nearest competitors are
Lourdes Hospital, a 252-bed facility, and Western Baptist Hospital, a 252-bed facility, both of
which are located approximately 20 miles away in Paducah, and Murray-Calloway County Hospital, a
140-bed facility located approximately 28 miles away in Murray.
11
Lake Cumberland Regional Hospital is located in Somerset, which is approximately 75 miles
south of Lexington. Its nearest competitors are Wayne County Hospital, a 25-bed facility located
approximately 27 miles
away in Monticello, and Central Baptist Hospital, a 365-bed facility located approximately 72
miles away in Lexington. Additionally, there are two competing diagnostic imaging centers and one
competing surgery center located in the community.
Logan Memorial Hospital is located in Russellville, which is approximately 53 miles north of
Nashville, Tennessee. Its nearest competitors are Greenview Regional Hospital, a 211-bed facility,
and The Medical Center at Bowling Green, a 506-bed facility, both of which are located
approximately 30 miles away in Bowling Green.
Meadowview Regional Medical Center is located in Maysville, which is approximately 56 miles
southeast of Cincinnati, Ohio and 60 miles northeast of Lexington. Its nearest competitors include
Fleming County Hospital, a 43-bed facility located approximately 18 miles away in Flemingsburg, and
Brown County General Hospital, a 53-bed facility located approximately 25 miles away in Georgetown,
Ohio. Additionally, there are one competing diagnostic imaging center with a cardiac catheterization
lab located in the community.
Spring View Hospital is located in Lebanon, which is approximately 65 miles southwest of
Lexington. Its two nearest competitors are Taylor County Hospital, a 90-bed facility located
approximately 25 miles away in Campbellsville, and Flaget Memorial Hospital, a 52-bed facility
located approximately 35 miles away in Bardstown.
LOUISIANA
Doctors Hospital of Opelousas is located in Opelousas, which is approximately 21 miles north
of Lafayette. Doctors Hospital of Opelousas is located approximately 25 miles from our own Eunice
Community Medical Center and approximately 23 miles from our own Ville Platte Medical Center. Its
nearest competitors are Opelousas General Hospital, a 180-bed hospital located approximately four
miles away and Our Lady of Lourdes Regional Medical Center, a 266-bed facility located
approximately 21 miles away in Lafayette. Additionally, there are one competing diagnostic imaging
center and one competing surgery center located in the community.
Eunice Community Medical Center is located in Eunice, which is approximately 44 miles
northwest of Lafayette. Eunice Community Medical Center is located approximately 25 miles from our
own Doctors Hospital of Opelousas and approximately 18 miles from our own Ville Platte Medical
Center. Its nearest competitors are Savoy Medical Center, a 198-bed facility located approximately
12 miles north in Mamou, and American Legion Hospital, a 178-bed facility located approximately 23
miles south in Crowley. We are currently constructing a 52-bed replacement hospital in Eunice,
which is scheduled for completion in the first quarter of 2006. The replacement hospital is being
constructed on property we will lease from the St. Landry Hospital Service District. The existing
lease will terminate at the time the replacement facility commences operations.
Minden Medical Center is located in Minden, which is approximately 30 miles east of
Shreveport. Its nearest competitors are the Willis-Knight Health System, a 359-bed facility,
Christus Schumpert Health System, a 369-bed facility, and LSU Health Sciences Center, a 436-bed
facility, all of which are located in Shreveport.
River Parishes Hospital is located in LaPlace, which is approximately 30 miles west of New
Orleans. Its nearest competitors are St. James Parish Hospital, a 20-bed critical access facility
located approximately 13 miles away in Lutcher, St. Charles Parish Hospital, a 56-bed facility
located approximately 12 miles away in Luling, Kenner Regional Medical Center, a 300-bed facility
located approximately 19 miles away in Kenner, and East Jefferson General Hospital, a 437-bed
facility located approximately 25 miles away in Metairie.
Teche Regional Medical Center is located in Morgan City, which is approximately 76 miles south
of Baton Rouge, 70 miles southwest of New Orleans and 65 miles southeast of Lafayette. Its nearest
competitors are Thibodaux Regional Medical Center, a 149-bed facility located approximately 30
miles away in Thibodaux, Terrebonne General Medical Center, a 281-bed facility located
approximately 35 miles away in Houma, and Franklin Foundation Hospital, a 25-bed critical access
facility located approximately 23 miles away in Franklin.
12
The lease for Teche Regional Medical
Center expires in April 2040. This lease is accounted for as a prepaid capital lease.
Ville Platte Medical Center is located approximately 75 miles northwest of Baton Rouge. Ville
Platte Medical Center is located approximately 23 miles from our own Doctors Hospital of Opelousas
and approximately 18 miles from our own Eunice Community Medical Center. Its nearest competitors
are Savoy Medical Center, a 198-bed facility located approximately 12 miles away in Mamou, and
Opelousas General Hospital, a 180-bed facility located approximately 18 miles away in Opelousas.
MISSISSIPPI
Bolivar Medical Center is located in Cleveland, which is approximately 112 miles south of
Memphis, Tennessee. Its nearest competitors are North Sunflower Medical Center, a 30-bed critical
access facility located approximately 10 miles away in Ruleville, Delta Regional Medical Center, a
260-bed facility located 35 miles away in Greenwood, Northwest Mississippi Regional Medical Center,
a 180-bed facility located 37 miles away in Clarksdale, and Greenwood Leflore Hospital, a 270-bed
facility located approximately 40 miles away in Greenwood. The lease for Bolivar Medical Center
expires in December 2041. This lease is accounted for as a prepaid capital lease.
NEVADA
Northeastern Nevada Regional Hospital is located in Elko, which is approximately 233 miles
west of Salt Lake City, Utah, 290 miles northeast of Reno and 420 miles north of Las Vegas. Its
primary competitors are in Salt Lake City and Reno. Two additional smaller competitors are Humboldt
General, a 52-bed facility located approximately 140 miles away in Winnemucca, and William Bree
Ririe Hospital, a 29-bed facility located approximately 190 miles away in Ely. Additionally, there
are one competing diagnostic imaging center and one competing surgery center located in the
community.
NEW MEXICO
Los Alamos Medical Center is located in Los Alamos, which is approximately 96 miles north of
Albuquerque and 40 miles west of Santa Fe. Its nearest competitors
are Espanola Hospital, an 80-bed
facility located approximately 20 miles away in Espanola, and St. Vincents Hospital, a 272-bed
facility located approximately 37 miles away in Santa Fe. Additionally, there is one competing
surgery center located in the community.
Memorial Medical Center is located in Las Cruces, which is approximately 43 miles north of El
Paso, Texas. Its nearest competitors are Mountain View Regional Medical Center, a 168-bed facility
located approximately three miles away and Mimbres Medical Center, a 68-bed facility located
approximately 63 miles away in Deming. The lease for Memorial Medical Center expires in May 2044.
This lease is accounted for as a prepaid capital lease. Additionally, there are five competing
diagnostic imaging centers and four competing surgery centers located in the community.
PENNSYLVANIA
Ashland Regional Medical Center is located in Ashland, which is approximately 110 miles
northwest of Philadelphia. Its nearest competitors are Good Samaritan Regional Medical Center, a
122-bed facility, and Pottsville Hospital, a 200-bed facility, both of which are located
approximately 14 miles away in Pottsville. We have entered into a
definitive agreement to sell Ashland Regional Medical Center in the
first half of 2006.
SOUTH CAROLINA
Coastal Carolina Medical Center is located in Hardeeville, which is approximately 19 miles
north of Savannah, Georgia. Its nearest competitors are Hilton Head Regional Medical Center, a
99-bed facility located approximately 27 miles away on Hilton Head Island, and Beaufort Memorial
Hospital, a 197-bed facility located approximately 31 miles away in Beaufort. Additionally, there
is one competing diagnostic imaging/surgery/urgent care center located in the community.
13
TENNESSEE
Athens Regional Medical Center is located in Athens, between Knoxville and Chattanooga, both
of which are approximately 50 miles away from Athens. Its nearest competitors are Sweetwater
Hospital, a 59-bed facility located approximately 15 miles away in Sweetwater, and Woods Memorial
Hospital, a 72-bed facility located approximately 12 miles away in Etowah. Additionally, there is
one competing surgery center located in the community.
Crockett Hospital is located in Lawrenceburg, which is approximately 83 miles southwest of
Nashville. Its nearest competitor is Maury Regional Hospital, a 255-bed facility located
approximately 33 miles away in Columbia.
Hillside Hospital is located in Pulaski, which is approximately 77 miles south of Nashville.
Its nearest competitor is Maury Regional Hospital, a 255-bed facility located approximately 33
miles away in Columbia.
Livingston Regional Hospital is located in Livingston, which is approximately 100 miles east
of Nashville. Its nearest competitors are Cumberland River Hospital, a 30-bed facility located
approximately 18 miles away in Celina, and Cookeville Regional Medical Center, a 247-bed facility
located approximately 20 miles away in Cookeville.
Smith County Memorial Hospital is located in Carthage, which is approximately 57 miles east of
Nashville. Its nearest competitors are Carthage General Hospital, a 25-bed critical access
hospital located approximately four miles away and University Medical Center, a 245-bed facility
located approximately 24 miles away in Lebanon.
Southern Tennessee Medical Center is located in Winchester, and its satellite facility,
Emerald-Hodgson Hospital, is located in Sewanee. The hospitals, which are 13 miles apart, are
approximately 98 miles southeast of Nashville and approximately 62 miles northwest of Chattanooga.
Their nearest competitors are Harton Regional Hospital, a 137-bed facility located approximately 18
miles away in Tullahoma, and Grandview Medical Center, a 70-bed facility located approximately 41
miles away in Jasper.
TEXAS
Ennis Regional Medical Center is located in Ennis, which is approximately 36 miles south of
Dallas. Its nearest competitors are Baylor Medical Center, a 75-bed facility located approximately
16 miles away in Waxahachie, and Navarro Regional Hospital, a 162-bed facility located
approximately 25 miles away in Corsicana. The lease for Ennis Regional Medical Center expires in
February 2030 and is subject to three ten-year renewal terms at our option. The lease is accounted
for as a prepaid capital lease. The City of Ennis has approved the construction of a new facility
to replace Ennis Regional Medical Center at an estimated cost of $35.0 million. The City of Ennis
has agreed to fund $15.0 million of this cost. We will fund the difference and the prepaid lease
will expire in 40 years. The replacement facility is scheduled for completion in March 2007.
Palestine Regional Medical Center is located in Palestine, which is approximately 125 miles
southeast of Dallas and 167 miles north of Houston. Its nearest competitors are Trinity Mother
Frances Hospital, a 305-bed facility located approximately 56 miles away in Tyler, and East Texas
Medical Center, which includes a 388-bed facility located approximately 56 miles away in Tyler and
a 75-bed facility located approximately 35 miles away in Crockett. Palestine Regional Medical
Center is owned by a partnership in which a subsidiary of ours is the sole general partner, with a
1.0% general partnership interest, and another subsidiary of ours has a limited partnership
interest of 96.35%, subject to an option by the other non-affiliated limited partner (which
currently owns a 2.65% interest) to acquire up to 10% of the total limited partnership interests.
Parkview Regional Hospital is located in Mexia, which is approximately 85 miles south of
Dallas. Its nearest competitors are Limestone Medical Center, a 16-bed facility located
approximately 12 miles away in Groesbeck, and Providence Hospital, a 170-bed facility, and
Hillcrest Baptist Medical Center, a 393-bed facility, both of which are located approximately 45
miles away in Waco. The lease for Parkview Regional Hospital expires
in January 2011 and is
subject to two five-year renewal terms. We have a right of first refusal to purchase Parkview
Regional Hospital.
14
UTAH
Ashley Valley Medical Center is located in Vernal, which is approximately 171 miles southeast
of Salt Lake City. Its nearest competitor is Uintah Basin Medical Center, a 42-bed facility located
approximately 30 miles away in Roosevelt.
Castleview Hospital is located in Price, which is approximately 119 miles southeast of Salt
Lake City. Its nearest competitors are Utah Valley Medical Center, a 409-bed facility located
approximately 77 miles away in Provo, and Mountain View Hospital, a 118-bed facility located
approximately 73 miles away in Payson. Additionally, there is one competing surgery center located
in the community.
VIRGINIA
Danville Regional Medical Center is located in Danville, which is approximately 147 miles
southwest of Richmond and approximately 30 miles from our own Memorial Hospital of Martinsville.
Its primary competitors are Halifax Regional Hospital, a 192-bed facility located approximately 33
miles away in South Boston, Morehead Memorial Hospital, a 108-bed facility located approximately 24
miles away in Eden, North Carolina, Moses Cone Memorial Hospital, a 535-bed facility located
approximately 44 miles away in Greensboro, North Carolina, and Duke University Medical Center, a
989-bed facility located approximately 60 miles away in Durham, North Carolina. Additionally,
there is one competing surgery center located in the community.
Memorial Hospital of Martinsville is located in Martinsville, which is approximately 113 miles
northwest of Raleigh, North Carolina and approximately 30 miles from our own Danville Regional
Medical Center. Its nearest competitors are Morehead Memorial Hospital, a 108-bed facility located
approximately 20 miles away in Eden, North Carolina, Carilion Health System (Roanoke Community
Hospital and Roanoke Memorial Hospital), located approximately 52 miles away in Roanoke with 765
beds, and Carilion Franklin Memorial Hospital, a 37-bed facility located 27 miles away in Rocky
Mount. Additionally, there is one competing lab/diagnostic imaging center located in the
community.
Wythe County Community Hospital is located in Wytheville, which is approximately 130 miles
south of Charleston, West Virginia. Its nearest competitors are Smyth County Medical Center, a
50-bed facility located 25 miles southwest in Marion, and Pulaski Community Hospital, a 147-bed
facility located approximately 24 miles northeast in Pulaski. The lease for Wythe County Community
Hospital expires in 2035 and is subject to one 30-year renewal term. This lease is accounted for
as a prepaid capital lease.
WEST VIRGINIA
Logan Regional Medical Center and Guyan Valley Hospital are both located in Logan, which is
approximately 56 miles southwest of Charleston. Their nearest competitors are Boone Memorial
Hospital, a 38-bed critical access facility located approximately 29 miles away in Madison, and
Williamson Memorial Hospital, a 76-bed facility located approximately 30 miles away in Williamson.
WYOMING
Lander Valley Medical Center is located in Lander, which is approximately 150 miles west of
Casper. Lander Valley Medical Center is located approximately 28 miles away from our own Riverton
Memorial Hospital. Its nearest competitor is Wyoming Medical Center, a 205-bed facility located in
Casper. We lease the real estate associated with Lander Valley Medical Center from the City of
Lander, Wyoming pursuant to a ground lease that expires on December 31, 2073.
Riverton Memorial Hospital is located in Riverton, which is approximately 120 miles west of
Casper. Riverton Memorial Hospital is located approximately 28 miles away from our own Lander
Valley Medical Center. Its nearest competitor is Wyoming Medical Center, a 205-bed facility
located in Casper. Additionally, there is a competing imaging center located adjacent to the
hospital.
15
Demographic Information
We review demographic information related to each of our communities to identify opportunities
to expand the breadth of our services. The following demographic tables describe the county/parish
population, median household income and unemployment rate for the county/parish in which each of
our hospitals is located:
County/Parish Population
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total County/Parish Population |
|
Annual Growth Rates |
|
|
|
|
Historical |
|
Projected |
|
Historical |
|
Projected |
Hospital |
|
County/Parish |
|
2003 |
|
2004 |
|
2005 |
|
2010 |
|
2003 (a) |
|
2004 |
|
2005 |
|
2010 (b) |
ALABAMA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andalusia Regional Hospital |
|
Covington |
|
|
37,293 |
|
|
|
37,829 |
|
|
|
37,007 |
|
|
|
36,233 |
|
|
|
-0.3 |
% |
|
|
1.4 |
% |
|
|
-2.2 |
% |
|
|
-0.4 |
% |
Lakeland Community Hospital |
|
Winston |
|
|
25,120 |
|
|
|
25,278 |
|
|
|
24,445 |
|
|
|
23,733 |
|
|
|
0.4 |
% |
|
|
0.6 |
% |
|
|
-3.3 |
% |
|
|
-0.6 |
% |
Northwest Medical Center |
|
Marion |
|
|
30,494 |
|
|
|
30,961 |
|
|
|
30,480 |
|
|
|
29,824 |
|
|
|
-0.8 |
% |
|
|
1.5 |
% |
|
|
-1.6 |
% |
|
|
-0.4 |
% |
Russellville Hospital |
|
Franklin |
|
|
31,255 |
|
|
|
30,845 |
|
|
|
30,988 |
|
|
|
30,807 |
|
|
|
0.0 |
% |
|
|
-1.3 |
% |
|
|
0.5 |
% |
|
|
-0.1 |
% |
Vaughan Regional Medical Center |
|
Dallas |
|
|
45,315 |
|
|
|
45,459 |
|
|
|
44,738 |
|
|
|
43,292 |
|
|
|
-0.8 |
% |
|
|
0.3 |
% |
|
|
-1.6 |
% |
|
|
-0.7 |
% |
ARIZONA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Havasu Regional Medical Center |
|
Mohave |
|
|
172,190 |
|
|
|
174,351 |
|
|
|
182,126 |
|
|
|
212,820 |
|
|
|
3.6 |
% |
|
|
1.3 |
% |
|
|
4.5 |
% |
|
|
3.2 |
% |
Valley View Medical Center |
|
Mohave |
|
|
172,190 |
|
|
|
174,351 |
|
|
|
182,126 |
|
|
|
212,820 |
|
|
|
3.6 |
% |
|
|
1.3 |
% |
|
|
4.5 |
% |
|
|
3.2 |
% |
CALIFORNA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Colorado River Medical Center (c) |
|
San Bernardino |
|
|
5,444 |
|
|
|
5,585 |
|
|
|
5,811 |
|
|
|
6,364 |
|
|
|
-0.2 |
% |
|
|
2.6 |
% |
|
|
4.0 |
% |
|
|
1.8 |
% |
COLORADO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Colorado Plains Medical Center |
|
Morgan |
|
|
28,382 |
|
|
|
28,627 |
|
|
|
28,868 |
|
|
|
30,479 |
|
|
|
1.5 |
% |
|
|
0.9 |
% |
|
|
0.8 |
% |
|
|
1.1 |
% |
FLORIDA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Putnam Community Medical Center |
|
Putnam |
|
|
71,088 |
|
|
|
73,144 |
|
|
|
72,193 |
|
|
|
73,489 |
|
|
|
0.3 |
% |
|
|
2.9 |
% |
|
|
-1.3 |
% |
|
|
0.4 |
% |
INDIANA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical Center of Southern Indiana |
|
Clark |
|
|
99,815 |
|
|
|
101,947 |
|
|
|
103,421 |
|
|
|
110,981 |
|
|
|
1.1 |
% |
|
|
2.1 |
% |
|
|
1.4 |
% |
|
|
1.4 |
% |
Starke Memorial Hospital |
|
Starke |
|
|
22,744 |
|
|
|
24,336 |
|
|
|
23,736 |
|
|
|
24,136 |
|
|
|
-1.2 |
% |
|
|
7.0 |
% |
|
|
-2.5 |
% |
|
|
0.3 |
% |
KANSAS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Western Plains Regional Hospital |
|
Ford |
|
|
33,246 |
|
|
|
33,618 |
|
|
|
33,940 |
|
|
|
35,554 |
|
|
|
0.8 |
% |
|
|
1.1 |
% |
|
|
1.0 |
% |
|
|
0.9 |
% |
KENTUCKY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bluegrass Community Hospital |
|
Woodford |
|
|
23,915 |
|
|
|
24,063 |
|
|
|
24,221 |
|
|
|
25,165 |
|
|
|
1.0 |
% |
|
|
0.6 |
% |
|
|
0.7 |
% |
|
|
0.8 |
% |
Bourbon Community Hospital |
|
Bourbon |
|
|
19,653 |
|
|
|
19,679 |
|
|
|
19,606 |
|
|
|
19,728 |
|
|
|
0.5 |
% |
|
|
0.1 |
% |
|
|
-0.4 |
% |
|
|
0.1 |
% |
Georgetown Community Hospital |
|
Scott |
|
|
36,431 |
|
|
|
36,266 |
|
|
|
37,882 |
|
|
|
43,285 |
|
|
|
3.3 |
% |
|
|
-0.5 |
% |
|
|
4.5 |
% |
|
|
2.7 |
% |
Jackson Purchase Medical Center |
|
Graves |
|
|
37,442 |
|
|
|
36,851 |
|
|
|
36,836 |
|
|
|
36,520 |
|
|
|
0.4 |
% |
|
|
-1.6 |
% |
|
|
0.0 |
% |
|
|
-0.2 |
% |
Lake Cumberland Regional Hospital |
|
Pulaski |
|
|
57,428 |
|
|
|
57,310 |
|
|
|
57,913 |
|
|
|
59,614 |
|
|
|
0.7 |
% |
|
|
-0.2 |
% |
|
|
1.1 |
% |
|
|
0.6 |
% |
Logan Memorial Hospital |
|
Logan |
|
|
26,755 |
|
|
|
26,620 |
|
|
|
26,754 |
|
|
|
26,951 |
|
|
|
0.2 |
% |
|
|
-0.5 |
% |
|
|
0.5 |
% |
|
|
0.1 |
% |
Meadowview Regional Medical Center |
|
Mason |
|
|
16,669 |
|
|
|
16,642 |
|
|
|
16,833 |
|
|
|
17,002 |
|
|
|
-0.3 |
% |
|
|
-0.2 |
% |
|
|
1.1 |
% |
|
|
0.2 |
% |
Spring View Hospital |
|
Marion |
|
|
18,627 |
|
|
|
18,179 |
|
|
|
18,149 |
|
|
|
17,947 |
|
|
|
0.8 |
% |
|
|
-2.4 |
% |
|
|
-0.2 |
% |
|
|
-0.2 |
% |
LOUISIANA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Doctors Hospital of Opelousas |
|
St. Landry |
|
|
89,556 |
|
|
|
89,428 |
|
|
|
89,095 |
|
|
|
89,844 |
|
|
|
0.7 |
% |
|
|
-0.1 |
% |
|
|
-0.4 |
% |
|
|
0.2 |
% |
Eunice Community Medical Center |
|
St. Landry |
|
|
89,556 |
|
|
|
89,428 |
|
|
|
89,095 |
|
|
|
89,844 |
|
|
|
0.7 |
% |
|
|
-0.1 |
% |
|
|
-0.4 |
% |
|
|
0.2 |
% |
Minden Medical Center |
|
Webster |
|
|
41,418 |
|
|
|
42,233 |
|
|
|
41,770 |
|
|
|
41,689 |
|
|
|
-0.3 |
% |
|
|
2.0 |
% |
|
|
-1.1 |
% |
|
|
0.0 |
% |
River Parishes Hospital |
|
St. John the Baptist |
|
|
44,571 |
|
|
|
45,421 |
|
|
|
45,233 |
|
|
|
46,997 |
|
|
|
1.2 |
% |
|
|
1.9 |
% |
|
|
-0.4 |
% |
|
|
0.8 |
% |
Teche Regional Medical Center |
|
St. Mary |
|
|
52,309 |
|
|
|
53,178 |
|
|
|
52,463 |
|
|
|
51,538 |
|
|
|
-0.7 |
% |
|
|
1.7 |
% |
|
|
-1.3 |
% |
|
|
-0.4 |
% |
Ville Platte Medical Center |
|
Evangeline |
|
|
35,998 |
|
|
|
36,573 |
|
|
|
35,580 |
|
|
|
35,202 |
|
|
|
0.5 |
% |
|
|
1.6 |
% |
|
|
-2.7 |
% |
|
|
-0.2 |
% |
MISSISSIPPI |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bolivar Medical Center |
|
Bolivar |
|
|
40,164 |
|
|
|
40,521 |
|
|
|
38,975 |
|
|
|
37,363 |
|
|
|
-0.4 |
% |
|
|
0.9 |
% |
|
|
-3.8 |
% |
|
|
-0.8 |
% |
NEVADA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Northeastern Nevada Regional Hospital |
|
Elko |
|
|
47,193 |
|
|
|
45,334 |
|
|
|
46,018 |
|
|
|
46,187 |
|
|
|
1.4 |
% |
|
|
-3.9 |
% |
|
|
1.5 |
% |
|
|
0.1 |
% |
NEW MEXICO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Los Alamos Medical Center |
|
Los Alamos |
|
|
18,106 |
|
|
|
18,910 |
|
|
|
19,402 |
|
|
|
21,017 |
|
|
|
-0.4 |
% |
|
|
4.4 |
% |
|
|
2.6 |
% |
|
|
1.6 |
% |
Memorial Medical Center |
|
Dona Ana |
|
|
182,356 |
|
|
|
189,876 |
|
|
|
193,519 |
|
|
|
215,002 |
|
|
|
1.4 |
% |
|
|
4.1 |
% |
|
|
1.9 |
% |
|
|
2.1 |
% |
PENNSYLVANIA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ashland Regional Medical Center |
|
Schuylkill |
|
|
150,058 |
|
|
|
153,628 |
|
|
|
149,665 |
|
|
|
147,091 |
|
|
|
-0.1 |
% |
|
|
2.4 |
% |
|
|
-2.6 |
% |
|
|
-0.3 |
% |
SOUTH CAROLINA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coastal Carolina Medical Center |
|
Beaufort |
|
|
132,628 |
|
|
|
139,233 |
|
|
|
148,332 |
|
|
|
180,310 |
|
|
|
3.1 |
% |
|
|
5.0 |
% |
|
|
6.5 |
% |
|
|
4.0 |
% |
TENNESSEE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Athens Regional Medical Center |
|
McMinn |
|
|
51,137 |
|
|
|
50,524 |
|
|
|
50,118 |
|
|
|
50,850 |
|
|
|
1.4 |
% |
|
|
-1.2 |
% |
|
|
-0.8 |
% |
|
|
0.3 |
% |
Crockett Hospital |
|
Lawrence |
|
|
40,242 |
|
|
|
40,473 |
|
|
|
40,649 |
|
|
|
41,464 |
|
|
|
0.3 |
% |
|
|
0.6 |
% |
|
|
0.4 |
% |
|
|
0.4 |
% |
Hillside Hospital |
|
Giles |
|
|
30,461 |
|
|
|
30,149 |
|
|
|
29,583 |
|
|
|
29,211 |
|
|
|
1.1 |
% |
|
|
-1.0 |
% |
|
|
-1.9 |
% |
|
|
-0.3 |
% |
Livingston Regional Hospital |
|
Overton |
|
|
20,627 |
|
|
|
20,403 |
|
|
|
20,195 |
|
|
|
20,077 |
|
|
|
0.8 |
% |
|
|
-1.1 |
% |
|
|
-1.0 |
% |
|
|
-0.1 |
% |
Smith County Memorial Hospital |
|
Smith |
|
|
18,752 |
|
|
|
18,449 |
|
|
|
18,265 |
|
|
|
18,466 |
|
|
|
1.9 |
% |
|
|
-1.6 |
% |
|
|
-1.0 |
% |
|
|
0.2 |
% |
Southern Tennessee Medical Center/ |
|
Franklin |
|
|
40,903 |
|
|
|
41,198 |
|
|
|
41,414 |
|
|
|
42,825 |
|
|
|
1.4 |
% |
|
|
0.7 |
% |
|
|
0.5 |
% |
|
|
0.7 |
% |
Emerald-Hodgson Hospital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
County/Parish
Population
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total County/Parish Population |
|
Annual Growth Rates |
|
|
|
|
Historical |
|
Projected |
|
Historical |
|
Projected |
Hospital |
|
County/Parish |
|
2003 |
|
2004 |
|
2005 |
|
2010 |
|
2003 (a) |
|
2004 |
|
2005 |
|
2010 (b) |
TEXAS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ennis Regional Medical Center |
|
Ellis |
|
|
123,268 |
|
|
|
128,468 |
|
|
|
131,660 |
|
|
|
154,092 |
|
|
|
3.4 |
% |
|
|
4.2 |
% |
|
|
2.5 |
% |
|
|
3.2 |
% |
Palestine Regional Medical Center |
|
Anderson |
|
|
55,693 |
|
|
|
57,506 |
|
|
|
54,956 |
|
|
|
55,316 |
|
|
|
0.4 |
% |
|
|
3.3 |
% |
|
|
-4.4 |
% |
|
|
0.1 |
% |
Parkview Regional Hospital |
|
Limestone |
|
|
22,502 |
|
|
|
22,991 |
|
|
|
22,668 |
|
|
|
23,095 |
|
|
|
0.7 |
% |
|
|
2.2 |
% |
|
|
-1.4 |
% |
|
|
0.4 |
% |
UTAH |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ashley Valley Medical Center |
|
Uintah |
|
|
25,932 |
|
|
|
26,633 |
|
|
|
26,973 |
|
|
|
28,877 |
|
|
|
0.9 |
% |
|
|
2.7 |
% |
|
|
1.3 |
% |
|
|
1.4 |
% |
Castleview Hospital |
|
Carbon |
|
|
19,683 |
|
|
|
19,949 |
|
|
|
19,947 |
|
|
|
19,823 |
|
|
|
-1.2 |
% |
|
|
1.4 |
% |
|
|
0.0 |
% |
|
|
-0.1 |
% |
VIRGINIA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Danville Regional Medical Center |
|
Danville city |
|
|
46,274 |
|
|
|
46,418 |
|
|
|
46,029 |
|
|
|
44,412 |
|
|
|
-1.5 |
% |
|
|
0.3 |
% |
|
|
-0.8 |
% |
|
|
-0.7 |
% |
Memorial Hospital of Martinsville |
|
Martinsville city |
|
|
15,060 |
|
|
|
14,801 |
|
|
|
14,746 |
|
|
|
14,161 |
|
|
|
-0.8 |
% |
|
|
-1.7 |
% |
|
|
-0.4 |
% |
|
|
-0.8 |
% |
Wythe County Community Hospital |
|
Wythe |
|
|
28,197 |
|
|
|
28,510 |
|
|
|
27,896 |
|
|
|
27,806 |
|
|
|
0.7 |
% |
|
|
1.1 |
% |
|
|
-2.2 |
% |
|
|
-0.1 |
% |
WEST VIRGINIA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Logan Regional Medical Center/ |
|
Logan |
|
|
35,970 |
|
|
|
36,559 |
|
|
|
37,759 |
|
|
|
38,169 |
|
|
|
-1.6 |
% |
|
|
1.6 |
% |
|
|
3.3 |
% |
|
|
0.2 |
% |
Guyan Valley Hospital |
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
|
|
|
|
|
WYOMING |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
|
|
|
|
Lander Valley Medical Center |
|
Fremont |
|
|
36,049 |
|
|
|
36,124 |
|
|
|
36,118 |
|
|
|
36,380 |
|
|
|
0.2 |
% |
|
|
0.2 |
% |
|
|
0.0 |
% |
|
|
0.1 |
% |
Riverton Memorial Hospital |
|
Fremont |
|
|
36,049 |
|
|
|
36,124 |
|
|
|
36,118 |
|
|
|
36,380 |
|
|
|
0.2 |
% |
|
|
0.2 |
% |
|
|
0.0 |
% |
|
|
0.1 |
% |
|
|
|
|
Average for counties/parishes that LifePoint serves |
|
|
0.6 |
% |
|
|
1.0 |
% |
|
|
0.3 |
% |
|
|
0.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
US Average |
|
|
1.2 |
% |
|
|
1.4 |
% |
|
|
1.0 |
% |
|
|
1.2 |
% |
|
|
|
(a) |
|
The 2003 historical growth rate represents the
compounded annual growth rate from 2000 2003. |
|
(b) |
|
The 2010 projected growth rate represents the compounded
annual growth rate from 2005 2010. |
|
(c) |
|
Population for Colorado River Medical Center is for the zip code of the hospital rather
than the county because the hospitals county includes part of the Los Angeles metropolitan
area. |
|
|
|
Copyright 2005 Health InfoTechnics, LLC 877/239-9549 October 19, 2005 |
|
|
|
Demographic Source: ESRI Business Solutions |
17
Median Household Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
|
Median Household Income |
|
Annual Growth Rates |
|
|
|
|
Historical |
|
Projected |
|
Historical |
|
Projected |
Hospital |
|
County/Parish |
|
2003 |
|
2004 |
|
2005 |
|
2010 |
|
2003 (a) |
|
2004 |
|
2005 |
|
2010 (b) |
ALABAMA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Andalusia Regional Hospital |
|
Covington |
|
$ |
27,482 |
|
|
$ |
28,122 |
|
|
$ |
28,673 |
|
|
$ |
31,373 |
|
|
|
1.6 |
% |
|
|
2.3 |
% |
|
|
2.0 |
% |
|
|
1.8 |
% |
Lakeland Community Hospital |
|
Winston |
|
|
29,716 |
|
|
|
30,517 |
|
|
|
30,743 |
|
|
|
33,483 |
|
|
|
2.0 |
% |
|
|
2.7 |
% |
|
|
0.7 |
% |
|
|
1.7 |
% |
Northwest Medical Center |
|
Marion |
|
|
29,834 |
|
|
|
30,635 |
|
|
|
30,904 |
|
|
|
34,024 |
|
|
|
2.2 |
% |
|
|
2.7 |
% |
|
|
0.9 |
% |
|
|
1.9 |
% |
Russellville Hospital |
|
Franklin |
|
|
28,878 |
|
|
|
29,811 |
|
|
|
30,082 |
|
|
|
33,485 |
|
|
|
2.0 |
% |
|
|
3.2 |
% |
|
|
0.9 |
% |
|
|
2.2 |
% |
Vaughan Regional Medical Center |
|
Dallas |
|
|
25,014 |
|
|
|
25,538 |
|
|
|
25,848 |
|
|
|
29,146 |
|
|
|
2.7 |
% |
|
|
2.1 |
% |
|
|
1.2 |
% |
|
|
2.4 |
% |
ARIZONA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Havasu Regional Medical Center |
|
Mohave |
|
|
35,395 |
|
|
|
36,864 |
|
|
|
38,350 |
|
|
|
46,113 |
|
|
|
3.9 |
% |
|
|
4.2 |
% |
|
|
4.0 |
% |
|
|
3.8 |
% |
Valley View Medical Center |
|
Mohave |
|
|
35,395 |
|
|
|
36,864 |
|
|
|
38,350 |
|
|
|
46,113 |
|
|
|
3.9 |
% |
|
|
4.2 |
% |
|
|
4.0 |
% |
|
|
3.8 |
% |
CALIFORNA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Colorado River Medical Center (c) |
|
San Bernardino |
|
|
28,980 |
|
|
|
28,713 |
|
|
|
29,422 |
|
|
|
33,575 |
|
|
|
4.1 |
% |
|
|
-0.9 |
% |
|
|
2.5 |
% |
|
|
2.7 |
% |
COLORADO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Colorado Plains Medical Center |
|
Morgan |
|
|
37,037 |
|
|
|
38,501 |
|
|
|
39,298 |
|
|
|
44,128 |
|
|
|
2.4 |
% |
|
|
4.0 |
% |
|
|
2.1 |
% |
|
|
2.3 |
% |
FLORIDA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Putnam Community Medical Center |
|
Putnam |
|
|
30,498 |
|
|
|
31,452 |
|
|
|
32,509 |
|
|
|
37,274 |
|
|
|
2.7 |
% |
|
|
3.1 |
% |
|
|
3.4 |
% |
|
|
2.8 |
% |
INDIANA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical Center of Southern Indiana |
|
Clark |
|
|
42,519 |
|
|
|
43,557 |
|
|
|
44,696 |
|
|
|
49,378 |
|
|
|
2.0 |
% |
|
|
2.4 |
% |
|
|
2.6 |
% |
|
|
2.0 |
% |
Starke Memorial Hospital |
|
Starke |
|
|
39,990 |
|
|
|
40,645 |
|
|
|
41,395 |
|
|
|
45,364 |
|
|
|
2.3 |
% |
|
|
1.6 |
% |
|
|
1.8 |
% |
|
|
1.8 |
% |
KANSAS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Western Plains Regional Hospital |
|
Ford |
|
|
41,849 |
|
|
|
43,562 |
|
|
|
44,719 |
|
|
|
52,501 |
|
|
|
3.4 |
% |
|
|
4.1 |
% |
|
|
2.7 |
% |
|
|
3.3 |
% |
KENTUCKY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bluegrass Community Hospital |
|
Woodford |
|
|
57,851 |
|
|
|
59,490 |
|
|
|
61,262 |
|
|
|
75,059 |
|
|
|
5.3 |
% |
|
|
2.8 |
% |
|
|
3.0 |
% |
|
|
4.1 |
% |
Bourbon Community Hospital |
|
Bourbon |
|
|
40,506 |
|
|
|
41,315 |
|
|
|
42,663 |
|
|
|
52,109 |
|
|
|
5.0 |
% |
|
|
2.0 |
% |
|
|
3.3 |
% |
|
|
4.1 |
% |
Georgetown Community Hospital |
|
Scott |
|
|
55,170 |
|
|
|
56,671 |
|
|
|
58,595 |
|
|
|
70,858 |
|
|
|
5.3 |
% |
|
|
2.7 |
% |
|
|
3.4 |
% |
|
|
3.9 |
% |
Jackson Purchase Medical Center |
|
Graves |
|
|
35,241 |
|
|
|
36,059 |
|
|
|
37,403 |
|
|
|
45,221 |
|
|
|
4.5 |
% |
|
|
2.3 |
% |
|
|
3.7 |
% |
|
|
3.9 |
% |
Lake Cumberland Regional Hospital |
|
Pulaski |
|
|
30,630 |
|
|
|
31,267 |
|
|
|
32,512 |
|
|
|
38,376 |
|
|
|
4.0 |
% |
|
|
2.1 |
% |
|
|
4.0 |
% |
|
|
3.4 |
% |
Logan Memorial Hospital |
|
Logan |
|
|
36,790 |
|
|
|
37,697 |
|
|
|
38,957 |
|
|
|
45,956 |
|
|
|
4.2 |
% |
|
|
2.5 |
% |
|
|
3.3 |
% |
|
|
3.4 |
% |
Meadowview Regional Medical Center |
|
Mason |
|
|
34,294 |
|
|
|
34,889 |
|
|
|
36,216 |
|
|
|
43,745 |
|
|
|
4.3 |
% |
|
|
1.7 |
% |
|
|
3.8 |
% |
|
|
3.8 |
% |
Spring View Hospital |
|
Marion |
|
|
33,946 |
|
|
|
34,728 |
|
|
|
36,197 |
|
|
|
43,093 |
|
|
|
3.8 |
% |
|
|
2.3 |
% |
|
|
4.2 |
% |
|
|
3.5 |
% |
LOUISIANA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Doctors Hospital of Opelousas |
|
St. Landry |
|
|
24,861 |
|
|
|
25,484 |
|
|
|
25,858 |
|
|
|
29,332 |
|
|
|
2.9 |
% |
|
|
2.5 |
% |
|
|
1.5 |
% |
|
|
2.6 |
% |
Eunice Community Medical Center |
|
St. Landry |
|
|
24,861 |
|
|
|
25,484 |
|
|
|
25,858 |
|
|
|
29,332 |
|
|
|
2.9 |
% |
|
|
2.5 |
% |
|
|
1.5 |
% |
|
|
2.6 |
% |
Minden Medical Center |
|
Webster |
|
|
30,400 |
|
|
|
31,162 |
|
|
|
31,674 |
|
|
|
35,543 |
|
|
|
2.4 |
% |
|
|
2.5 |
% |
|
|
1.6 |
% |
|
|
2.3 |
% |
River Parishes Hospital |
|
St. John the Baptist |
|
|
42,270 |
|
|
|
43,538 |
|
|
|
44,396 |
|
|
|
50,288 |
|
|
|
2.4 |
% |
|
|
3.0 |
% |
|
|
2.0 |
% |
|
|
2.5 |
% |
Teche Regional Medical Center |
|
St. Mary |
|
|
30,570 |
|
|
|
31,324 |
|
|
|
31,828 |
|
|
|
35,924 |
|
|
|
2.6 |
% |
|
|
2.5 |
% |
|
|
1.6 |
% |
|
|
2.5 |
% |
Ville Platte Medical Center |
|
Evangeline |
|
|
22,276 |
|
|
|
22,815 |
|
|
|
23,269 |
|
|
|
26,651 |
|
|
|
2.8 |
% |
|
|
2.4 |
% |
|
|
2.0 |
% |
|
|
2.8 |
% |
MISSISSIPPI |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bolivar Medical Center |
|
Bolivar |
|
|
25,423 |
|
|
|
26,136 |
|
|
|
26,560 |
|
|
|
30,289 |
|
|
|
2.7 |
% |
|
|
2.8 |
% |
|
|
1.6 |
% |
|
|
2.7 |
% |
NEVADA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Northeastern Nevada Regional Hospital |
|
Elko |
|
|
52,243 |
|
|
|
54,185 |
|
|
|
56,078 |
|
|
|
63,751 |
|
|
|
2.6 |
% |
|
|
3.7 |
% |
|
|
3.5 |
% |
|
|
2.6 |
% |
NEW MEXICO |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Los Alamos Medical Center |
|
Los Alamos |
|
|
86,665 |
|
|
|
88,391 |
|
|
|
90,983 |
|
|
|
107,506 |
|
|
|
3.6 |
% |
|
|
2.0 |
% |
|
|
2.9 |
% |
|
|
3.4 |
% |
Memorial Medical Center |
|
Dona Ana |
|
|
32,284 |
|
|
|
33,507 |
|
|
|
34,664 |
|
|
|
40,346 |
|
|
|
2.7 |
% |
|
|
3.8 |
% |
|
|
3.5 |
% |
|
|
3.1 |
% |
PENNSYLVANIA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ashland Regional Medical Center |
|
Schuylkill |
|
$ |
36,689 |
|
|
$ |
37,474 |
|
|
$ |
38,739 |
|
|
$ |
45,466 |
|
|
|
3.9 |
% |
|
|
2.1 |
% |
|
|
3.4 |
% |
|
|
3.3 |
% |
SOUTH CAROLINA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coastal Carolina Medical Center |
|
Beaufort |
|
|
52,141 |
|
|
|
54,607 |
|
|
|
55,712 |
|
|
|
66,918 |
|
|
|
3.4 |
% |
|
|
4.7 |
% |
|
|
2.0 |
% |
|
|
3.7 |
% |
TENNESSEE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Athens Regional Medical Center |
|
McMinn |
|
|
34,329 |
|
|
|
35,282 |
|
|
|
36,319 |
|
|
|
40,921 |
|
|
|
2.6 |
% |
|
|
2.8 |
% |
|
|
2.9 |
% |
|
|
2.4 |
% |
Crockett Hospital |
|
Lawrence |
|
|
32,237 |
|
|
|
33,169 |
|
|
|
33,895 |
|
|
|
37,742 |
|
|
|
1.9 |
% |
|
|
2.9 |
% |
|
|
2.2 |
% |
|
|
2.2 |
% |
Hillside Hospital |
|
Giles |
|
|
37,598 |
|
|
|
38,689 |
|
|
|
39,996 |
|
|
|
44,657 |
|
|
|
2.6 |
% |
|
|
2.9 |
% |
|
|
3.4 |
% |
|
|
2.2 |
% |
Livingston Regional Hospital |
|
Overton |
|
|
28,667 |
|
|
|
29,629 |
|
|
|
30,264 |
|
|
|
33,226 |
|
|
|
1.8 |
% |
|
|
3.4 |
% |
|
|
2.1 |
% |
|
|
1.9 |
% |
Smith County Memorial Hospital |
|
Smith |
|
|
37,752 |
|
|
|
38,854 |
|
|
|
40,179 |
|
|
|
44,565 |
|
|
|
2.0 |
% |
|
|
2.9 |
% |
|
|
3.4 |
% |
|
|
2.1 |
% |
Southern Tennessee Medical Center/ |
|
Franklin |
|
|
38,758 |
|
|
|
40,056 |
|
|
|
41,262 |
|
|
|
46,442 |
|
|
|
2.5 |
% |
|
|
3.3 |
% |
|
|
3.0 |
% |
|
|
2.4 |
% |
Emerald-Hodgson Hospital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TEXAS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ennis Regional Medical Center |
|
Ellis |
|
|
54,389 |
|
|
|
56,447 |
|
|
|
58,516 |
|
|
|
65,970 |
|
|
|
2.6 |
% |
|
|
3.8 |
% |
|
|
3.7 |
% |
|
|
2.4 |
% |
Palestine Regional Medical Center |
|
Anderson |
|
|
34,449 |
|
|
|
35,692 |
|
|
|
36,930 |
|
|
|
42,337 |
|
|
|
2.9 |
% |
|
|
3.6 |
% |
|
|
3.5 |
% |
|
|
2.8 |
% |
Parkview Regional Hospital |
|
Limestone |
|
|
32,200 |
|
|
|
33,484 |
|
|
|
34,906 |
|
|
|
40,689 |
|
|
|
3.2 |
% |
|
|
4.0 |
% |
|
|
4.2 |
% |
|
|
3.1 |
% |
UTAH |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ashley Valley Medical Center |
|
Uintah |
|
|
38,050 |
|
|
|
38,756 |
|
|
|
39,436 |
|
|
|
45,263 |
|
|
|
3.2 |
% |
|
|
1.9 |
% |
|
|
1.8 |
% |
|
|
2.8 |
% |
Castleview Hospital |
|
Carbon |
|
|
37,830 |
|
|
|
38,446 |
|
|
|
39,084 |
|
|
|
45,260 |
|
|
|
3.4 |
% |
|
|
1.6 |
% |
|
|
1.7 |
% |
|
|
3.0 |
% |
VIRGINIA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Danville Regional Medical Center |
|
Danville city |
|
|
30,113 |
|
|
|
31,337 |
|
|
|
32,215 |
|
|
|
38,580 |
|
|
|
3.7 |
% |
|
|
4.1 |
% |
|
|
2.8 |
% |
|
|
3.7 |
% |
Memorial Hospital of Martinsville |
|
Martinsville city |
|
|
30,667 |
|
|
|
31,855 |
|
|
|
32,662 |
|
|
|
38,806 |
|
|
|
3.6 |
% |
|
|
3.9 |
% |
|
|
2.5 |
% |
|
|
3.5 |
% |
Wythe County Community Hospital |
|
Wythe |
|
|
35,705 |
|
|
|
37,182 |
|
|
|
38,577 |
|
|
|
45,154 |
|
|
|
3.4 |
% |
|
|
4.1 |
% |
|
|
3.8 |
% |
|
|
3.2 |
% |
WEST VIRGINIA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Logan Regional Medical Center/ |
|
Logan |
|
|
26,684 |
|
|
|
27,273 |
|
|
|
28,164 |
|
|
|
32,799 |
|
|
|
2.9 |
% |
|
|
2.2 |
% |
|
|
3.3 |
% |
|
|
3.1 |
% |
Guyan Valley Hospital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WYOMING |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lander Valley Medical Center |
|
Fremont |
|
|
35,783 |
|
|
|
36,949 |
|
|
|
37,862 |
|
|
|
44,364 |
|
|
|
3.2 |
% |
|
|
3.3 |
% |
|
|
2.5 |
% |
|
|
3.2 |
% |
Riverton Memorial Hospital |
|
Fremont |
|
|
35,783 |
|
|
|
36,949 |
|
|
|
37,862 |
|
|
|
44,364 |
|
|
|
3.2 |
% |
|
|
3.3 |
% |
|
|
2.5 |
% |
|
|
3.2 |
% |
Average
for counties/parishes that LifePoint serves |
|
$ |
36,732 |
|
|
$ |
37,908 |
|
|
$ |
38,939 |
|
|
$ |
45,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Average |
|
$ |
48,073 |
|
|
$ |
49,660 |
|
|
$ |
51,261 |
|
|
$ |
60,558 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The 2003 historical growth rate represents the
compounded annual growth rate from 2000 2003. |
|
(b) |
|
The 2010 projected growth rate represents the
compounded annual growth rate from 2005 2010. |
|
(c) |
|
Median Household Income for Colorado River Medical Center is for the zip code of the hospital
rather than the county because the hospitals county includes part of the Los Angeles metropolitan
area. |
|
Copyright 2005 Health InfoTechnics, LLC 877/239-9549 October 19, 2005 |
|
Demographic Source:ESRI Business Solutions |
18
Unemployment Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical Unemployment Rates |
Hospital |
|
County/Parish |
|
2002 |
|
2003 |
|
2004 |
|
2005 (a) |
ALABAMA |
|
|
|
|
|
|
|
|
|
|
Andalusia Regional Hospital |
|
Covington |
|
5.68% |
|
7.58% |
|
7.36% |
|
4.51% |
Lakeland Community Hospital |
|
Winston |
|
9.73% |
|
10.94% |
|
7.90% |
|
5.16% |
Northwest Medical Center |
|
Marion |
|
8.85% |
|
6.80% |
|
5.98% |
|
4.51% |
Russellville Hospital |
|
Franklin |
|
12.10% |
|
9.83% |
|
6.60% |
|
5.36% |
Vaughan Regional Medical Center |
|
Dallas |
|
13.10% |
|
12.96% |
|
11.62% |
|
8.72% |
ARIZONA |
|
|
|
|
|
|
|
|
|
|
Havasu Regional Medical Center |
|
Mohave |
|
5.40% |
|
4.93% |
|
3.98% |
|
4.00% |
Valley View Medical Center |
|
Mohave |
|
5.40% |
|
4.93% |
|
3.98% |
|
4.00% |
CALIFORNA |
|
|
|
|
|
|
|
|
|
|
Colorado River Medical Center |
|
San Bernardino |
|
5.70% |
|
5.89% |
|
5.45% |
|
5.16% |
COLORADO |
|
|
|
|
|
|
|
|
|
|
Colorado Plains Medical Center |
|
Morgan |
|
3.56% |
|
4.06% |
|
3.75% |
|
4.55% |
FLORIDA |
|
|
|
|
|
|
|
|
|
|
Putnam Community Medical Center |
|
Putnam |
|
7.20% |
|
5.83% |
|
5.59% |
|
4.66% |
INDIANA |
|
|
|
|
|
|
|
|
|
|
Medical Center of Southern Indiana |
|
Clark |
|
4.70% |
|
4.28% |
|
4.34% |
|
5.19% |
Starke Memorial Hospital |
|
Starke |
|
8.80% |
|
8.58% |
|
7.96% |
|
7.02% |
KANSAS |
|
|
|
|
|
|
|
|
|
|
Western Plains Regional Hospital |
|
Ford |
|
2.41% |
|
2.89% |
|
3.11% |
|
3.73% |
KENTUCKY |
|
|
|
|
|
|
|
|
|
|
Bluegrass Community Hospital |
|
Woodford |
|
3.26% |
|
3.02% |
|
2.66% |
|
3.96% |
Bourbon Community Hospital |
|
Bourbon |
|
5.44% |
|
5.72% |
|
4.24% |
|
5.22% |
Georgetown Community Hospital |
|
Scott |
|
4.45% |
|
5.28% |
|
4.02% |
|
4.54% |
Jackson Purchase Medical Center |
|
Graves |
|
6.87% |
|
7.69% |
|
7.91% |
|
9.15% |
Lake Cumberland Regional Hospital |
|
Pulaski |
|
7.30% |
|
6.65% |
|
4.61% |
|
5.60% |
Logan Memorial Hospital |
|
Logan |
|
7.83% |
|
6.97% |
|
5.78% |
|
6.08% |
Meadowview Regional Medical Center |
|
Mason |
|
4.94% |
|
6.35% |
|
6.20% |
|
5.90% |
Spring View Hospital |
|
Marion |
|
3.85% |
|
4.53% |
|
3.57% |
|
5.58% |
LOUISIANA |
|
|
|
|
|
|
|
|
|
|
Doctors Hospital of Opelousas |
|
St. Landry |
|
7.17% |
|
7.54% |
|
6.49% |
|
7.49% |
Eunice Community Medical Center |
|
St. Landry |
|
7.17% |
|
7.54% |
|
6.49% |
|
6.15% |
Minden Medical Center |
|
Webster |
|
9.22% |
|
9.66% |
|
7.97% |
|
6.50% |
River Parishes Hospital |
|
St. John the Baptist |
|
7.66% |
|
7.46% |
|
7.05% |
|
6.23% |
Teche Regional Medical Center |
|
St. Mary |
|
8.53% |
|
8.03% |
|
9.85% |
|
9.13% |
Ville Platte Medical Center |
|
Evangeline |
|
6.75% |
|
7.85% |
|
6.05% |
|
7.49% |
MISSISSIPPI |
|
|
|
|
|
|
|
|
|
|
Bolivar Medical Center |
|
Bolivar |
|
11.68% |
|
8.78% |
|
8.85% |
|
9.30% |
NEVADA |
|
|
|
|
|
|
|
|
|
|
Northeastern Nevada Regional Hospital |
|
Elko |
|
5.38% |
|
5.46% |
|
4.37% |
|
3.97% |
NEW MEXICO |
|
|
|
|
|
|
|
|
|
|
Los Alamos Medical Center |
|
Los Alamos |
|
1.03% |
|
1.56% |
|
1.59% |
|
2.97% |
Memorial Medical Center |
|
Dona Ana |
|
6.78% |
|
6.93% |
|
6.88% |
|
6.30% |
PENNSYLVANIA |
|
|
|
|
|
|
|
|
|
|
Ashland Regional Medical Center |
|
Schuylkill |
|
7.36% |
|
7.54% |
|
7.69% |
|
6.01% |
SOUTH CAROLINA |
|
|
|
|
|
|
|
|
|
|
Coastal Carolina Medical Center |
|
Beaufort |
|
2.81% |
|
2.95% |
|
3.35% |
|
4.80% |
TENNESSEE |
|
|
|
|
|
|
|
|
|
|
Athens Regional Medical Center |
|
McMinn |
|
8.28% |
|
8.28% |
|
7.26% |
|
6.30% |
Crockett Hospital |
|
Lawrence |
|
10.12% |
|
10.61% |
|
10.08% |
|
10.04% |
Hillside Hospital |
|
Giles |
|
7.94% |
|
9.63% |
|
7.34% |
|
7.54% |
Livingston Regional Hospital |
|
Overton |
|
6.54% |
|
6.33% |
|
5.64% |
|
5.91% |
Smith County Memorial Hospital |
|
Smith |
|
4.44% |
|
7.23% |
|
7.39% |
|
6.18% |
Southern Tennessee Medical Center/ |
|
Franklin |
|
4.59% |
|
4.73% |
|
4.88% |
|
5.53% |
Emerald-Hodgson Hospital |
|
|
|
|
|
|
|
|
|
|
TEXAS |
|
|
|
|
|
|
|
|
|
|
Ennis Regional Medical Center |
|
Ellis |
|
6.06% |
|
6.82% |
|
6.16% |
|
5.23% |
Palestine Regional Medical Center |
|
Anderson |
|
5.37% |
|
5.55% |
|
4.78% |
|
6.36% |
Parkview Regional Hospital |
|
Limestone |
|
4.37% |
|
4.53% |
|
4.07% |
|
4.94% |
UTAH |
|
|
|
|
|
|
|
|
|
|
Ashley Valley Medical Center |
|
Uintah |
|
6.31% |
|
6.16% |
|
5.79% |
|
4.53% |
Castleview Hospital |
|
Carbon |
|
6.50% |
|
7.88% |
|
6.96% |
|
6.51% |
VIRGINIA |
|
|
|
|
|
|
|
|
|
|
Danville Regional Medical Center |
|
Danville city |
|
9.69% |
|
11.32% |
|
11.42% |
|
9.99% |
Memorial Hospital of Martinsville |
|
Martinsville city |
|
16.47% |
|
14.01% |
|
16.42% |
|
10.38% |
Wythe County Community Hospital |
|
Wythe |
|
6.94% |
|
5.82% |
|
5.27% |
|
4.26% |
WEST VIRGINIA |
|
|
|
|
|
|
|
|
|
|
Logan Regional Medical Center/
Guyan Valley Hospital |
|
Logan |
|
7.92% |
|
8.00% |
|
5.46% |
|
5.26% |
WYOMING |
|
|
|
|
|
|
|
|
|
|
Lander Valley Medical Center |
|
Fremont |
|
6.10% |
|
6.49% |
|
5.80% |
|
4.87% |
Riverton Memorial Hospital |
|
Fremont |
|
6.10% |
|
6.49% |
|
5.80% |
|
4.87% |
|
|
Average for counties/parishes that LifePoint serves |
|
6.80% |
|
6.90% |
|
6.22% |
|
5.92% |
|
|
US Average |
|
5.80% |
|
6.00% |
|
5.50% |
|
4.90% |
(a) 2005 unemployment rate represents the 11-month average
as of November 2005.
Copyright 2005 Health InfoTechnics, LLC
877/239-9549 January 16, 2006.
Demographic Source: US Department of Labor, Bureau of Labor Statistics
19
Services and Utilization
We believe that the most important factors relating to the overall utilization of a hospital
are the number, quality, availability and specialties of physicians providing patient care within
the facility, breadth of services, market position of the hospital, level of technology, emphasis
on patient care and convenience for patients and physicians. Other factors which impact the
ability of a hospital to meet the healthcare needs of its community include:
|
|
|
the size of and growth in local population; |
|
|
|
|
local economic conditions; |
|
|
|
|
loyalty of the local population to support the local hospital; |
|
|
|
|
physician availability, expertise and local reputation; |
|
|
|
|
physician utilization trends; |
|
|
|
|
the availability of reimbursement programs such as Medicare and Medicaid; |
|
|
|
|
the ability to negotiate contracts with managed care organizations that are appropriate
for non-urban markets; |
|
|
|
|
necessary medical equipment to perform clinical procedures; and |
|
|
|
|
improved treatment protocols as a result of advances in medical technology and pharmacology. |
Most of our hospitals have experienced long-term growth in outpatient care services. We
believe outpatient services provided at most of our hospitals have increased for three primary
reasons. First, because of our ongoing recruiting efforts, new physicians tend to provide primarily
outpatient care services until they become established in the community and develop a patient base.
Second, our third-party payors utilize nationally-accepted guidelines for care and treatment that
generally encourage the utilization of outpatient, rather than inpatient, services when
appropriate, and shortened lengths of stay for inpatient care. Third, outpatient services continue
to grow because of improvements in technology and clinical practices.
In response to this increasing demand for outpatient care, we are continuing to reconfigure
some of our hospitals to more effectively accommodate outpatient services and diagnostics. We are
also restructuring existing surgical capacity and adding technology in some of our hospitals to
permit additional outpatient volume and a greater variety of outpatient services. An important
component of our continued growth in outpatient services will include
the development of
outpatient joint ventures with physicians in appropriate circumstances.
20
Sources of Revenue
Our hospitals receive payment for patient services from the federal government primarily under
the Medicare program, state governments under their respective Medicaid programs, health
maintenance organizations (HMOs), preferred provider organizations (PPOs) and other private
insurers, as well as directly from patients. The approximate percentages of total revenues from
continuing operations from these sources during the years specified below were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2001 |
|
2002 |
|
2003 |
|
2004 |
|
2005 |
Medicare |
|
|
35.7 |
% |
|
|
35.4 |
% |
|
|
35.9 |
% |
|
|
36.9 |
% |
|
|
36.6 |
% |
Medicaid |
|
|
10.9 |
|
|
|
11.6 |
|
|
|
10.9 |
|
|
|
11.2 |
|
|
|
9.4 |
|
HMOs, PPOs and other private insurers |
|
|
42.3 |
|
|
|
43.0 |
|
|
|
40.5 |
|
|
|
38.7 |
|
|
|
40.8 |
|
Self-pay |
|
|
7.7 |
|
|
|
8.1 |
|
|
|
8.6 |
|
|
|
9.3 |
|
|
|
11.3 |
|
Other |
|
|
3.4 |
|
|
|
1.9 |
|
|
|
4.1 |
|
|
|
3.9 |
|
|
|
1.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patients generally are not responsible for any difference between customary hospital
charges and amounts reimbursed for the services under Medicare, Medicaid, some private insurance
plans, HMOs or PPOs, but are responsible for services not covered by these plans, exclusions,
deductibles or co-insurance features of their coverage. The amount of exclusions, deductibles and
co-insurance generally has been increasing each year as employers have been shifting a higher
percentage of healthcare costs to employees. This has resulted in higher bad debt expense at many
of our hospitals.
Medicare
Medicare provides hospital and medical insurance benefits to persons age 65 and over, some
disabled persons and persons with end-stage renal disease. All of our
hospitals, except for Valley View Medical Center, are
currently certified as providers of Medicare services. Amounts received under the Medicare program
generally are significantly less than the hospitals customary charges for the services provided.
With the passage of the Medicare Prescription Drug, Improvement and Modernization Act of 2003
(MMA), which was signed into law on December 8, 2003, Congress passed sweeping changes to the
Medicare program. This legislation offers a prescription drug benefit for Medicare beneficiaries
and also provides a number of benefits to hospitals, particularly rural hospitals. On February 1,
2006, the House of Representatives approved the Deficit Reduction Act
of 2005 (the DRA). This bill,
previously passed by the Senate and expected to be signed by the President, includes measures
related to specialty hospitals, quality reporting and pay-for-performance, the inpatient
rehabilitation 75% Rule and Medicaid cuts. The major hospital provisions of MMA and DRA are
discussed in the subsections below.
Inpatient Acute Care Diagnosis Related Group Payments. Payments from Medicare for inpatient
hospital services are generally made under the prospective payment system, commonly known as PPS.
Under PPS, our hospitals are paid a prospectively determined amount for each hospital discharge
based on the patients diagnosis. Specifically, each diagnosis is assigned a diagnosis related
group, commonly known as a DRG. Each DRG is assigned a payment rate that is prospectively set
using national average costs per case for treating a patient for a particular diagnosis. DRG
payments do not consider the actual costs incurred by an individual hospital in providing a
particular inpatient service. This DRG assignment also affects the prospectively determined capital
rate paid with each DRG. DRG and capital payments are adjusted by a predetermined geographic
adjustment factor assigned to the geographic area in which the hospital is located.
21
The following tables list our historical Medicare DRG and capital payments for the years
presented (in millions):
|
|
|
|
|
|
|
|
|
|
|
Medicare |
|
Medicare |
|
|
DRG Payments |
|
Capital Payments |
2001 |
|
$ |
125.0 |
|
|
$ |
11.7 |
|
2002 |
|
|
139.4 |
|
|
|
13.3 |
|
2003 |
|
|
180.4 |
|
|
|
16.2 |
|
2004 |
|
|
196.8 |
|
|
|
17.8 |
|
2005 |
|
|
362.0 |
|
|
|
33.6 |
|
The DRG rates are adjusted by an update factor each federal fiscal year (FFY), which begins
on October 1. The index used to adjust the DRG rates, known as the hospital market basket index,
gives consideration to the inflation experienced by hospitals in purchasing goods and services.
Generally, however, the percentage increases in the DRG payments have been lower than the projected
increase in the cost of goods and services purchased by hospitals. Historical DRG rate increases
were as follows:
|
|
|
|
|
FFY |
|
% Increase |
2001 |
|
|
3.40 |
|
2002 |
|
|
2.75 |
|
2003 |
|
|
2.95 |
|
2004 |
|
|
3.40 |
|
2005 |
|
|
3.30 |
|
2006 |
|
|
3.70 |
|
MMA provides a full market basket update of 3.7% in FFY 2006 for hospitals that submit data on
ten quality measures to the Centers for Medicare and Medicaid Services (CMS). This provision
applies for three years (FFYs 2005-2007). Hospitals that fail to submit the necessary data or
withdraw from the program will receive the market basket increase minus 0.4%. Reductions to a
non-participating hospitals rate will apply only to the fiscal year involved. If the hospital
subsequently joins the program, the prior reduction will not be taken into account in computing the
update for that fiscal year. MMA and DRA restrict the application of these provisions to hospitals
paid under the Inpatient PPS. The provisions do not apply to hospitals and hospital units excluded
from the Inpatient PPS or to payments made to hospitals under other systems such as the Outpatient
PPS. Beginning in FFY 2007, DRA, if enacted, will expand quality reporting requirements to include additional
measures and increase the reduction to the market basket to 2.0% for hospitals that do not report all
the required data.
MMA also made a permanent 1.6% increase in the base DRG payment rate for rural hospitals and
urban hospitals in smaller metropolitan areas. In addition, MMA provided for payment relief to the
wage index component of the base DRG rate. Effective October 1, 2004, MMA lowered the percentage of
the DRG subject to a wage adjustment from 71% to 62% for hospitals in areas with a wage index below
the national average. A majority of our hospitals have benefited from the MMA provisions adjusting
the DRG payment rates. Several provisions will continue to affect the FFY 2006 standardized amounts
including a full market basket adjusted rate for hospitals reporting of quality data as part of
the CMS Hospital Quality Initiative and the continuation of the reduction of the labor share to 62%
for hospitals with a wage index below the national average. In addition, effective October 1, 2005,
CMS reduced the labor-related share of the wage index from 71.1% to 69.7% for hospitals in areas
with a wage index below the national average. These changes are reflected in the following table:
22
Standard Rate for Hospitals with a Wage Index Greater than the National Average
(69.7% Labor Share and 30.3% Nonlabor Share)
|
|
|
|
|
|
|
|
|
|
|
Labor-related |
|
Nonlabor-related |
Full update (3.7%) |
|
$ |
3,297.84 |
|
|
$ |
1,433.63 |
|
Reduced update (3.3%) |
|
$ |
3,285.12 |
|
|
$ |
1,428.10 |
|
Standard Rate for Hospitals with a Wage Index Less than or Equal to the National Average
(62.0% Labor Share and 38.0% Percent Nonlabor Share)
|
|
|
|
|
|
|
|
|
|
|
Labor-related |
|
Nonlabor-related |
Full update (3.7%) |
|
$ |
2,933.52 |
|
|
$ |
1,797.95 |
|
Reduced update (3.3%) |
|
$ |
2,922.20 |
|
|
$ |
1,791.02 |
|
|
|
|
|
Capital Standard |
|
|
Federal Payment Rate |
|
|
$420.65 |
|
Outlier Payments. In addition to DRG and capital payments, hospitals may qualify for payments
for cases involving extraordinarily high costs when compared to average cases in the same DRG. To
qualify as a cost outlier, a hospitals cost for the case must exceed the payment rate for the DRG
plus a specified amount called the fixed-loss threshold. The outlier payment is equal to 80% of the
difference between the hospitals cost for the stay and the threshold amount. The threshold is
adjusted every year based on CMSs projections of total outlier payments to make outlier
reimbursement equal 5.1% of total payments. We anticipate outlier payments to increase slightly in
2006 as a result of a reduction in the outlier threshold from $25,800 to $23,600.
The following table lists our historical Medicare outlier payments for the years presented (in
millions):
|
|
|
|
|
|
|
Medicare Outlier Payments |
|
|
|
2001 |
|
$ |
1.6 |
|
2002 |
|
|
0.7 |
|
2003 |
|
|
0.4 |
|
2004 |
|
|
0.6 |
|
2005 |
|
|
2.5 |
|
Disproportionate Share Payments. The Disproportionate Share Hospital (DSH) adjustment
provides additional payments to hospitals that treat a high percentage of low-income patients. The
adjustment is based on the hospitals DSH patient percentage, which is the sum of the number of
patient days for patients who were entitled to both Medicare Part A and Supplemental Security
Income benefits, divided by the total number of Medicare Part A patient days plus the days for
patients who were eligible for Medicaid divided by the total number of hospital inpatient days.
Hospitals whose DSH patient percentage exceeds 15% are eligible for a DSH payment adjustment.
Effective April 1, 2004, MMA raised the cap on the DSH payment adjustment percentage from
5.25% to 12.0% for rural and small urban hospitals and specified that payments to all hospitals be
based on the same conversion factor, regardless of geographic location. Most of our hospitals have
benefited from these provisions.
The following table lists our historical Medicare DSH payments for the years presented (in
millions):
|
|
|
|
|
|
|
Medicare DSH Payments |
|
|
|
2001 |
|
$ |
6.8 |
|
2002 |
|
|
9.0 |
|
2003 |
|
|
10.0 |
|
2004 |
|
|
21.2 |
|
2005 |
|
|
48.0 |
|
Wage Index. Under PPS, the prospective payment rates are adjusted for the area differences in
wage levels by a factor (wage index) reflecting the relative wage level in the geographic area
compared to the national average
wage level. Effective October 1, 2004 for inpatient PPS and January 1, 2005 for outpatient
PPS, CMS
23
implemented a number of changes to the wage index calculation. These changes include
adopting new standards for defining labor market geographic areas based on standards for defining
Core-Based Statistical Areas issued by the Office of Management and Budget (the OMB). Hospitals
that have been adversely affected by this new definition received a blended (50/50) wage index
based on the old and new wage geographic definitions for one year. Further, CMS has applied an
occupational mix adjustment factor to the wage index amounts for the first time, but has limited
the adjustment to 10% of the wage index. CMS has not announced what percentage of the wage index
will be impacted by the occupational mix adjustment for future years.
Post-Acute Care Transfer Policy. When a patient is transferred from one acute care facility to
another acute care facility, the transferring hospital receives a per diem payment with total
payment limited to the full DRG amount that would have been made if the patient were discharged
without being transferred. Beginning in FFY 1999, the transfer policy was expanded to cover
patients discharged to a post-acute care setting. Initially, this policy applied to cases assigned
to one of ten DRGs that had high volumes of cases discharged to post-acute care. The law gave CMS
authority to expand the number of DRGs for FFY 2001 and subsequent years. CMS established criteria
for determining the DRGs that should be included and extended in the policy to cover 29 DRGs in FFY
2004. This change reduced our Medicare reimbursement by approximately $0.7 million annually. In FFY
2005, CMS found that no additional DRGs met the criteria. However, CMS revised the list of DRGs to
adjust for one current post-acute transfer DRG that was split into two new DRGs, resulting in 30
DRGs subject to the policy. Effective October 1, 2005, CMS expanded the post-acute transfer policy
from 30 DRGs to 182 DRGs, resulting in an estimated $4.3 million additional reduction in our
Medicare inpatient PPS payments for FFY 2006.
Inpatient Rehabilitation and the 75% Rule. Historically, freestanding rehabilitation hospitals
and rehabilitation units within acute care hospitals (collectively, IRFs) received cost-based
reimbursement from Medicare under an exemption from the acute care PPS. In order to qualify for
cost-based reimbursement for IRFs, hospitals were required to have 75% of their patients in one or
more of ten medical conditions (the 75% Rule). The Balanced Budget Act of 1997 and its
implementing regulations replaced the traditional IRF cost-based methodology, however, with a PPS
system. This new IRF-PPS became effective on January 1, 2002.
On April 30, 2004, CMS issued a final rule revising criteria for classifying hospitals as
IRFs. The rule increased the number of qualifying medical conditions from 10 to 13, but reduced
the total number of eligible patients based upon revised definitions of the conditions. In
anticipation of the considerable difficulty many IRFs might have satisfying the revised 75% Rule,
CMS established a phase-in period for compliance, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum Qualifying |
|
|
Co-morbidities |
|
|
|
|
Cost Reporting Period Beginning |
|
Patient Mix |
|
|
Apply (Y/N) (1) |
|
|
|
Patient Mix Affected |
|
July 1, 2004-June 30, 2005 |
|
50% |
|
|
Y |
|
|
Medicare and Total |
July 1, 2005-June 30, 2006 |
|
60% |
|
|
Y |
|
|
Medicare and Total |
*July 1, 2006-June 30, 2007 |
|
60% |
|
|
Y |
|
|
Medicare and Total |
July 1, 2007-June 30, 2008 |
|
65% |
|
|
Y |
|
|
Medicare and Total |
July 1, 2008 and thereafter |
|
75% |
|
|
N |
|
|
Medicare and Total |
|
|
|
(1) |
|
Patients with certain co-morbidities (additional health conditions) may count towards
the minimum patient mix established by the revised 75% Rule during the phase-in period. |
|
* |
|
DRA, if enacted, will extend the 60% compliance period for
one year, then the phase-in period will resume. |
In January 2005, CMS suspended enforcement of the revised 75% Rule in response to a provision
of the Consolidated Appropriations Act of 2005, enacted as Public Law 108-447, that directed CMS
not to change the status of certain IRFs for their failure to comply with the revised 75% Rule
until the Secretary of the Department of Health and Human Services (the DHHS) made a
determination of clinically appropriate IRF classification criteria based on a recently issued
report by the Government Accountability Office (the GAO). On June 21, 2005, CMS issued a notice
announcing that it will proceed with implementing the revised 75% Rule as set forth in its
previously issued final rule. The notice states that CMS has determined it has already been taking
the steps that the GAO recommended to improve how facilities are classified as an IRF and that the
revised classification criteria for IRFs contained in the revised 75% Rule are not inconsistent
with the recommendations in the GAO
report. Accordingly, the June 21, 2005 notice lifts the suspension of enforcement of the
revised 75% Rule.
24
Any IRF that fails to meet the requirements of the 75% Rule is subject to prospective
reclassification as an acute care hospital. The effect of such reclassification would be to revert
Medicare prospective IRF payment rates to lower acute care payment rates. Such rates are
approximately 64% lower than these IRF payment rates. We have reduced admissions in an attempt to
achieve compliance with the current phase-in schedule for the revised 75% Rule. We have estimated
a 20% reduction in IRF admissions for 2005 resulting in a decrease of $8.0 million of revenues.
However, we anticipate no IRF admission reductions in 2006 as a result of the impact in 2005.
On August 15, 2005, CMS published a final rule that updates the IRF-PPS for FFY 2006. The
final rule:
|
|
|
increases the market basket payments by 3.6% utilizing a new methodology; |
|
|
|
|
incorporates downward adjustments for reimbursement (resulting in an overall decrease of
approximately 1.9%) in response to coding changes; |
|
|
|
|
increases the payment rate adjustment for IRFs in rural areas to 21.3% from the current 19.1%; |
|
|
|
|
reduces the outlier payment threshold for cases with unusually high costs; |
|
|
|
|
implements refinements to the case-mix groups, co-morbidity tiers and relative weights; |
|
|
|
|
implements new and revised payment adjustments that will be implemented on a
budget-neutral basis; |
|
|
|
|
adopts the new geographic labor market area definitions based on the definitions created
by the OMB known as Core-Based Statistical Areas to be implemented over a one-year
transition period; and |
|
|
|
|
incorporates several other modifications to Medicare reimbursement for IRFs. |
We currently operate 18 IRFs for which services are reimbursed under the IRF-PPS. The
following table lists our reimbursement from Medicare for the years presented (in millions):
|
|
|
|
|
|
|
IRF |
|
|
Reimbursement |
2001 |
|
$ |
7.6 |
|
2002 |
|
|
12.5 |
|
2003 |
|
|
18.4 |
|
2004 |
|
|
20.9 |
|
2005 |
|
|
29.5 |
|
Inpatient Psychiatric. As of December 31, 2005, we operated twelve inpatient psychiatric
units. Payments to PPS-exempt psychiatric hospitals and units were based upon reasonable cost,
subject to a cost-per-discharge target (the Tax Equity and Fiscal Responsibility Act of 1982
limits) for cost reporting periods beginning before January 1, 2005. These limits were updated
annually by a market basket index. The update to a hospitals target amount for its cost reporting
periods in fiscal years 2003, 2004 and 2005 was a market basket of 3.5%, 3.4% and 3.3%,
respectively. Caps had been established for the cost-per-discharge target at the 75th
percentile for each category of PPS-exempt hospitals and units. For cost reporting periods
beginning on or after October 1, 2002, payments to these PPS-exempt hospitals and units were no
longer subject to these caps. However, if a PPS-exempt hospital or unit was subject to the cap in
the cost report for the year prior to October 1, 2002, such limitation was included in its future
target amount. The cost-per-discharge for new hospitals and hospital units could not exceed 110% of
the national median target rate for hospitals in the same category.
On November 15, 2004, CMS published a final regulation to implement a PPS for inpatient
hospital services furnished in psychiatric hospitals and psychiatric units of general, acute care
hospitals and critical access hospitals (IPF PPS). The new prospective payment system replaced
the cost-based system for reporting periods beginning on or after January 1, 2005. IPF PPS is a per
diem prospective payment system with adjustments to
25
account for certain patient and facility
characteristics. IPF PPS contains an outlier policy for extraordinarily costly cases and an
adjustment to a facilitys base payment if it maintains a full-service emergency department. IPF
PPS is being implemented over a three-year transition period with full payment under PPS to begin
in the fourth year. Also, CMS has included a stop-loss provision to ensure that hospitals avoid
significant losses during the transition. CMS has established the IPF PPS payment rate in a manner
intended to be budget neutral and has adopted a July 1 update cycle. Thus, the initial IPF PPS per
diem payment rate is effective for the 18-month period January 1, 2005 through June 30, 2006. On
January 13, 2006, CMS released its proposed IPF PPS regulation for July 1, 2006 through June 30,
2007. CMS estimates that IPF PPS rates will increase an average of 4.2% effective July
1, 2006.
The following table lists our historical Medicare inpatient psychiatric payments for the years
presented (in millions):
|
|
|
|
|
Medicare Inpatient |
|
|
|
Psychiatric Payments |
|
2001 |
|
|
$ 6.1 |
|
2002 |
|
|
6.4 |
|
2003 |
|
|
7.0 |
|
2004 |
|
|
7.8 |
|
2005 |
|
|
15.3 |
|
Skilled Nursing Facilities and Swing Beds. As of December 31, 2005, we operated seven
hospital-based skilled nursing facilities (SNFs) and 26 hospitals utilizing swing beds. The SNF PPS was
implemented in 1998 and replaced a cost-based payment system. Under the SNF PPS, providers receive
a per diem payment from Medicare if a SNF patient admission was immediately preceded by a hospital
stay of at least three days. In response to criticism that the SNF PPS reimbursement was
inadequate, Congress initiated several temporary payment adjustments. Two of these payment
adjustments, which were authorized under the Balanced Budget Refinement Act of 1999 (BBRA) and
the Benefits Improvement and Protection Act of 2000 (BIPA), were to remain in effect until CMS
comprehensively refined the SNF PPS. These payment add-ons, a 20% adjustment for medically complex
resource utilization groups (RUGs) and a 6.7% adjustment for rehabilitation RUGs, terminated on
December 31, 2005. Through December 31, 2005, payments were based on 44 RUGs and covered all costs
of providing such as diagnostic tests, supplies and pharmacy expenses.
Beginning January 1, 2006, the RUG system has been modified by the addition of nine new RUGs
intended to capture some of the sickest and most costly SNF patients. As a result of the addition
of the new RUGs, which CMS interprets as a SNF PPS refinement, the two payment add-ons have been
removed at the end of 2005 and replaced on January 1, 2006 with a new 8.41% add-on that will be
applied to the nursing component of each of the 53 RUGs, including the nine new RUGs. For FFY
2004, SNF PPS payment rates were increased by the full market basket on 3.0% coupled with a 3.26%
increase to reflect the difference between the market basket forecast and the actual market basket
increase from the start of the SNF PPS in July 1998. For FFYs 2005 and 2006, SNF PPS payment rates
were increased by the market basket updates of 2.8% and 3.1%, respectively.
26
The following table lists our historical Medicare inpatient SNF payments for the years
presented (in millions):
|
|
|
|
|
|
|
Medicare Inpatient |
|
SNF Payments |
2001 |
|
|
$ |
7.4 |
|
2002 |
|
|
|
6.3 |
|
2003 |
|
|
|
4.8 |
|
2004 |
|
|
|
4.0 |
|
2005 |
|
|
|
6.3 |
|
Certain small, rural hospitals are allowed to enter into a Medicare swing-bed agreement, under
which the hospital can use its beds to provide either acute or SNF care, as needed. These services
furnished by rural hospitals are paid under the SNF PPS. The swing-bed provision represents a
hybrid benefit and, although the services furnished are SNF services, the provider of services is a
hospital.
The following table lists our historical Medicare swing-bed payments for the years presented
(in millions):
|
|
|
|
|
|
|
Medicare Inpatient |
|
Swing-Bed Payments |
2001 |
|
|
$ |
2.4 |
|
2002 |
|
|
|
4.2 |
|
2003 |
|
|
|
4.0 |
|
2004 |
|
|
|
5.7 |
|
2005 |
|
|
|
6.2 |
|
Critical Access Hospitals. As of December 31, 2005, we operated three critical-access
hospitals (CAHs). This category of hospitals was established in the BBA to support small,
limited service hospitals in rural areas. Prior to the enactment of the MMA, Medicare paid CAHs on
the basis of their Medicare allowable costs. The MMA increased these payments to 101% of Medicare
allowable costs. Effective January 1, 2006, the MMA eliminates the authority of states to waive
distance criteria for CAH status if a hospital is designated as a necessary provider. This
provision includes a grandfathering provision that allows a CAH designated as a necessary provider
in its states rural health plan before the effective date to be permitted to maintain its
necessary provider designation.
The
following table lists our historical Medicare critical-access hospital payments for the
years presented (in millions):
|
|
|
|
|
|
|
Medicare Critical-Access |
|
Hospital Payments |
2001 |
|
|
$ |
1.9 |
|
2002 |
|
|
|
2.2 |
|
2003 |
|
|
|
4.0 |
|
2004 |
|
|
|
5.4 |
|
2005 |
|
|
|
5.3 |
|
Graduate Medical Education: Hospitals and hospital-based providers receive payment for
training and instructing residents in approved direct graduate medical education (GME) residency
teaching programs. The direct GME payment is for costs, including the direct costs of salaries and
fringe benefits of interns and residents and teachers salaries, associated with an approved
residency teaching program in medicine, osteopathy,
27
dentistry and podiatry. We have historically
received little or no GME payments until 2005, when we received $0.4 million.
Indirect Medical Education. Prospective payment hospitals that have residents in an approved
graduate medical education program receive an additional payment for a Medicare discharge to
reflect the higher patient care costs of teaching hospitals relative to non-teaching hospitals.
This Indirect Medical Education (IME) adjustment factor is calculated using a hospitals ratio of
residents to beds and a formula multiplier. The formula is traditionally described in terms of a
certain percentage increase in payment for every 10% increase in the resident-to-bed ratio. We have
historically received little or no Medicare IME payments until 2005, when we received $0.8 million.
Outpatient Payments. BBRA established a PPS for outpatient hospital services that commenced on
August 1, 2000. Outpatient services are assigned ambulatory payment classifications (APCs), with
associated specific relative weights, which are multiplied by an APC conversion factor. The APC
conversion factors are $52.151, $54.561, $56.983 and $59.511 for 2003, 2004, 2005 and 2006,
respectively. Prior to August 1, 2000, outpatient services were paid at the lower of customary
charges or on a reasonable cost basis.
BBRA eliminated the anticipated average reduction of 5.7% for various Medicare outpatient
payments under the Balanced Budget Act of 1997 (BBA). Under BBRA, outpatient payment reductions
for non-urban hospitals with 100 beds or less were postponed until December 31, 2003. Fifteen of
our hospitals qualified for this hold harmless relief. Payment reductions under Medicare
outpatient PPS for non-urban hospitals with greater than 100 beds and urban hospitals were
mitigated through a corridor reimbursement approach, pursuant to which a percentage of such
reductions were reimbursed through December 31, 2003. Substantially all of our remaining hospitals
qualified for relief under this provision. MMA extended the hold harmless provision for non-urban
hospitals with 100 beds or less and expanded the provision to include sole community hospitals for
cost reporting periods beginning in 2004 until December 31,
2005. DRA, if enacted, will extend these payments
for three years but at a reduced amount. Payments for 2006, 2007 and
2008 will be 95%, 90% and 85%,
respectively, of the hold harmless amount. Currently, 29 of our hospitals qualify for this relief.
The following table lists our historical Medicare outpatient payments for the years presented
(in millions):
|
|
|
|
|
|
|
|
|
|
Medicare |
|
Medicare Hold Harmless Payments |
|
|
Outpatient Payments |
|
(Included in Medicare Outpatient Payments) |
2001 |
|
$ |
34.9 |
|
|
|
$ 0.2 |
|
2002 |
|
|
46.3 |
|
|
|
0.5 |
|
2003 |
|
|
57.6 |
|
|
|
0.6 |
|
2004 |
|
|
72.2 |
|
|
|
0.2 |
|
2005 |
|
|
143.2 |
|
|
|
|
|
Home
Health Payments. As of December 31, 2005, we operated 12 home health agencies. Home
health payments are reimbursed based on a PPS. For a two-year period beginning April 1, 2001, BIPA
increased Medicare payments 10.0% for home health services furnished in specific rural areas. This
provision expired on March 31, 2003. Home health PPS rates for 2003, which became effective
October 1, 2002, were effectively decreased by 4.9%. The market basket rate increase for calendar
year 2005 was 3.1%, which was reduced 0.8% as mandated by MMA, and resulted in a net increase of
the 60-day episode of care rate of 2.3%. MMA included several changes to home health services,
including a 5% additional payment for those home health services furnished in rural areas for one
year, effective April 1, 2004. DRA, if enacted, will freeze 2006 Medicare payments but reinstates
the 5% rural payment add-on for 2006 only. Beginning in 2007, home health agencies that do not
submit quality data would receive a 2% decrease in the market basket update.
28
The following table lists our historical Medicare home health payments for the years presented
(in millions):
|
|
|
|
|
Medicare Home Health Payments |
2001 |
|
$ |
0.3 |
|
2002 |
|
|
0.2 |
|
2003 |
|
|
1.9 |
|
2004 |
|
|
1.2 |
|
2005 |
|
|
8.2 |
|
Sole Community Hospitals and Medicare Dependent Hospitals. A sole community hospital (SCH)
is generally the only hospital within a 35-mile radius. Medicare has special payment provisions
for SCHs. Eighteen of our hospitals qualify as SCHs under Medicare regulations. Special payment
provisions related to SCHs may include a higher reimbursement rate, which is based on a blend of
hospital-specific costs and a national reimbursement rate, and a 90% payment floor for capital
costs which guarantees the SCH capital reimbursement equal to 90% of capital costs. Nine of our 18
SCH hospitals receive the higher hospital-specific rate. In addition, the TRICARE program that
provides medical insurance benefits to government employees has special payment provisions for
SCHs.
Medicare Dependent Hospitals (MDHs) are paid based on the federal rate or, if higher, the
federal rate plus 50% of the difference between the federal rate and the updated hospital-specific
rate. Our sole MDH, Hillside Hospital, receives the higher hospital-specific rate. This provision
was scheduled to expire for discharges beginning October 1,
2006. DRA, if enacted, will extend MDH status for
qualifying hospitals through discharges occurring before
October 1, 2011. Additionally, the hospital-specific portion of
the payment will be increased from 50% to 75% effective October 1, 2006.
Rural Health Clinics. As of December 31, 2005, we operated seven rural health clinics. A rural
health clinic is an outpatient facility that is primarily engaged in furnishing physicians and
other medical and health services and that meets other requirements designated to ensure the health
and safety of individuals served by the clinic. The clinic must be located in a medically
under-served area that is not urbanized as defined by the U.S. Bureau of Census. Payment to rural
health clinics for covered services is made by means of an all-inclusive rate for each visit.
Prior to 2005, we received approximately $0.3 million in Medicare rural health clinic payments
annually. We received approximately $1.7 million in Medicare rural health clinic payments in 2005
primarily as a result of the Province business combination.
Hospice
Payments. Medicare beneficiaries who are terminally ill are eligible to receive
hospice benefits in lieu of most other Medicare benefits. Hospices are paid a specific amount for
each day a beneficiary is in their care. The daily reimbursement amount is different depending on
the type of care being provided to the beneficiary on a particular day. The total amount a
hospice can receive for each beneficiary is capped at an annual level. In 2005, we received
approximately $1.2 million in Medicare hospice payments for one
of our hospitals that we acquired
in 2005.
Medicare Bad Debt Reimbursement. Under Medicare, the costs attributable to the deductible and
coinsurance amounts which remain unpaid by the Medicare beneficiary can be added to the Medicare
share of allowable costs as cost reports are filed. Hospitals generally receive interim
pass-through payments during the cost report year which were determined by the fiscal intermediary
from the prior cost report filing.
Bad debts must meet the following criteria to be allowable:
|
|
|
The debt must be related to covered services and derived from deductible and coinsurance amounts; |
|
|
|
|
The provider must be able to establish that reasonable collection efforts were made; |
|
|
|
|
The debt was actually uncollectible when claimed as worthless; and |
|
|
|
|
Sound business judgment established that there was no likelihood of recovery at any time
in the future. |
29
The amounts uncollectible from specific beneficiaries are to be charged off as bad debts in
the accounting period in which the accounts are deemed to be worthless. In some cases, an amount
previously written off as a bad debt and allocated to the program may be recovered in a subsequent
accounting period. In these cases, the recoveries must be used to reduce the cost of beneficiary
services for the period in which the collection is made. In determining reasonable costs for
hospitals, the amount of bad debts otherwise treated as allowable costs is reduced by 30%.
The following table lists our historical Medicare bad debt payments for the years presented
(in millions):
|
|
|
|
|
|
|
Medicare Bad Debt Payments |
2001 |
|
$ |
2.7 |
|
2002 |
|
|
4.3 |
|
2003 |
|
|
5.5 |
|
2004 |
|
|
7.1 |
|
2005 |
|
|
13.6 |
|
Medicaid
Medicaid, a joint federal-state program that is administered by the states, provides hospital
benefits to qualifying individuals who are unable to afford care. Amounts received under the
Medicaid program are generally significantly less than the hospitals customary charges for the
services provided. Most state Medicaid payments are made under a PPS or under programs that
negotiate payment levels with individual hospitals. The federal government and many states have or
may significantly reduce Medicaid funding. This could adversely affect future levels of Medicaid
payments received by our hospitals.
DRA,
if enacted, will give states greater control over their Medicaid programs and allows states to
impose new co-payments and deductibles on Medicaid recipients.
30
The following table summarizes our Medicaid revenues from continuing operations, reimbursement
methodologies and cost reporting requirements by state:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues (in millions) |
|
|
|
Cost Reporting |
State |
|
2001 |
|
2002 |
|
2003 |
|
2004 |
|
2005 |
|
Reimbursement Methodologies |
|
Requirements |
Alabama |
|
$ |
1.0 |
|
|
$ |
1.7 |
|
|
$ |
5.8 |
|
|
$ |
6.6 |
|
|
$ |
15.8 |
|
|
IP: Cost-related rates, not retrospective |
|
Informational only |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OP: Fee schedule |
|
|
Arizona |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.9 |
|
|
IP: Per diem rates, not retrospective |
|
None |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OP: Fee schedule |
|
|
California |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.9 |
|
|
IP: Cost-based |
|
Inpatient cost settled |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OP: Fee schedule |
|
|
Colorado |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.9 |
|
|
IP: DRG-based |
|
Informational only |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OP: Fee schedule |
|
|
Florida |
|
|
5.0 |
|
|
|
3.4 |
|
|
|
3.0 |
|
|
|
4.5 |
|
|
|
5.2 |
|
|
IP: Per diem |
|
Rate setting, cost settled |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OP: Per visit/per line item |
|
|
Indiana |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.5 |
|
|
IP: DRG-based |
|
Informational only |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OP: Fee schedule |
|
|
Kansas |
|
|
1.9 |
|
|
|
1.6 |
|
|
|
2.1 |
|
|
|
1.8 |
|
|
|
3.3 |
|
|
IP: DRG-based |
|
Informational only |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OP: Fee schedule |
|
|
Kentucky |
|
|
26.7 |
|
|
|
36.0 |
|
|
|
32.4 |
|
|
|
40.5 |
|
|
|
43.2 |
|
|
IP: DRG-based |
|
Outpatient cost settled |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OP: Cost-based, flat rate, fee schedule |
|
|
Louisiana |
|
|
0.4 |
|
|
|
3.7 |
|
|
|
3.6 |
|
|
|
4.3 |
|
|
|
16.9 |
|
|
IP: Cost per discharge |
|
Outpatient cost settled |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OP: Primarily 83% of allowable cost and fee schedule |
|
|
Mississippi |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.0 |
|
|
IP: Cost-based |
|
IP and OP cost settled |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OP: Cost-based |
|
|
Nevada |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.3 |
|
|
IP: Per diem rates, not retrospective |
|
None |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OP: Fee schedule |
|
|
New Mexico |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.8 |
|
|
IP: DRG-based with cost-based capital |
|
IP capital and OP cost settled |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OP: Cost-based and fee schedule |
|
|
South Carolina |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.9 |
|
|
IP: Cost-based |
|
IP capital and OP cost settled |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OP: Cost-based |
|
|
Tennessee |
|
|
18.0 |
|
|
|
23.1 |
|
|
|
24.6 |
|
|
|
26.5 |
|
|
|
25.5 |
|
|
IP: DRG-based |
|
None |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OP: Fee schedule |
|
|
Texas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.9 |
|
|
IP: DRG-based |
|
OP cost settled |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OP: Cost-based and fee schedule |
|
|
Utah |
|
|
7.6 |
|
|
|
7.9 |
|
|
|
8.4 |
|
|
|
8.7 |
|
|
|
8.1 |
|
|
IP: Negotiated percentage of charges |
|
None |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OP: Primarily 93% of charges and fee schedule |
|
|
Virginia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.3 |
|
|
IP: DRG-based with cost-based capital |
|
IP capital and OP cost settled |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OP: Cost-based |
|
|
West Virginia |
|
|
|
|
|
|
0.6 |
|
|
|
9.3 |
|
|
|
9.4 |
|
|
|
7.1 |
|
|
IP: DRG-based |
|
Informational only |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OP: Fee schedule |
|
|
Wyoming |
|
|
4.2 |
|
|
|
4.8 |
|
|
|
5.2 |
|
|
|
5.5 |
|
|
|
6.8 |
|
|
IP: Prospective, based on per discharge |
|
None |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OP: Fee schedule |
|
|
|
|
|
|
|
|
|
|
|
$ |
64.8 |
|
|
$ |
82.8 |
|
|
$ |
94.4 |
|
|
$ |
107.8 |
|
|
$ |
173.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
IP Inpatient |
|
OP Outpatient |
The following table lists our historical Medicaid disproportionate share and similar
state-funded payments, which payments are included in the Medicaid revenues listed in the above
table (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medicaid Disproportionate Share Payments |
|
State |
|
2001 |
|
|
2002 |
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
Alabama |
|
$ |
0.3 |
|
|
$ |
0.3 |
|
|
$ |
0.6 |
|
|
$ |
1.7 |
|
|
$ |
3.7 |
|
Kansas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.9 |
|
Kentucky |
|
|
4.4 |
|
|
|
5.9 |
|
|
|
3.4 |
|
|
|
4.9 |
|
|
|
4.9 |
|
Louisiana |
|
|
|
|
|
|
0.1 |
|
|
|
0.1 |
|
|
|
|
|
|
|
0.4 |
|
Mississippi |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.3 |
|
New Mexico |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.2 |
|
Tennessee |
|
|
1.3 |
|
|
|
0.2 |
|
|
|
0.9 |
|
|
|
1.7 |
|
|
|
1.3 |
|
Texas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.9 |
|
West Virginia |
|
|
|
|
|
|
|
|
|
|
0.7 |
|
|
|
0.8 |
|
|
|
0.8 |
|
Wyoming |
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6.0 |
|
|
$ |
6.5 |
|
|
$ |
5.8 |
|
|
$ |
9.1 |
|
|
$ |
15.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual Cost Reports
Hospitals participating in the Medicare and some Medicaid programs, whether paid on a
reasonable cost basis or under a PPS, are required to meet certain financial reporting
requirements. Federal and, where applicable, state
31
regulations require submission of annual cost
reports identifying medical costs and expenses associated with the services provided by each
hospital to Medicare beneficiaries and Medicaid recipients.
Annual cost reports required under the Medicare and some Medicaid programs are subject to
routine governmental audits. These audits may result in adjustments to the amounts ultimately
determined to be payable to us under these reimbursement programs. Finalization of these audits
often takes several years. Providers may appeal any final determination made in connection with an
audit.
HMOs, PPOs and Other Private Insurers
In addition to government programs, our hospitals are reimbursed by differing types of private
payors including HMOs, PPOs, other private insurance companies and employers. To attract
additional volume, most of our hospitals offer discounts from established charges to certain large
group purchasers of healthcare services.
These discount programs often limit our ability to increase charges in response to increasing
costs. Generally, patients covered by HMOs, PPOs and other private insurers will be responsible for
certain co-payments and deductibles.
Self-Pay
Self-pay revenues are derived from patients who do not have any form of healthcare coverage.
The revenues associated with self-pay patients are generally reported at our gross charges. We
evaluate these patients, after the patients medical condition is determined to be stable, for
qualifications of Medicaid or other governmental assistance programs, as well as our local
hospitals policy for charity/indigent care. A significant portion of self-pay patients are
admitted through the emergency department and often require high-acuity treatment. High-acuity
treatment is more costly to provide and, therefore, results in higher billings. We have seen an
increase in the number of self-pay patients at our hospitals, which are the least collectible of
all accounts.
We
provide care to certain patients that qualify under the local
charity/indigent care policy at each of our hospitals. We discount a charity/indigent care patients charges against our
revenues and do not report such discounts in our provision for doubtful accounts as it is our
policy not to pursue collection of amounts related to these patients.
The following table lists our historical self-pay revenues and charity/indigent care
write-offs for the years presented (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Self-Pay |
|
Charity/Indigent Care |
|
Combined |
|
|
Revenues |
|
Write-offs |
|
Total |
2001 |
|
$ |
45.5 |
|
|
$ |
3.1 |
|
|
$ |
48.6 |
|
2002 |
|
|
57.6 |
|
|
|
3.5 |
|
|
|
61.1 |
|
2003 |
|
|
75.7 |
|
|
|
5.2 |
|
|
|
80.9 |
|
2004 |
|
|
92.9 |
|
|
|
7.8 |
|
|
|
100.7 |
|
2005 |
|
|
210.0 |
|
|
|
24.0 |
|
|
|
234.0 |
|
Indigent Care Programs
Memorial Medical Center (MMC), our hospital located in Las Cruces, New Mexico, participates
in two indigent care programs:
|
|
|
Expanded Care Program, which is funded by both the City of Las Cruces and Dona Ana
County; and |
|
|
|
|
Sole Community Program, which is funded by both Dona Ana County and the federal
government. |
The Expanded Care Program funds MMC approximately $6.0 million per year until the expiration
date of June 1, 2007. MMC must provide a certain level of charity care to receive these funds.
MMC currently receives
32
approximately $16.0 million annually under the Sole Community Program. The
Sole Community Program is not tied to specific claims, as the funding levels are determined in October of each year.
Competition
Existing Hospitals
We compete with other hospitals and healthcare providers for patients. The competition among
hospitals and other healthcare providers for patients has intensified in recent years. In all but
four of the communities in which our hospitals are located, our hospitals face no direct hospital
competition because there are no other hospitals in these communities. However, these hospitals do
face competition from hospitals outside of their communities, including hospitals in the market
area and nearby urban areas that may provide more comprehensive services.
Patients in our primary service areas may travel to these other hospitals for a variety of
reasons, including the need for services we do not offer or physician referrals. Some of these
competing hospitals use equipment and services more specialized than those available at our
hospitals. Patients who require specialized services from these other hospitals may subsequently
shift their preferences to those hospitals for services we provide. In addition, some of the
hospitals that compete with us are owned by tax-supported governmental agencies or not-for-profit
entities supported by endowments and charitable contributions. These hospitals, in most instances,
are not required to pay sales, property and income taxes as we are.
We also face increasing competition from other specialized care providers, including
outpatient surgery, oncology, physical therapy and diagnostic centers, as well as competing
services rendered in physician offices. To the extent that other providers are successful in
developing specialized outpatient facilities, our market share for those specialized services will
likely decrease. Some of our hospitals have developed specialized outpatient facilities where
necessary to compete with these other providers. Physician competition also has increased as
physicians, in some cases, have become equity owners in surgery centers and outpatient diagnostic
centers, to which they refer patients.
State certificate of need laws, which place limitations on a hospitals ability to expand
hospital services and add new equipment, also may have the effect of restricting competition. Of
the 20 states where we operate hospitals, nine have certificate of need laws (Alabama, Florida,
Kentucky, Mississippi, Nevada, South Carolina, Tennessee, Virginia and West Virginia). The
application process for approval of additional covered services, new facilities, changes in
operations and capital expenditures is, therefore, highly competitive in these states.
The number and quality of the physicians on a hospitals staff are important factors in
determining a hospitals competitive advantage. Physicians decide whether a patient is admitted to
the hospital and the procedures to be performed. We believe that physicians refer patients to a
hospital primarily on the basis of the patients needs, the quality of other physicians on the
medical staff, the location of the hospital and the breadth and scope of services offered at the
hospitals facilities.
Hospital Acquisitions
A key element of our business strategy is expansion through the acquisition of acute care
hospitals in non-urban markets. The competition to acquire these type of hospitals is significant.
Our principal competitors for acquisitions have included Health Management Associates, Inc.,
Community Health Systems, Inc., Triad Hospitals, Inc. and newly capitalized start-up companies. We
intend to acquire hospitals that are similar to those we currently operate by adhering to our
selective acquisition strategy.
Employees and Medical Staff
At December 31, 2005, our subsidiaries had approximately 19,000 employees, including
approximately 5,000 part-time employees. Nurses, therapists, lab technicians, facility maintenance
staff and the administrative staff of hospitals are the majority of our employees. Approximately
200 of our employees are subject to collective bargaining agreements. We have approximately 175
employed physicians at December 31, 2005. We consider
33
our employee relations to be generally good.
While some of our hospitals experience union organizing activity from time to time, we do not
currently expect these efforts to materially affect our future operations.
Our hospitals are staffed by licensed physicians who have been admitted to the medical staff
of our individual hospitals. Any licensed physician may apply to be admitted to the medical staff
of any of our hospitals, but admission to the medical staff must be approved by the hospitals
medical staff and the local board of trustees of the hospital in accordance with established
credentialing criteria. In certain cases, physicians are employed by our hospitals.
Government Regulation
Overview. All participants in the healthcare industry are required to comply with extensive
government regulations at the federal, state and local levels. Under these laws and regulations,
hospitals must meet
requirements for licensure and qualify to participate in government programs, including the
Medicare and Medicaid programs. These requirements relate to the adequacy of medical care,
equipment, personnel, operating policies and procedures, maintenance of adequate records,
rate-setting, compliance with building codes and environmental protection laws. If we fail to
comply with applicable laws and regulations, we may be subject to criminal penalties and civil
sanctions, and our hospitals may lose their licenses and ability to participate in government
programs. In addition, government regulations frequently change. When regulations change, we may be
required to make changes in our facilities, equipment, personnel and services so that our hospitals
remain licensed and qualified to participate in these programs. We believe that our hospitals are
in substantial compliance with current federal, state and local regulations and standards.
Hospitals are subject to periodic inspection by federal, state and local authorities to
determine their compliance with applicable regulations and requirements necessary for licensing and
certification. All of our hospitals, except for Valley View Medical
Center, are currently licensed under appropriate state laws and
are qualified to participate in Medicare and Medicaid programs. In addition, as of December 31,
2005, most of our hospitals were accredited by the Joint Commission on Accreditation of Healthcare
Organizations (JCAHO), except for our three critical-access hospitals. This accreditation
indicates that a hospital satisfies the applicable health and administrative standards to
participate in Medicare and Medicaid. JCAHO has offered an accreditation program for
critical-access hospitals for approximately two years, but JCAHO accreditation for such hospitals
is voluntary and not required for participation in the Medicare and Medicaid programs.
Nevertheless, we currently follow the JCAHO standards at each critical-access hospital.
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, 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. Peer
review organizations may deny payment for services provided, or assess fines and also have the
authority to recommend to the DHHS that a provider which is in substantial noncompliance with the
standards of the peer review organization be excluded from participation in the Medicare program.
Utilization review is also a requirement of most non-governmental managed care organizations.
Fraud and Abuse Laws. Participation in the Medicare and/or Medicaid programs is heavily
regulated by federal statutes and regulations. If a hospital fails to comply substantially with the
numerous federal laws governing a facilitys activities, the hospitals participation in the
Medicare and/or Medicaid programs may be terminated and/or civil or criminal penalties may be
imposed. For example, a hospital may lose its ability to participate in the Medicare and/or
Medicaid programs if it performs any of the following acts:
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making claims to Medicare and/or Medicaid for services not provided or misrepresenting
actual services provided in order to obtain higher payments; |
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paying money to induce the referral of patients or purchase of items or services where
such items or services are reimbursable under a federal or state health program; or |
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failing to provide appropriate emergency medical screening services to any individual
who comes to a hospitals campus or otherwise failing to properly treat and transfer
emergency patients. |
The Health Insurance Portability and Accountability Act of 1996 (HIPAA) broadened the scope
of the fraud and abuse laws by adding several criminal statutes that are not related to receipt of
payments from a federal healthcare program. HIPAA created civil penalties for proscribed conduct,
including upcoding and billing for medically unnecessary goods or services. HIPAA established new
enforcement mechanisms to combat fraud and abuse. These new mechanisms include a bounty system,
where a portion of the payments recovered is returned to the government agencies, as well as a
whistleblower program. HIPAA also expanded the categories of persons that may be excluded from
participation in federal and state healthcare programs.
The anti-kickback provision of the Social Security Act prohibits the payment, receipt, offer
or solicitation of anything of value, whether in cash or in kind, with the intent of generating
referrals or orders for services or items covered by a federal or state healthcare program.
Violations of the anti-kickback statute may be punished by criminal and civil fines, exclusion from
federal and state healthcare programs, imprisonment and damages up to three times the total dollar
amount involved.
The Office of Inspector General (OIG) of DHHS is responsible for identifying fraud and abuse
activities in government programs. In order to fulfill its duties, the OIG performs audits,
investigations and inspections. In addition, it provides guidance to healthcare providers by
identifying types of activities that could violate the anti-kickback statute. The OIG has
identified the following hospital/physician incentive arrangements as potential violations:
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payment of any incentive by a hospital each time a physician refers a patient to the hospital; |
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use of free or significantly discounted office space or equipment; |
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provision of free or significantly discounted billing, nursing or other staff services; |
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free training (other than compliance training) for a physicians office staff,
including management and laboratory technique training; |
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guarantees which provide that if a physicians income fails to reach a predetermined
level, the hospital will pay any portion of the remainder; |
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low-interest or interest-free loans, or loans which may be forgiven if a physician
refers patients to the hospital; |
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payment of the costs for a physicians travel and expenses for conferences; |
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payment of services which require few, if any, substantive duties by the physician or
which are in excess of the fair market value of the services rendered; or |
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purchasing goods or services from physicians at prices in excess of their fair market
value. |
We have a variety of financial relationships with physicians who refer patients to our
hospitals, including employment contracts, leases, joint ventures, independent contractor
agreements and professional service agreements. Physicians may also own shares of our common stock.
We provide financial incentives to recruit physicians to relocate to communities served by our
hospitals. These incentives for relocation include minimum revenue guarantees and, in some cases,
loans. The OIG is authorized to publish regulations outlining activities and business relationships
that would be deemed not to violate the anti-kickback statute. These regulations are known as safe
harbor regulations. Failure to comply with the safe harbor regulations does not make conduct
illegal, but instead the safe harbors delineate standards that, if complied with, protect conduct
that might otherwise be deemed in violation of the anti-kickback statute. We use our best efforts
to structure each of our arrangements, especially each of our business arrangements with
physicians, to fit as closely as possible within
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an applicable safe harbor. However, not all of our
business arrangements fit wholly within safe harbors, so we cannot guarantee that these
arrangements will not be scrutinized by government authorities or, if scrutinized, that they will
be determined to be in compliance with the anti-kickback statute or other applicable laws. The
failure of a particular activity to comply with the safe harbor regulations does not mean that the
activity violates the anti-kickback statute. We believe that all of our business arrangements are
in full compliance with the anti-kickback statute. If we violate the anti-kickback statute, we
would be subject to criminal and civil penalties and/or possible exclusion from participating in
Medicare, Medicaid or other governmental healthcare programs.
The Social Security Act also includes a provision commonly known as the Stark law. This law
prohibits physicians from referring Medicare and Medicaid patients to selected types of healthcare
entities in which they or any of their immediate family members have ownership or a compensation
relationship. These types of referrals are commonly known as self referrals. Sanctions for
violating the Stark law include civil monetary
penalties, assessments equal to twice the dollar value of each service rendered for an
impermissible referral and exclusion from Medicare and Medicaid programs. There are ownership and
compensation arrangement exceptions to the self-referral prohibition. One exception allows a
physician to make a referral to a hospital that is not a specialty hospital if the physician owns
an interest in the entire hospital, as opposed to an ownership interest in a department of the
hospital. Another exception allows a physician to refer patients to a healthcare entity in which
the physician has an ownership interest if the entity is located in a rural area, as defined in the
statute. There are also exceptions for many of the customary financial arrangements between
physicians and facilities, including employment contracts, leases and recruitment agreements. We
have structured our financial arrangements with physicians to comply with the statutory exceptions
included in the Stark law and regulations.
Many states in which we operate also have adopted, or are considering adopting, laws similar
to the federal anti-kickback and Stark laws. Some of these state laws apply even if the government
is not the payor. These statutes typically provide criminal and civil penalties as remedies. While
there is little precedent for the interpretation or enforcement of these state laws, we have
attempted to structure our financial relationships with physicians and others in light of these
laws. However, if a state determines that we have violated such a law, we would be subject to
criminal and civil penalties.
Corporate Practice of Medicine and Fee-Splitting. Some states have laws that prohibit
unlicensed persons or business entities, including corporations or business organizations that own
hospitals, from employing physicians. Some states also have adopted laws that prohibit direct or
indirect payments or fee-splitting arrangements between physicians and unlicensed persons or
business entities. Possible sanctions for violations of these restrictions include loss of a
physicians license, civil and criminal penalties and rescission of business arrangements. These
laws vary from state to state, are often vague and have seldom been interpreted by the courts or
regulatory agencies. We attempt to structure our arrangements with healthcare providers to comply
with the relevant state laws and the few available regulatory interpretations.
Emergency Medical Treatment and Active Labor Act. All of our facilities are subject to the
Emergency Medical Treatment and Active Labor Act (EMTALA). This federal law requires any
hospital that participates in the Medicare program to conduct an appropriate medical screening
examination of every person who presents to the hospitals emergency department for treatment and,
if the patient is suffering from an emergency medical condition, to either stabilize that condition
or make an appropriate transfer of the patient to a facility that can handle the condition. The
obligation to screen and stabilize emergency medical conditions exists regardless of a patients
ability to pay for treatment. There are severe penalties under EMTALA if a hospital fails to
screen or appropriately stabilize or transfer a patient or if the hospital delays appropriate
treatment in order to first inquire about the patients ability to pay. Penalties for violations
of EMTALA include civil monetary penalties and exclusion from participation in the Medicare
program. In addition, an injured patient, the patients family or a medical facility that suffers
a financial loss as a direct result of another hospitals violation of the law can bring a civil
suit against the hospital.
On September 9, 2003, CMS published a final rule which became effective November 10, 2003,
clarifying a hospitals duties under EMTALA. In the final rule, CMS clarified when a patient is
considered to be on a hospitals property for purposes of treating the person pursuant to EMTALA.
CMS stated that off-campus facilities such as specialty clinics, surgery centers and other
facilities that lack emergency departments should not be subject to EMTALA, but that these
locations must have a plan explaining how the location should proceed in
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an emergency situation
such as transferring the patient to the closest hospital with an emergency department. CMS further
clarified that hospital-owned ambulances could transport a patient to the closest emergency
department instead of to the hospital that owns the ambulance.
CMS rules did not specify on-call physician requirements for an emergency department, but
provided a subjective standard stating that on-call hospital schedules should meet the hospitals
and communitys needs. Although we believe that our hospitals comply with EMTALA, we cannot predict
whether CMS will implement new requirements in the future and whether we will comply with any new
requirements.
Federal False Claims Act. The federal False Claims Act prohibits providers from knowingly
submitting false claims for payment to the federal government. This law has been used not only by
the federal government, but also by individuals who bring an action on behalf of the government
under the laws qui tam or whistleblower provisions. When a private party brings a qui tam
action under the federal False Claims Act, the defendant will generally not be aware of the lawsuit
until the government makes a determination whether it will intervene and take a lead in the
litigation.
Civil liability under the federal False Claims Act can be up to three times the actual damages
sustained by the government plus civil penalties for each separate false claim. There are many
potential bases for liability under the federal False Claims Act, including claims submitted
pursuant to a referral found to violate the anti-kickback statute. Although liability under the
federal False Claims Act arises when an entity knowingly submits a false claim for reimbursement to
the federal government, the federal False Claims Act defines the term knowingly broadly. Although
simple negligence generally will not give rise to liability under the federal False Claims Act,
submitting a claim with reckless disregard to its truth or falsity can constitute knowingly
submitting a false claim.
Healthcare Reform. The healthcare industry continues to attract much legislative interest and
public attention. MMA introduced changes to the Medicare program. Many of MMAs changes went into
effect January 1, 2006. MMA establishes a voluntary prescription drug benefit, provides federal
subsidies to plan sponsors that provide prescription drug benefits to Medicare-eligible retirees,
substantially adjusts Medicare+Choice and provides favorable payment adjustments for rural
hospitals. MMA also provides favorable tax treatment for individual health savings accounts. In
addition, MMA authorizes Medpac to study the effects of home health and rural hospital
reimbursement effects in current and anticipated reimbursement methodologies.
In recent years, Medicaid enrollment has grown as more people became eligible for the program.
At the same time, healthcare costs have been rising, forcing states to address Medicaid
cost-containment. Healthcare costs, demographics, erosion of employer-sponsored health coverage
and potential changes in federal Medicaid policies continue to put pressure on state Medicaid
programs. Policymakers in many states are evaluating the Medicaid programs in their states and
considering reforms. We anticipate that the federal and state governments will continue to
introduce legislative proposals to modify the cost and efficiency of the healthcare delivery
system.
Conversion Legislation. Many states have adopted legislation regarding the sale or other
disposition of hospitals operated by not-for-profit entities. In other states that do not have such
legislation, the attorneys general have demonstrated an interest in these transactions under their
general obligations to protect charitable assets. These legislative and administrative efforts
primarily focus on the appropriate valuation of the assets divested and the use of the proceeds of
the sale by the not-for-profit seller. These reviews and, in some instances, approval processes can
add additional time to the closing of a not-for-profit hospital acquisition. Future actions by
state legislators or attorneys general may seriously delay or even prevent our ability to acquire
certain hospitals.
Certificates of Need. The construction of new facilities, the acquisition or expansion of
existing facilities and the addition of new services and expensive equipment at our facilities may
be subject to state laws that require
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prior approval by state regulatory agencies. These
certificate of need laws generally require that a state agency determine the public need and give
approval prior to the construction or acquisition of facilities or the addition of new services. We
operate hospitals in nine states that have adopted certificate of need laws Alabama, Florida,
Kentucky, Mississippi, Nevada, South Carolina, Tennessee, Virginia and West Virginia. If we fail to
obtain necessary state approval, we will not be able to expand our facilities, complete
acquisitions or add new services in these states. Violation of these state laws may result in the
imposition of civil sanctions or the revocation of hospital licenses. All other states in which we
operate do not require a certificate of need prior to the initiation of new healthcare services.
In these states, our facilities are subject to competition from other providers who may choose to
enter the market by developing new facilities or services.
HIPAA Transaction, Privacy and Security Requirements. Federal regulations issued pursuant to
HIPAA contain, among other measures, provisions that require us to implement very significant and
potentially
expensive new computer systems, employee training programs and business procedures. The federal
regulations are intended to protect the privacy of healthcare information and encourage electronic
commerce in the healthcare industry.
Among other things, HIPAA requires healthcare facilities to use standard data formats and code
sets established by DHHS when electronically transmitting information in connection with several
transactions, including health claims and equivalent encounter information, healthcare payment and
remittance advice and health claim status. We have implemented or upgraded computer systems
utilizing a third party vendor, as appropriate, at our facilities and at our corporate headquarters
to comply with the new transaction and code set regulations and have tested these systems with
several of our payors.
HIPAA also requires DHHS to issue regulations establishing standard unique health identifiers
for individuals, employers, health plans and healthcare providers to be used in connection with the
standard electronic transactions. All healthcare providers, including our facilities, will be
required to obtain a new National Provider Identifier to be used in standard transactions instead
of other numerical identifiers beginning no later than May 23, 2007. We cannot predict whether our
facilities may experience payment delays during the transition to the new identifier. Our
facilities have fully implemented use of the Employer Identification Number as the standard unique
health identifier for employers. DHHS has not yet issued proposed rules that establish the
standard for unique health identifiers for health plans or individuals. Once these regulations are
issued in final form, we expect to have approximately two years to become fully compliant, but
cannot predict the impact of such changes at this time.
HIPAA regulations also require our facilities to comply with standards to protect the
confidentiality, availability and integrity of patient health information, by establishing and
maintaining reasonable and appropriate administrative, technical and physical safeguards to ensure
the integrity, confidentiality and the availability of electronic health and related financial
information. The security standards were designed to protect electronic information against
reasonably anticipated threats or hazards to the security or integrity of the information and to
protect the information against unauthorized use or disclosure. We expect that the security
standards will require our facilities to implement business procedures and training programs,
though the regulations do not mandate use of a specific technology.
DHHS has also established standards for the privacy of individually identifiable health
information. These privacy standards apply to all health plans, all healthcare clearinghouses and
healthcare providers, such as our facilities, that transmit health information in an electronic
form in connection with standard transactions, and apply to individually identifiable information
held or disclosed by a covered entity in any form. These standards impose extensive administrative
requirements on our facilities and require compliance with rules governing the use and disclosure
of this health information, and they require our facilities to impose these rules, by contract, on
any business associate to whom we disclose such information in order to perform functions on their
behalf. In addition, our facilities will continue to remain subject to any state laws that are more
restrictive than the privacy regulations issued under HIPAA. These laws vary by state and could
impose additional penalties.
Compliance with these standards requires significant commitment and action by us and our
facilities. Because some of the HIPAA regulations are proposed regulations, we cannot predict the
total financial impact of the regulations on our operations.
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Patient Safety and Quality Improvement Act of 2005. On July 29, 2005, the President signed
the Patient Safety and Quality Improvement Act of 2005, which has the goal of reducing medical
errors and increasing patient safety. This legislation establishes a confidential reporting
structure in which providers can voluntarily report Patient Safety Work Product (PSWP) to
Patient Safety Organizations (PSOs). Under the system, PSWP is made privileged, confidential
and legally protected from disclosure. PSWP does not include medical, discharge or billing records
or any other original patient or provider records but does include information gathered
specifically in connection with the reporting of medical errors and improving patient safety. This
legislation does not preempt state or federal mandatory disclosure laws concerning information that
does not constitute PSWP. PSOs will be certified by the Secretary of the DHHS for three-year
periods after the Secretary develops applicable certification criteria. PSOs will analyze PSWP,
provide feedback to providers and may report non-identifiable PSWP to a database. In addition, PSOs
are expected to generate patient safety
improvement strategies. We will monitor the progress of these voluntary reporting programs and
we anticipate that we will participate in some form when the details are available.
California Seismic Standards. Californias Alfred E. Alquist Hospital Facilities Seismic
Safety Act (the Alquist Act) requires that the California Building Standards Commission adopt
earthquake performance categories, seismic evaluation procedures, standards and timeframes for
upgrading certain facilities, and seismic retrofit building standards. These regulations require
hospitals to meet seismic performance standards to ensure that they are capable of providing
medical services to the public after an earthquake or other disaster. The Building Standards
Commission completed its adoption of evaluation criteria and retrofit standards in 1998.
The Alquist Act requires that within three years after the Building Standards Commission had
adopted evaluation criteria and retrofit standards:
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certain hospitals in California must conduct seismic evaluation and submit
these evaluations to the Office of Statewide Health Planning and Development, Facilities
Development Division for its review and approval; |
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hospitals in California must identify the most critical nonstructural systems
that represent the greatest risk of failure during an earthquake and submit timetables for
upgrading these systems to the Office of Statewide Health Planning and Development,
Facilities Development Division for its review and approval; and |
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regulated hospitals in California must prepare a plan and compliance schedule
for each regulated building demonstrating the steps a hospital will take to bring the
hospital buildings into substantial compliance with the regulations and standards. |
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are required to conduct engineering studies at our California facility (Colorado River
Medical Center), which was acquired in the Province business combination, to determine whether and
to what extent modifications to this facility will be required. To date, we have conducted
engineering studies and implemented compliance plans for our California facility that satisfy all
current requirements and, through December 31, 2005, have cost approximately $0.2 million. We may
be required to make significant capital expenditures in the future to comply with the seismic
standards, which could impact our earnings.
State Hospital Rate-Setting Activity. We currently operate two facilities in West Virginia.
The West Virginia Health Care Authority requires that requests for increases in hospital charges be
submitted annually. Requests for rate increases are reviewed by the West Virginia Health Care
Authority and are either approved at the amount requested, approved for lower amounts than
requested, or are rejected. As a result, in West Virginia, our ability to increase our rates to
compensate for increased costs per admission is limited and the operating margins for our hospitals
located in West Virginia may be adversely affected if we are not able to increase our rates as our
expenses increase. We can provide no assurance that other states in which we operate hospitals will
not enact similar rate-setting laws in the future.
Medical Malpractice Tort Law Reform. Medical malpractice tort law has historically been
maintained at the state level. All states have laws governing medical liability lawsuits. Over
half of the states have limits on
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damages awards. Almost all states have eliminated joint and
several liability in malpractice lawsuits, and many states have established limits on attorney
fees. In 2005, most states had bills introduced in their legislative sessions to address medical
malpractice tort reform. Proposed solutions include enacting limits on non-economic damages,
malpractice insurance reform, and gathering lawsuit claims data from malpractice insurance
companies and the courts for the purpose of assessing the connection between malpractice
settlements and premium rates. Reform legislation has also been proposed, but not adopted, at the
federal level that could preempt additional state legislation in this area.
Environmental Regulation. Our healthcare operations generate medical waste that must be
disposed of in compliance with federal, state and local environmental laws, rules and regulations.
Our operations, as well as our purchases and sales of healthcare facilities, are also subject to
compliance with various other environmental laws,
rules and regulations. Such compliance costs are not significant and we do not anticipate that
such compliance costs will be significant in the future.
Regulatory Compliance Program
It is our policy to conduct our business with integrity and in compliance with the law. We
have in place and continue to enhance a company-wide compliance program which focuses on all areas
of regulatory compliance including billing, reimbursement and cost reporting practices.
This regulatory compliance program is intended to help ensure that high standards of conduct
are maintained in the operation of our business and that policies and procedures are implemented so
that employees act in full compliance with all applicable laws, regulations and company policies.
Under the regulatory compliance program, every employee, certain contractors involved in patient
care, and coding and billing, receive initial and periodic legal compliance and ethics training. In
addition, we regularly monitor our ongoing compliance efforts and develop and implement policies
and procedures designed to foster compliance with the law. The program also includes a mechanism
for employees to report, without fear of retaliation, any suspected legal or ethical violations to
their supervisors, designated compliance officers in our hospitals, our compliance hotline or
directly to our compliance office.
In December 2000, we entered into a five-year corporate integrity agreement with the OIG and
agreed to maintain our compliance program in accordance with the corporate integrity agreement.
This agreement expired on December 31, 2005. We are required to submit our final report no later than May 31, 2006. The related compliance measures and
reporting and auditing requirements include:
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continuing the duties and activities of our audit and compliance committee, corporate
compliance officer, internal audit and compliance department, local hospital ethics and
compliance officers, corporate compliance committee and hospital compliance committees; |
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maintaining our written code of conduct, which sets out our commitment to full
compliance with all statutes, regulations and guidelines applicable to federal healthcare
programs; |
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maintaining our written policies and procedures addressing the operation of our compliance program; |
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providing general training on the compliance program; |
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providing specific training for the appropriate personnel on billing, coding and cost report issues; |
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performing internal coding reviews of our facilities and having an independent third
party conduct periodic audits of those reviews; |
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continuing our confidential disclosure program and compliance hotline to enable
employees or others to disclose issues or questions regarding possible inappropriate
policies or behavior; |
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enhancing our screening program to ensure that we do not hire or engage employees or
contractors who have been sanctioned or excluded from participation in federal healthcare
programs; |
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reporting and making the appropriate refund for any material deficiency which resulted
in an overpayment to us by a federal healthcare program; |
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reporting any healthcare related fraud involving any federally funded program; and |
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submitting annual reports to the OIG which describe in detail the operations of our
corporate compliance program for the past year. |
Our compliance program will continue in 2006 to maintain the same levels of integrity with our
policy and regulatory compliance policies.
Risk Management and Insurance
We assume a substantial portion of our professional and general liability risks through a
self-insured retention (SIR) program administered in-house by our risk and insurance department
with assistance from our insurance brokers. Beginning in 2005, our SIR for professional and general
liability risks is $15.0 million per claim in all states except Texas and Florida. Our SIR in
Texas and Florida is currently $10.0 million per claim because of the high volatility of risk in
both of these states. We do not have an aggregate amount on the SIR layer. We maintain
professional and general liability insurance with unrelated commercial carriers for losses in
excess of the SIR.
Our workers compensation program has a $1.0 million deductible for each loss in all states
except for West Virginia and Wyoming. Workers compensation in these states operate under a
statemandated program. Recent changes in the workers compensation laws in West Virginia will
allow self-insurance and commercial programs to be offered in the future.
We also maintain directors and officers, property and other types of insurance coverages
with unrelated commercial carriers. Our directors and officers liability insurance coverage for
current officers and directors is a program that protects us as well as the individual director or
officer. The limits provided by the directors and officers policy are based on the insurance
market. We maintain property insurance through an unrelated
commercial carrier. High
property insurance deductibles are required with respect to our facilities that are relatively close to the coast because
of the high wind exposure. We have four locations that are considered a high exposure to
named-storm risk and carry a deductible of 3% of their respective property values.
During the fourth quarter of 2005, we were approved by the Cayman Islands Monetary Authority
to operate a captive insurance company under the name Point of Life Indemnity, Ltd. (POLI). This
captive insurance company will operate as our wholly-owned subsidiary and will be
utilized initially to issue insurance policies to our employed physicians. We anticipate that POLI
will be used for other insurance programs in the future, including our SIR.
Item 1A. Factors That May Affect Future Results
We make forward-looking statements in this report and in other reports and proxy statements we
file with the SEC. In addition, our senior management makes forward-looking statements orally to
analysts, investors, the media and others. Broadly speaking, forward-looking statements include:
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projections of our revenues, net income, earnings per share, capital
expenditures, cash flows, debt repayments, interest rates, certain operating statistics and
data or other financial items; |
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descriptions of plans or objectives of our management for future operations or
services, including pending acquisitions and divestitures; |
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interpretations of Medicare and Medicaid law; and |
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descriptions of assumptions underlying or relating to any of the foregoing. |
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In this report, for example, we make forward-looking statements discussing our expectations about:
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integration of our recent acquisitions; |
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future financial performance; |
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future liquidity and capital resources; |
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future cash flows; |
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future debt and equity structure; |
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our strategic goals; |
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competition with other hospitals; |
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our compliance with federal, state and local regulations; |
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our payment of dividends; |
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future acquisitions; |
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de novo facilities; |
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industry trends; |
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the efforts of insurers and other payors, healthcare providers and others to contain healthcare costs; |
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reimbursement changes; |
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patient volumes and related revenues; |
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recruiting and retention of clinical personnel; |
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future capital expenditures; |
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our contractual obligations; |
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the impact of changes in our critical accounting estimates; |
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claims and legal actions relating to professional liabilities and other matters; |
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the impact of new accounting standards; and |
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physician recruiting and retention. |
Forward-looking statements discuss matters that are not historical facts. Because they discuss
future events or conditions, forward-looking statements often include words such as can, could,
may, should, believe, will, would, expect, project, estimate, anticipate, plan,
intend, target, continue or similar expressions. Do not unduly rely on forward-looking
statements. They give our expectations about the future and are not guarantees. Forward-looking
statements speak only as of the date they are made, and we might not update them to reflect changes
that occur after the date they are made.
There are several factors, many beyond our control, that could cause results to differ
significantly from our expectations. Some of these factors are described below under Risk
Factors. Other factors, such as market,
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operational, liquidity, interest rate and other risks, are
described elsewhere in this report (see, for example, Part I, Item 7. Managements Discussion and
Analysis of Financial Condition and Results of Operations, Liquidity and Capital Resources and
Part I, Item 7A. Quantitative and Qualitative Disclosures about Market Risk). Any factor described
in this report could by itself, or together with one or more factors, adversely affect our
business, results of operations and/or financial condition. There may be factors not described in
this report that could also cause results to differ from our expectations.
Risk Factors
We have substantial indebtedness and we may incur significant amounts of additional
indebtedness in the future which could affect our ability to finance operations, pursue desirable
business opportunities or successfully run our business in the future.
We have substantial indebtedness. As of December 31, 2005, our consolidated debt was
approximately $1,516.3 million. We also may draw upon revolving credit loans in an aggregate
principal amount of up to $300 million, of which none were outstanding at December 31, 2005. We
also have the ability to incur significant amounts of additional indebtedness, subject to the
conditions imposed by the terms of our credit agreements and the agreements or indentures governing
any additional indebtedness that we incur in the future. In addition, our credit facility contains
an uncommitted accordion feature that permits us to borrow at a later date additional aggregate
principal amounts of up to $250 million under the term loan component and up to $100 million under
the revolving loan component, subject to the receipt of commitments and the satisfaction of other
conditions. Our ability to repay or refinance our indebtedness will depend upon our future ability
to monetize our interests in our companies and our operating performance, which may be affected by
general economic, financial, competitive, regulatory, business and other factors beyond our
control.
Although we believe that our future operating cash flow, together with available financing
arrangements, will be sufficient to fund our operating requirements, our leverage and debt service
obligations could have important consequences, including the following:
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Under our credit facility, we will be required to satisfy and maintain specified
financial ratios and tests. Failure to comply with these obligations may cause an event
of default which, if not cured or waived, could require us to repay substantial
indebtedness immediately. Moreover, if debt repayment is accelerated, we will be
subject to higher interest rates on our debt obligations as a result of these
covenants, and our credit ratings may be adversely impacted. |
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We may be vulnerable in the event of downturns and adverse changes in our
hospitals businesses, in our industry, or in the economy generally, such as the
implementation by the government of further limitations on reimbursement under Medicare
and Medicaid, because of our need for increased cash flow. |
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We may have difficulty obtaining additional financing at favorable interest rates
to meet our requirements for working capital, capital expenditures, acquisitions,
general corporate or other purposes. |
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We will be required to dedicate a substantial portion of our cash flow to the
payment of principal and interest on indebtedness, which will reduce the amount of
funds available for operations, capital expenditures and future acquisitions. |
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Any borrowings we complete at variable interest rates expose us to increases in
interest rates generally. |
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A breach of any of the restrictions or covenants in our debt agreements could cause
a cross-default under other debt agreements. We may be required to pay our indebtedness
immediately if we default on any of the numerous financial or other restrictive
covenants contained in the debt agreements. It is not certain whether we will have, or
will be able to obtain, sufficient funds to make these accelerated |
43
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payments. If any
senior debt is accelerated, our assets may not be sufficient to repay such indebtedness
and our other indebtedness. |
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In the event of a default, we may be forced to pursue one or more alternative
strategies, such as restructuring or refinancing our indebtedness, selling assets,
reducing or delaying capital expenditures or seeking additional equity capital. There
can be no assurances that any of these strategies could be effected on satisfactory
terms, if at all, or that sufficient funds could be obtained to make these accelerated
payments. |
A substantial portion of our indebtedness consists of floating rate debt, which exposes us to
interest rate risk.
Approximately 85% of our indebtedness consists of floating rate debt, which is at variable
rates of interest and exposes us to interest rate risk. Changes in the interest rates generally
will not impact the fair market value of the floating rate debt instruments but could have a
material adverse affect on our results of operations. If interest rates increase, our debt service
obligations on the variable rate indebtedness will increase, even though the amount borrowed will
remain the same.
We manage our exposure to interest rate risk through internally established policies and
procedures. To the extent that we maintain floating rate debt, we will evaluate the appropriateness
of using various hedging instruments. Currently, we have not used financial instruments for hedging
interest rate risk and are not a party to any derivative contracts which would reduce exposure to
such risk.
We may be unable to integrate successfully the operations and businesses of LifePoint and
Province and realize the full cost savings and benefits anticipated from the Province business
combination.
The Province business combination, which was completed on April 15, 2005, involves the
integration of two companies that previously operated as independent public companies. We are
dedicated to devoting significant management attention and resources to continue to integrate the
business practices and operations of Province. The potential difficulties that we may encounter in
the integration process include the following:
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complexities associated with managing and coordinating the geographically
disparate combined businesses, which had 52 hospitals in 20 states as of January 1, 2006
(including two hospitals that are part of discontinued operations not yet divested); |
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integrating personnel and processes from the two companies while maintaining
focus on providing consistent, high quality patient care; |
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our inability to achieve the cost savings and efficiencies anticipated in the
Province business combination, including increased purchasing efficiencies and cost
reductions expected to result from the Province business combination; |
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delays in replacing Provinces information systems with our information systems; and |
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potential unknown liabilities and increased costs associated with the Province business combination. |
The process of integrating operations could cause an interruption of, or loss of momentum in,
the activities of our business and could also cause the loss of key personnel upon whom our success
will depend in large part. The diversion of managements attention and any delays or difficulties
encountered in connection with the Province business combination and the integration of the two
companies operations could have an adverse effect on our business, results of operations,
financial condition, cash flows or prospects. If encountered, these potential difficulties could
result in reduced earnings and revenues compared to operations of LifePoint and Province for
periods prior to the Province business combination.
44
We have incurred significant expenses in connection with the Province business combination and
related financing transactions.
We have recognized a pretax charge to operations of $43.2 million for transaction costs during
2005, which is comprised of $26.4 million as a result of conforming Provinces accounts receivable
to our accounting policies, $7.3 million relating to assumed liabilities, $4.2 million relating to
retention bonuses to former Province employees and $5.3 million relating to compensation expense,
primarily in the form of restricted stock vesting as a result of the Province business combination.
Additional unanticipated costs may be incurred in future periods to integrate the businesses of
LifePoint and Province. If the benefits of the Province business combination do not exceed its
associated costs, our financial results could be adversely affected.
If
our fair value declines, a material non-cash charge to earnings from
impairment of our goodwill could result.
We recorded a significant portion of the Province purchase price as goodwill. We have also
recorded as goodwill a portion of the purchase price for many of our hospital acquisitions. At
December 31, 2005, we had approximately $1,455.6 million of goodwill recorded on our books. We
expect to recover the carrying value of this goodwill through our future cash flows. On an ongoing
basis, we evaluate, based on our fair value, whether the carrying value of our
goodwill is impaired. If the carrying value of our goodwill is impaired, we may incur a material
non-cash charge to earnings.
We may have difficulty acquiring hospitals on favorable terms and, because of regulatory
scrutiny, acquiring not-for-profit entities.
One element of our business strategy is expansion through the acquisition of acute care
hospitals in non-urban markets. We face significant competition to acquire other attractive,
non-urban hospitals, and we may not find suitable acquisitions on favorable terms. Our principal
competitors for acquisitions have included Health Management Associates, Inc., Community Health
Systems, Inc., Triad Hospitals, Inc. and newly capitalized start-up companies. We also may incur or
assume additional indebtedness as a result of the consummation of acquisitions. Our failure to
acquire non-urban hospitals consistent with our growth plans could prevent us from increasing our
revenues.
The cost of an acquisition could result in a dilutive effect on our results of operations,
depending on various factors, including the amount paid for the acquisition, the acquired
hospitals results of operations, allocation of purchase price, effects of subsequent legislation
and limitations on rate increases. In the past, we have occasionally experienced temporary delays
in improving the operating margins or effectively integrating the operations of our acquired
hospitals. In the future, if we are unable to improve the operating margins of acquired hospitals,
operate them profitably or effectively integrate their operations, we may be unable to achieve our
growth strategy.
In recent years, the legislatures and attorneys general of several states have become more
interested in sales of hospitals by not-for-profit entities. This heightened scrutiny may increase
the cost and difficulty, or prevent the completion, of transactions with not-for-profit
organizations in the future.
We may encounter numerous business risks in acquiring additional hospitals and may have
difficulty operating and integrating those hospitals. As a result, we may be unable to achieve our
growth strategy.
We may be unable to timely and effectively integrate the hospitals that we acquire with our
ongoing operations. We may experience delays in implementing operating procedures and systems in
newly acquired hospitals. Integrating a new hospital could be expensive and time consuming and
could disrupt our ongoing business, negatively affect cash flow and distract management and other
key personnel. In addition, acquisition activity requires transitions from, and the integration of,
operations and, usually, information systems that are used by acquired hospitals, and we will rely
heavily on HCA for information systems integration as part of a contractual arrangement for
information technology services. We may not be successful in causing HCA to convert our newly
acquired hospitals information systems, including those used by the Province hospitals, in a
timely manner.
45
In addition, we also may acquire businesses, including the Province hospitals, with unknown or
contingent liabilities for past activities of acquired businesses, including liabilities for
failure to comply with healthcare laws and regulations, medical and general professional
liabilities, workers compensation liabilities, previous tax liabilities, and unacceptable business
practices. Although we have historically obtained, and we will likely obtain, contractual
indemnification from sellers covering these matters, we did not obtain indemnification in the
Province business combination and any indemnification may be insufficient to cover material claims
or liabilities for past activities of acquired businesses.
It is difficult to predict financial performance of our de novo hospitals, and these
facilities will take time to perform at the level of our other hospitals.
Because our two newly-constructed hospitals in Fort Mohave, Arizona and Hardeeville, South
Carolina do not have long operating histories, it is difficult to predict their financial
performance. Each of these hospitals has incurred significant start-up costs and will have to
build market share over time. As a result, these de novo facilities may adversely affect our
earnings and profitability in the near term and impair our ability to forecast our performance
accurately until the facilities mature and build operating histories.
We depend significantly on key personnel and the loss of one or more of our senior management
personnel or key local management personnel could limit our ability to execute our business
strategy.
We depend on the services and management experience of Kenneth C. Donahey, our Chairman of the
Board, Chief Executive Officer and President, and our other current executive officers. If Mr.
Donahey or any of our other executive officers resign or otherwise are unable to serve, our
management expertise and ability to deliver healthcare services efficiently could be weakened. If
we fail to attract and retain managers at our hospitals and related facilities, our operations will
suffer. We do not maintain key-man or similar life insurance policies for Mr. Donahey or any other
executive officers.
If we do not effectively recruit and retain physicians, nurses, medical technicians and other
healthcare professionals, our ability to deliver healthcare services efficiently will be adversely
affected.
Physicians generally direct the majority of hospital admissions and services. Our success, in
part, will depend on the number and quality of physicians on our hospitals medical staffs, the
admissions practices of these physicians and the maintenance of good relations with these
physicians. Only a limited number of physicians practice in the non-urban communities where our
hospitals are located. The primary method we employ to add or expand medical services is the
recruitment of new physicians into our communities.
The success of our recruiting efforts will depend on several factors. In general, there is a
shortage of specialty care physicians. We will face intense competition in the recruitment of
specialists because of the difficulty in convincing these individuals of the benefits of practicing
in non-urban communities. If the growth rate slows in the non-urban communities where our hospitals
operate, then we could experience difficulty attracting physicians to practice in our communities.
There is generally a shortage of nurses and certain medical technicians in the healthcare
field. Our hospitals may be forced to hire expensive contract personnel if they are unable to
recruit and retain full-time employees. The shortage of nurses and medical technicians may affect
our ability to deliver healthcare services efficiently.
Our revenues may decline if federal or state programs reduce our Medicare or Medicaid payments
or if managed care companies reduce reimbursement amounts. In addition, the financial condition of
purchasers of healthcare services and healthcare cost containment initiatives may limit our
revenues and profitability.
In 2005, we derived 46.0% of our revenues from the Medicare and Medicaid programs. In recent
years, federal and state governments have made significant changes in the Medicare and Medicaid
programs. A number of states have incurred budget deficits and adopted legislation designed to
reduce their Medicaid expenditures and to reduce Medicaid enrollees.
46
Employers have also passed more healthcare benefit costs on to employees to reduce the
employers health insurance expenses. This trend has caused the self-pay/deductible component of
healthcare services to become more common. This payor shifting increases collection costs and
reduces overall collections.
During the past several years, major purchasers of healthcare, such as federal and state
governments, insurance companies and employers, have undertaken initiatives to revise payment
methodologies and monitor healthcare costs. As part of their efforts to contain healthcare costs,
purchasers increasingly are demanding discounted fee structures or the assumption by healthcare
providers of all or a portion of the financial risk
through prepaid capitation arrangements, often in exchange for exclusive or preferred
participation in their benefit plans. We expect efforts to impose greater discounts and more
stringent cost controls by government and other payors to continue, thereby reducing the payments
we receive for our services. In addition, these payors have instituted policies and procedures to
substantially reduce or limit the use of inpatient services.
An increasing number of managed care organizations have experienced financial difficulties in
recent years, in some cases resulting in bankruptcy or insolvency. In some instances, organizations
that currently have provider agreements with certain of our hospitals have become insolvent and the
hospitals have been unable to collect the full amounts due from these organizations. Other managed
care organizations with whom we do business may encounter similar difficulties in paying claims in
the future. We believe that reductions in the payments that we receive for our services, coupled
with the increased percentage of patient admissions from organizations offering prepaid and
discounted medical services and difficulty in collecting receivables from managed care
organizations, could reduce our overall revenues and profitability.
We may continue to see the growth of uninsured and patient due accounts and deterioration in
the collectibility of these accounts could adversely affect our results of operations and cash
flows.
Our primary collection risks of our accounts receivable relate to the uninsured patient
accounts and patient accounts for which the primary insurance carrier has paid the amounts covered
by the applicable agreement, but patient responsibility amounts (deductibles and copayments) remain
outstanding. The provision for doubtful accounts relates primarily to amounts due directly from
patients.
The amount of the provision for doubtful accounts is based on our assessments of historical
collection trends, business and economic conditions, trends in federal and state governmental and
private employer health coverage and other collection indicators. A continuation in trends that
result in increasing the proportion of accounts receivable being comprised of uninsured accounts
and a deterioration in the collectibility of these accounts could adversely affect our collections
of accounts receivable, cash flows and results of operations.
Our revenues are especially concentrated in a small number of states which will make us
particularly sensitive to regulatory and economic changes in those states.
Our revenues are particularly sensitive to regulatory and economic changes in Kentucky,
Tennessee, Virginia, Louisiana, Alabama, New Mexico, Texas and West Virginia. Certain managed care
organizations that participate in the Medicaid programs of Tennessee and Kentucky have been placed
in receivership or encountered other financial difficulties. Other managed care organizations in
the states in which we derive significant revenues may encounter similar difficulties in paying
claims in the future.
47
The following table (which includes the revenues of the Province hospitals since April 15,
2005, the date of the Province business combination) contains our revenues and revenues as a
percentage of our total revenues by state for each of these states for the years presented (dollars
in millions):
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Revenue Concentration by State |
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Amount |
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% of Total Revenues |
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2004 |
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2005 |
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2004 |
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2005 |
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Kentucky |
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$ |
350.5 |
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$ |
387.0 |
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35.2 |
% |
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20.9 |
% |
Tennessee |
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193.9 |
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205.3 |
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19.5 |
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11.1 |
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Virginia |
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189.5 |
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10.2 |
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Louisiana |
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45.3 |
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171.1 |
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4.5 |
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9.2 |
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Alabama |
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109.3 |
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162.5 |
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11.0 |
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8.8 |
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New Mexico |
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136.7 |
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7.4 |
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Texas |
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95.8 |
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5.2 |
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West Virginia |
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79.8 |
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78.3 |
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8.0 |
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4.2 |
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$ |
778.8 |
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$ |
1,426.2 |
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78.2 |
% |
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77.0 |
% |
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In addition, following consummation of the acquisition of the five hospitals from HCA in early
2006, we will have increased hospital concentrations in Virginia and West Virginia.
Accordingly, any change in the current demographic, economic, competitive or regulatory
conditions in the above-mentioned states could have an adverse effect on our business, financial
condition, results of operations and/or prospects.
Other hospitals and outpatient facilities provide services similar to those which we offer.
In addition, physicians provide services in their offices that could be provided in our hospitals.
These factors may increase the level of competition we face and may therefore adversely affect our
revenues, profitability and market share.
Competition among hospitals and other healthcare providers including outpatient facilities has
intensified in recent years and we compete with other hospitals, including larger tertiary care
centers located in larger metropolitan areas, and with physicians who provide services in their
offices which would otherwise be provided in our hospitals. Although the hospitals which compete
with us may be a significant distance away from our facility, patients in our markets may migrate
to, may be referred by local physicians to, or may be lured by their health plan to travel to these
hospitals. Furthermore, some of the hospitals which compete with us may use equipment and services
more specialized than those available at our hospital. Also, some of the hospitals that compete
with our facilities are owned by tax-supported governmental agencies or not-for-profit entities
supported by endowments and charitable contributions. These hospitals, in most instances, are also
exempt from paying sales, property and income taxes.
We also face increasing competition from other specialized care providers, including
outpatient surgery, oncology, physical therapy and diagnostic centers (including many in which
physicians may have an ownership interest), as well as competing services rendered in physician
offices. Some of our hospitals may develop outpatient facilities where necessary to compete
effectively. However, to the extent that other providers are successful in developing outpatient
facilities, our market share for these services will likely decrease in the future. Moreover, many
of our current hospitals attempt to attract patients from surrounding counties and communities,
including communities in which a competing facility exists. However, if our competitors are able to
make capital improvements and expand services at their facilities, we may be unable to attract
patients away from these facilities in the future.
If we do not continually enhance our hospitals with the most recent technological advances in
diagnostic and surgical equipment, our ability to maintain and expand our markets will be adversely
affected.
Technological advances, potentially with respect to computer-assisted tomography scanner
(CTs), magnetic resonance imaging (MRIs) and positron emission tomography scanner (PETs) equipment
continue to evolve. In addition, the manufacturers of such equipment often provide incentives to
try to increase their sales, including providing favorable financing to higher credit risk
organizations. In an effort to compete, we must continually
48
assess our equipment needs and upgrade
our equipment as a result of technological improvements. Such equipment costs often range from $0.8
million to $4.5 million each, exclusive of any related construction costs.
Physicians generally direct the majority of hospital admissions and services. In addition,
competition among hospitals and service providers including outpatient facilities and services
performed in physician offices for patients has intensified in recent years and we compete with
other hospitals including larger tertiary care centers located in metropolitan areas. The direction
of the patient flow correlates directly to the level and intensity of such diagnostic equipment.
We continue to see rising costs in construction materials and labor. Such increased costs
could have an adverse affect on the cash flow return on investment relating to our capital
projects.
Because of the recent global and regional events, the cost of construction materials and labor
has significantly increased. We have experienced significant increases in the cost of steel
resulting from the demand in China for such materials and an increase in the cost of lumber
resulting from Hurricanes Katrina and Rita. As we continue to invest in modern technologies,
emergency rooms and operating room expansions, the construction of medical office buildings for
physician expansion and reconfiguring the flow of patient care, we spend large amounts of money
from our operating cash flow. We evaluate the financial feasibility of such projects by determining
whether the projected cash flow return on investment exceeds our cost of capital. Such returns may
not be achieved if the cost of construction continues to rise significantly or the expected patient
volumes are not attained.
We are subject to governmental regulation, and may be subjected to allegations that we have
failed to comply with governmental regulations which could result in sanctions that reduce our
revenues and profitability.
All participants in the healthcare industry are required to comply with many laws and
regulations at the federal, state and local government levels. These laws and regulations require
that hospitals meet various requirements, including those relating to the adequacy of medical care,
equipment, personnel, operating policies and procedures, billing and cost reports, payment for
services and supplies, maintenance of adequate records, privacy, compliance with building codes and
environmental protection. If we fail to comply with applicable laws and regulations, we could
suffer civil or criminal penalties, including the loss of our licenses to operate our hospitals and
our ability to participate in the Medicare, Medicaid and other federal and state healthcare
programs.
Significant media and public attention recently has focused on the hospital industry as a
result of ongoing investigations related to referrals, physician recruiting practices, cost
reporting and billing practices, laboratory and home healthcare services and physician ownership
and joint ventures involving hospitals. Both federal and state government agencies have announced
heightened and coordinated civil and criminal enforcement efforts. In addition, the OIG (which is
responsible for investigating fraud and abuse activities in government programs) and the U.S.
Department of Justice periodically establish enforcement initiatives that focus on specific billing
practices or other suspected areas of abuse. In January 2005, the OIG issued Supplemental
Compliance Program Guidance for Hospitals that focuses on hospital compliance risk areas. Some of
the risk areas highlighted by the OIG include correct outpatient procedure coding, revising
admission and discharge policies to reflect current CMS rules, submitting appropriate claims for
supplemental payments such as pass-through costs and outlier payments and a general discussion of
the fraud and abuse risks related to financial relationships with referral sources.
In public statements, governmental authorities have taken positions on issues for which little
official interpretation was previously available. Some of these positions appear to be inconsistent
with common practices within the industry but have not previously been challenged. Moreover, some
government investigations that have in the past been conducted under the civil provisions of
federal law are now being conducted as criminal investigations under the Medicare fraud and abuse
laws.
The laws and regulations with which we must comply are complex and subject to change. In the
future, different interpretations or enforcement of these laws and regulations could subject our
practices to allegations of
49
impropriety or illegality or could require us to make changes in our
facilities, equipment, personnel, services, capital expenditure programs and operating expenses.
Finally, we are subject to various federal, state and local statutes and ordinances regulating
the discharge of materials into the environment. Our healthcare operations generate medical waste,
such as pharmaceuticals, biological materials and disposable medical instruments that must be
disposed of in compliance with federal, state and local environmental laws, rules and regulations.
Our operations are also subject to various other environmental laws, rules and regulations.
Environmental regulations also may apply when we renovate or refurbish hospitals, particularly
older facilities.
We may be subjected to actions brought by the government under anti-fraud and abuse provisions
or by individuals on the governments behalf under the False Claims Acts qui tam or
whistleblower provisions.
Companies in the healthcare industry are subject to Medicare and Medicaid anti-fraud and abuse
provisions, known as the anti-kickback statute. As a company in the healthcare industry, we are
subject to the anti-kickback statute, which prohibits some business practices and relationships
related to items or services reimbursable under Medicare, Medicaid and other federal healthcare
programs. For example, the anti-kickback statute prohibits healthcare service providers from paying
or receiving remuneration to induce or arrange for the referral of patients or purchase of items or
services covered by a federal or state healthcare program. If regulatory authorities determine that
any of our hospitals arrangements violate the anti-kickback statute, we could be subject to
liabilities under the Social Security Act, including:
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criminal penalties; |
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civil monetary penalties; and/or |
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exclusion from participation in Medicare, Medicaid or other federal healthcare
programs, any of which could impair our ability to operate one or more of our hospitals
profitably. |
Whistleblower provisions allow private individuals to bring actions on behalf of the
government alleging that the defendant has defrauded the federal government. Defendants found to be
liable under the False Claims Act may be required to pay three times the actual damages sustained
by the government, plus mandatory civil penalties ranging between $5,500 and $11,000 for each
separate false claim.
There are many potential bases for liability under the False Claims Act. Liability often
arises when an entity knowingly submits a false claim for reimbursement to the federal government.
The False Claims Act defines the term knowingly broadly. Although simple negligence will not give
rise to liability under the False Claims Act, submitting a claim with reckless disregard to its
truth or falsity constitutes a knowing submission under the False Claims Act and, therefore, will
qualify for liability.
In some cases, whistleblowers or the federal government have taken the position that providers
who allegedly have violated other statutes, such as the anti-kickback statute and the Stark Law,
have thereby submitted false claims under the False Claims Act. In addition, a number of states
have adopted their own false claims provisions as well as their own whistleblower provisions
whereby a private party may file a civil lawsuit in state court.
Although we intend and will endeavor to conduct our business in compliance with all applicable
federal and state fraud and abuse laws, many of these laws are broadly worded and may be
interpreted or applied in ways that cannot be predicted. Therefore, we cannot assure you that our
arrangements or business practices will not be subject to government scrutiny or be found to
violate applicable fraud and abuse laws.
50
We may be subject to liabilities because of malpractice and related legal claims brought
against our hospitals. If we become subject to these claims, we could be required to pay
significant damages, which may not be covered by insurance.
We may be subject to medical malpractice lawsuits and other legal actions arising out of the
operations of our owned and leased hospitals. These actions may involve large claims and
significant defense costs. To mitigate a portion of this risk, we maintain professional malpractice
liability and general liability insurance coverage for these potential claims in amounts above our
self-insured retention level that we believe to be appropriate for our operations. However, some of
these claims could exceed the scope of the coverage in effect, or coverage of particular claims
could be denied. It is possible that successful claims against us that are within the self-insured
retention level amounts, when considered in the aggregate, could have an adverse effect on our
results of operations, cash flows, financial condition or liquidity. Furthermore, insurance
coverage in the future may not continue to be available at a cost allowing us to maintain adequate
levels of insurance with acceptable self-insured retention level amounts. In addition, physicians
using our hospitals may be unable to obtain insurance on acceptable terms.
We may be required to make significant capital expenditures in order to bring our facilities
into compliance with the Americans with Disabilities Act.
The Americans with Disabilities Act, or the ADA, generally requires that public accommodations
be made accessible to disabled persons. On January 12, 2001, a class action lawsuit was filed in
the United States District Court for the Eastern District of Tennessee against each of Historic
LifePoints hospitals alleging non-compliance with the accessibility guidelines of the ADA. The
lawsuit does not seek any monetary damages, but seeks injunctive relief requiring facility
modification, where necessary, to meet ADA guidelines, in addition to attorneys fees and costs. We
are currently unable to estimate the costs that could be associated with modifying these facilities
because these costs are negotiated and determined on a facility-by- facility basis and, therefore,
have varied and will continue to vary significantly among facilities. In January 2002, the District
Court certified the class action and issued a scheduling order that requires the parties to
complete discovery and inspection for approximately six facilities per year. We are vigorously
defending the lawsuit, recognizing our obligation to correct any deficiencies in order to comply
with the ADA. As of December 31, 2005, the plaintiffs have conducted inspections at 22 of Historic
LifePoints hospitals. To date, the District Court approved the settlement agreements between the
parties relating to ten of our facilities. We are now moving forward in implementing facility
modifications in accordance with the terms of the settlement. We are currently anticipating that
the costs associated with modifying three of these facilities will be approximately $1.0 million.
We currently do not have an estimate of our anticipated costs for modifications at the remaining
seven facilities. Therefore, there can be no assurance that the actual costs we incur to comply
with the ADA will not have an adverse effect on our business, financial condition or results of
operations.
At
this time, studies have not been undertaken with respect to over half
of our hospitals, including the hospitals we acquired in 2005. When
surveyed, we may be
required to make significant capital expenditures at one or more of these facilities in order to
comply with the ADA, and our financial position and results of operations could be adversely
affected as a result. Noncompliance with the requirements of the ADA could result in the
imposition of fines against us by the federal government or the award of damages from us to private
litigants.
Certificate of need laws and regulations regarding licenses, ownership and operation may
impair our future expansion in some states.
Some states require prior approval for the purchase, construction and expansion of healthcare
facilities, based on the states determination of need for additional or expanded healthcare
facilities or services. Nine states in which we currently operate hospitals require a certificate
of need for capital expenditures exceeding a prescribed amount, changes in bed capacity or
services, and for certain other planned activities. We may not be able to obtain certificates of
need required for expansion activities in the future. In addition, all of the states in which we
operate facilities require hospitals and most healthcare providers to maintain one or more
licenses. If we fail to
51
obtain any required certificate of need or license, our ability to operate or expand
operations in those states could be impaired.
In states without certificate of need laws, competing providers of healthcare services are
able to expand and construct facilities without the need for significant regulatory approval.
In the eleven states in which we operate that do not require certificates of need for the
purchase, construction and expansion of healthcare facilities or services, competing healthcare
providers face low barriers to entry and expansion. If competing providers of healthcare services
are able to purchase, construct or expand healthcare facilities without the need for regulatory
approval, we may face decreased market share and revenues in those markets.
We are subject to significant corporate regulation as a public company and failure to comply
with all applicable regulations could subject us to liability or negatively affect our stock price.
As a publicly traded company, we are subject to a significant body of regulation, including
the Sarbanes-Oxley Act of 2002. While we have developed and instituted a corporate compliance
program based on what we believe are the current best practices in corporate governance and
continue to update this program in response to newly implemented or changing regulatory
requirements, we cannot provide assurance that we are or will be in compliance with all potentially
applicable corporate regulations. For example, we cannot provide assurance that in the future our
management will not find a material weakness in connection with its annual review of our internal
control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act. We also cannot
provide assurance that we could correct any such weakness to allow our management to assess the
effectiveness of our internal control over financial reporting as of the end of our fiscal year in
time to enable our independent registered public accounting firm to state that such assessment will
have been fairly stated in our Annual Report on Form 10-K or state that we have maintained
effective internal control over financial reporting as of the end of our fiscal year. If we fail
to comply with any of these regulations, we could be subject to a range of regulatory actions,
fines or other sanctions or litigation. If we must disclose any material weakness in our internal
control over financial reporting, our stock price could decline.
We will be required to comply with California seismic standards, which may require significant
capital expenditures with respect to our California hospital.
California has a statute and regulations which require hospital facilities located in
California to have the ability to withstand earthquakes of specified magnitudes. Regulated
hospitals that do not meet these standards may be required to retrofit their facilities. California
law further requires that owners of regulated hospitals evaluate their facilities and develop a
plan and schedule for complying with these standards. We are required to conduct engineering
studies at our California facility (Colorado River Medical Center) to determine whether and to what
extent modifications to this facility will be required. To date, we have conducted engineering
studies and implemented compliance plans for our California facility (recently acquired in the
Province business combination) that satisfy all current requirements and, through December 31,
2005, have cost us approximately $0.2 million. In the event that our California facility is found
not to be in compliance with these regulations and standards, we may be required to make
significant capital expenditures to bring this facility into compliance, which could adversely
impact our earnings and liquidity. Additionally, current or future California legislation could
change the standards and we cannot predict whether such legislation will be enacted or the extent
of any changes.
If our access to HCA-Information Technology and Services, Inc.s information systems is
restricted or we are not able to integrate changes to our existing information systems or
information systems of acquired hospitals, our operations could suffer.
Our business depends significantly on effective information systems to process clinical and
financial information. Information systems require an ongoing commitment of significant resources
to maintain and enhance existing systems and develop new systems in order to keep pace with
continuing changes in information processing technology. We rely heavily on HCA-Information
Technology and Services, Inc. (HCA-IT) for information systems. Under a contract with a term that
will expire on December 31, 2009, HCA-IT provides us
52
with financial, clinical, patient accounting and network information services. We do not
control HCA-ITs systems, and if these systems fail or are interrupted, if our access to these
systems is limited in the future or if HCA-IT develops systems more appropriate for the urban
healthcare market and not suited for our hospitals, our operations could suffer.
In addition, as new information systems are developed in the future, we will need to integrate
them into our existing systems. Evolving industry and regulatory standards, such as the HIPPA
regulations, may require changes to our information systems in the future. We may not be able to
integrate new systems or changes required to our existing systems or systems of acquired hospitals
in the future effectively or on a cost-efficient basis.
A key element of our business strategy is growth through the acquisition of additional acute
care hospitals. Our acquisition activity requires transitions from, and the integration of, various
information systems that are used by the hospitals we acquire. If we experience difficulties with
the integration of the information systems of acquired hospitals, we could suffer, among other
things, operational disruptions and increases in administrative expenses.
If we fail to comply with the terms of our corporate integrity agreement, we could be
required to pay significant monetary penalties.
Because HCA was under investigation by the OIG at the time of our spin-off from HCA, we agreed
to enter into a five-year corporate integrity agreement effective December 2000, on terms that
management believed to be customary and commonplace for companies in the healthcare industry that
are subject to corporate integrity agreements. Our corporate integrity agreement has subsequently
been amended, primarily to reduce the level of third-party oversight that is required with respect
to the compliance oversight and analysis that is provided internally. This agreement expired on
December 31, 2005, and we are required to submit our final report no later than May 31, 2006.
Under
the terms of the corporate integrity agreement, we had an affirmative
obligation to report violations of applicable laws and regulations. In particular, the compliance
measures and reporting and auditing requirements contained in the corporate integrity agreement
included:
|
|
continuing the duties and activities of our audit and compliance committee,
corporate compliance officer, internal audit and compliance department, local hospital
ethics and compliance officers, corporate compliance committee and hospital compliance
committees; |
|
|
|
maintaining our written code of conduct, which sets out our commitment to
full compliance with all statutes, regulations and guidelines applicable to federal
healthcare programs; |
|
|
|
maintaining our written policies and procedures addressing the operation of
our compliance program; |
|
|
|
providing general training on the compliance program; |
|
|
|
providing specific training for the appropriate personnel on billing, coding and cost report issues; |
|
|
|
having an independent third party conduct periodic analyses of our internal
audits of our facilities diagnosis related group billing and coding; |
|
|
|
continuing our confidential disclosure program and compliance hotline to
enable employees or others to disclose issues or questions regarding possible
inappropriate policies or behavior; |
|
|
|
enhancing our screening program to ensure that we do not hire or engage
employees or contractors who have been sanctioned or excluded from participation in
federal healthcare programs; |
|
|
|
reporting any material deficiency which resulted in an overpayment to us by a
federal healthcare program; |
53
|
|
reporting any healthcare-related fraud involving any federally funded
program; and |
|
|
|
submitting annual reports to the OIG which describe in detail the operations
of our corporate compliance program for the past year. |
These obligations could result in greater scrutiny by regulatory authorities. Integrating the
Province hospitals and other acquired hospitals into our processes to achieve ongoing compliance
with the corporate integrity agreement is requiring additional efforts and costs, as described
above. Our failure to comply with the terms of the corporate integrity agreement could subject us
to significant monetary penalties.
Our revenues and volume trends may be adversely affected by certain factors relevant to the
markets in which we have hospitals, including weather conditions.
Our revenues and volume trends will be predicated on many factors, including physicians
clinical decisions on patients, physicians availability, payor programs shifting to a more
outpatient-based environment, whether or not certain services are offered, seasonal and severe
weather conditions including the effects of extreme low temperatures, hurricanes and tornados,
earthquakes, current local economic and demographic changes, the intensity and timing of yearly flu
outbreaks and the judgment of the U.S. Centers for Disease Control on the strains of flu that may
circulate in the United States. Any of these factors could have a material adverse effect on our
revenues and volume trends, and many of these factors will not be within the control of our
management.
Different
interpretations of accounting principles could have a material
adverse effect on our results of operations or financial condition.
Generally accepted accounting principles are complex, continually evolving and may be subject
to varied interpretation by us, our independent registered public accounting firm and the SEC. Such
varied interpretations could result from differing views related to specific facts and
circumstances. Differences in interpretation of generally accepted accounting principles could have
a material adverse effect on our results of operations or financial condition.
We have never paid, and have no current plans to pay, any cash dividends on shares of our
common stock.
We have never paid a cash dividend, and do not currently anticipate paying any cash dividends.
In addition, our credit facility imposes restrictions on our ability to pay dividends, and if we
incur any future indebtedness to refinance our existing indebtedness or to fund future growth, our
ability to pay dividends may be further restricted by the terms of that indebtedness. Our board of
directors will evaluate future earnings, results of operations, financial condition and capital
requirements in determining whether to declare or pay cash dividends. Our policy not to pay
dividends could adversely affect the price of our common stock.
Our stock price has been and may continue to be volatile.
The trading price of our common stock has been and may continue to be subject to wide
fluctuations. Our stock price may fluctuate in response to a number of events and factors,
including:
|
|
integration of the Province hospitals and other hospitals that we acquire; |
|
|
|
quarterly variations in operating results; |
|
|
|
changes in financial estimates and recommendations by securities analysts; |
|
|
|
changes in government regulations as they relate to reimbursement and
operational policies and procedures; |
|
|
|
the operating and stock price performance of other companies that investors may deem comparable; |
54
|
|
changes in overall economic factors in our markets; and |
|
|
|
news reports relating to trends or events in our markets. |
Broad market and industry fluctuations may adversely affect the price of our common stock,
regardless of our operating performance.
Item 1B. Unresolved Staff Comments.
We have no unresolved SEC staff comments.
Item 2. Properties.
Information with respect to our hospitals and our other properties can be found in Part I,
Item 1. Business, Properties.
Item 3. Legal Proceedings.
General. We are, from time to time, subject to claims and suits arising in the ordinary
course of business, including claims for damages for personal injuries, medical malpractice, breach
of contracts, wrongful restriction of or interference with physicians staff privileges and
employment related claims. In certain of these actions, plaintiffs request payment for damages,
including punitive damages, that may not be covered by insurance. We are currently not a party to
any proceeding, which, in managements opinion, would have a material adverse effect on our
business, financial condition or results of operations.
Americans with Disabilities Act Claims. On January 12, 2001, Access Now, Inc., a disability
rights organization, filed a class action lawsuit against each of our hospitals alleging
non-compliance with the accessibility guidelines under the ADA. The lawsuit, filed in the United
States District Court for the Eastern District of Tennessee (District Court), seeks injunctive
relief requiring facility modification, where necessary, to meet the ADA guidelines, along with
attorneys fees and costs. We are currently unable to estimate the costs that could be associated
with modifying these facilities because these costs are negotiated and determined on a
facility-by-facility basis and, therefore, have varied and will continue to vary significantly
among facilities. In January 2002, the District Court certified the class action and issued a
scheduling order that requires the parties to complete discovery and inspection for approximately
six facilities per year. We intend to vigorously defend the lawsuit, recognizing our obligation to
correct any deficiencies in order to comply with the ADA. As of December 31, 2005, the plaintiffs
have conducted inspections at 22 of our hospitals. To date, the District Court approved the
settlement agreements between the parties relating to ten of our facilities. We are moving forward
in implementing facility modifications in accordance with the terms of the settlement. We currently
anticipate that the costs associated with modifying three of these facilities will be approximately
$1.0 million. We currently do not have an estimate of our anticipated costs for modifications at
the remaining seven facilities.
At
this time, studies have not been undertaken with respect to over half
of our hospitals, including the hospitals we acquired in 2005. When
surveyed, we may be required to expend
significant capital at one or more of these facilities in order to comply with the ADA, and our
financial position and results of operations could be adversely affected as a result.
Noncompliance with the requirements of the ADA could result in the imposition of fines against us
by the federal government, or the award of damages from us to private litigants.
Item 4. Submission of Matters to a Vote of Security Holders.
We had no matters submitted to a vote of the stockholders during the fourth quarter ended
December 31, 2005.
55
PART II
Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
Our common stock is quoted on the Nasdaq National Market under the symbol LPNT. The high and
low bid prices per share of our common stock were as follows for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
High |
|
|
Low |
|
2004 |
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
37.32 |
|
|
$ |
29.41 |
|
Second Quarter |
|
|
39.16 |
|
|
|
32.23 |
|
Third Quarter |
|
|
38.60 |
|
|
|
26.60 |
|
Fourth Quarter |
|
|
37.74 |
|
|
|
28.50 |
|
2005 |
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
45.53 |
|
|
$ |
33.24 |
|
Second Quarter |
|
|
51.10 |
|
|
|
41.67 |
|
Third Quarter |
|
|
51.51 |
|
|
|
40.78 |
|
Fourth Quarter |
|
|
44.47 |
|
|
|
36.29 |
|
2006 |
|
|
|
|
|
|
|
|
First Quarter (through February 3, 2006) |
|
$ |
36.87 |
|
|
$ |
28.57 |
|
Periods prior to April 15, 2005 reflect the high and low bid prices of Historic LifePoint
common stock, as quoted by Nasdaq.
On February 3, 2006, the last reported sales price for our common stock on the Nasdaq National
Market was $30.39 per share. As of January 31, 2006, there were 57,112,862 shares of our common
stock held by 5,695 holders of record.
We have never declared or paid cash dividends on our common stock. We intend to retain future
earnings to finance the growth and development of our business and, accordingly, do not currently
intend to declare or pay any cash dividends on our common stock. Our board of directors will
evaluate our future earnings, results of operations, financial condition and capital requirements
in determining whether to declare or pay cash dividends. Delaware law prohibits us from paying any
dividends unless we have capital surplus or net profits available for this purpose. In addition,
our credit facilities impose restrictions on our ability to pay dividends. Please refer to the
Part II, Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations, Liquidity and Capital Resources in this report for more information.
56
Item 6. Selected Financial Data.
The following table contains selected financial data of our company for, or as of the end of,
each of the five years ended December 31, 2005. The selected financial data is derived from our
audited consolidated financial statements. In April 2005, we completed the Province business
combination. The results of operations of Province are included in our results of operations since
April 16, 2005. The timing of acquisitions and divestitures completed during the years presented
affects the comparability of the selected financial data. Please refer to Part I, Item 1.
Business, Acquisitions and Dispositions, for additional information which affects the
comparability of the selected financial data. The selected financial data excludes the operations
as well as assets and liabilities of our discontinued operations in our consolidated financial
statements. Additionally, we have recognized certain transaction and debt retirement costs as
discussed in our audited consolidated financial statements during the periods presented that
affected the comparability of the selected financial data. You should read this table in
conjunction with the consolidated financial statements and related notes included elsewhere in this
report and in Part II, Item 7. Managements Discussion and Analysis of Financial Condition and
Results of Operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2001 |
|
|
2002 |
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
|
|
(In millions, except per common share amounts) |
|
Statement of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
591.3 |
|
|
$ |
714.9 |
|
|
$ |
875.6 |
|
|
$ |
996.9 |
|
|
$ |
1,855.1 |
|
Income from continuing operations |
|
|
33.6 |
|
|
|
42.9 |
|
|
|
70.2 |
|
|
|
86.8 |
|
|
|
79.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.94 |
|
|
$ |
1.14 |
|
|
$ |
1.89 |
|
|
$ |
2.34 |
|
|
$ |
1.59 |
|
Diluted |
|
$ |
0.91 |
|
|
$ |
1.10 |
|
|
$ |
1.80 |
|
|
$ |
2.20 |
|
|
$ |
1.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
35.7 |
|
|
|
37.5 |
|
|
|
37.2 |
|
|
|
37.0 |
|
|
|
50.1 |
|
Diluted |
|
|
37.1 |
|
|
|
38.6 |
|
|
|
43.3 |
|
|
|
42.8 |
|
|
|
53.2 |
|
Cash dividends declared per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data (as of End of Year): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital, excluding assets and liabilities held for sale |
|
$ |
82.4 |
|
|
$ |
67.5 |
|
|
$ |
102.1 |
|
|
$ |
115.9 |
|
|
$ |
181.9 |
|
Property and equipment, net |
|
|
307.8 |
|
|
|
409.6 |
|
|
|
443.9 |
|
|
|
501.1 |
|
|
|
1,302.3 |
|
Total assets (including assets held for sale) |
|
|
554.3 |
|
|
|
733.5 |
|
|
|
799.0 |
|
|
|
890.4 |
|
|
|
3,224.6 |
|
Long-term debt, including amounts due within one year |
|
|
150.0 |
|
|
|
250.0 |
|
|
|
270.0 |
|
|
|
221.0 |
|
|
|
1,516.3 |
|
Stockholders equity |
|
|
295.0 |
|
|
|
357.6 |
|
|
|
394.3 |
|
|
|
509.5 |
|
|
|
1,287.8 |
|
57
Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations.
You should read this discussion together with our consolidated financial statements and
related notes included elsewhere in this report. Unless otherwise indicated, all relevant financial
and statistical information included herein relates to our continuing operations.
Overview
The year 2005 was a year of growth, challenges and opportunities. We acquired 23 hospitals,
opened a new facility and positioned ourselves for future growth. One of our biggest challenges
during 2005 was integrating processes and our culture at recent acquisitions. During
2006, we will continue to focus on integrating our 2005 hospital acquisitions, recruiting and
retaining physicians, appropriately investing capital in our hospitals and completing the pending
acquisition of five hospitals from HCA.
The following table reflects our summarized operating results for the years presented (in
millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
Revenues |
|
$ |
875.6 |
|
|
$ |
996.9 |
|
|
$ |
1,855.1 |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
70.2 |
|
|
$ |
86.8 |
|
|
$ |
79.8 |
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share from continuing operations |
|
$ |
1.80 |
|
|
$ |
2.20 |
|
|
$ |
1.56 |
|
|
|
|
|
|
|
|
|
|
|
Hospital Acquisitions
We seek to identify and acquire selected hospitals in non-urban communities. The Province
business combination in April 2005 provided a unique opportunity for us to acquire 21 hospitals in
non-urban communities, while diversifying our economic and geographic reach. Additionally, our 2005
acquisitions of Wythe County Community Hospital (WCCH) and Danville Regional Medical Center
(DRMC) and our pending acquisition of five hospitals from HCA in Virginia and West Virginia fit
into our plan of pursuing a strategy acquiring hospitals that are the sole
or significant market provider of healthcare services in their communities. In evaluating a
hospital for acquisition, we focus on a variety of factors. One factor we consider is the number of
patients that are traveling outside of the community for healthcare services. Another factor we
consider is the hospitals prior operating history and our ability to implement new healthcare
services. In addition, we review the local demographics and expected future trends. Upon acquiring
a facility, we work to quickly integrate the hospital into our operating practices. Please refer to
the Business Strategy section in Part I, Item 1. Business for a table of our hospital
acquisitions since our inception in 1999. Please refer to Note 2 to our consolidated financial
statements included elsewhere in this report for further discussion of acquisitions that we made in
2003, 2004 and 2005.
Business Combination with Province Healthcare Company
On April 15, 2005, we announced the completion of the business combination with Province
Healthcare Company. As a result of the business combination, each of Historic LifePoint and
Province is now a wholly- owned subsidiary of LifePoint Hospitals, Inc., a new public company
formed in connection with the business combination. We believe that the Province business
combination has provided and will continue to provide efficiencies and enhance our ability to
compete effectively. As a result of the Province business combination, we are more geographically
and financially diversified in our asset base, increasing our operations from nine states as of
December 31, 2004 to 20 states as of December 31, 2005. Of the $858.2 million, or 86.1%, increase
in our revenues during 2005 over 2004, $663.2 million, or 66.5%, was related to the former Province hospitals.
We will continue to invest in and integrate the former Province hospitals into our operations
during 2006. Please refer to Note 2 of our consolidated financial statements included elsewhere in
this report for more information regarding the Province business combination. Our results of
operations include the operations of the former hospitals of Province beginning April 16, 2005.
58
Discontinued
Operations
From time to time, we may evaluate our facilities and sell assets which we believe may no
longer fit with our long-term strategy for various reasons. During the second quarter of 2005,
subsequent to the Province business combination, our management committed to a plan to divest three
hospitals acquired from Province. These three hospitals are Medical Center of Southern
Indiana located in Charlestown, Indiana, Ashland Regional Medical Center located in
Ashland, Pennsylvania and Palo Verde Hospital located in Blythe, California. We divested
Palo Verde Hospital on January 1, 2006 by terminating our lease of that hospital and returning the
hospital to the Hospital District of Palo Verde. We have entered into a definitive agreement to
sell the other two held-for-sale hospitals and expect to complete their disposal in the first
half of 2006. On March 31, 2005, we sold Bartow Memorial Hospital to Health Management
Associates, Inc. Please refer to Note 3 of our consolidated financial statements included
elsewhere in this report for more information on our discontinued operations.
The following table reflects our summarized operating results of discontinued operations for
the years presented (in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
Revenues |
|
$ |
31.5 |
|
|
$ |
32.8 |
|
|
$ |
48.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations |
|
$ |
(1.7 |
) |
|
$ |
(1.1 |
) |
|
$ |
(0.4 |
) |
Impairment of assets |
|
|
|
|
|
|
|
|
|
|
(5.8 |
) |
Loss on sale of hospital |
|
|
|
|
|
|
|
|
|
|
(0.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(1.7 |
) |
|
$ |
(1.1 |
) |
|
$ |
(6.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per share from discontinued
operations |
|
$ |
(0.04 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.13 |
) |
|
|
|
|
|
|
|
|
|
|
Key Challenges
|
|
Integration of Recently Acquired Hospitals. We acquired
21 hospitals from Province and two other hospitals in separate
transactions during 2005. In addition, we have a pending
acquisition of five hospitals from HCA that we expect to close in
early 2006. The process of integrating operations could cause
an interruption of, or loss of momentum in, the activities of
our business. However, we are dedicated to devoting
significant management attention and resources to integrating
the business practices and operations of our recently acquired
hospitals. |
|
|
|
Medicare Changes. We are experiencing changes with
respect to governmental reimbursement that are affecting our
growth. Effective October 1, 2005, CMS expanded the post-acute
transfer policy from 30 DRGs to 182 DRGs, resulting in a $1.0
million and an estimated $3.3 million reduction in Medicare
inpatient PPS payments for the fourth quarter of 2005 and for
the year ended December 31, 2006, respectively. On
February 1, 2006, the House of Representatives approved the DRA.
This bill, previously passed by the Senate and expected to be signed
by the President, includes measures related to specialty hospitals,
quality reporting and pay-for-performance, the inpatient 75% Rule and
Medicaid cuts. Please refer
to Part I, Item 1. Business, Sources of Revenue for a
detailed discussion of provisions that affect our Medicare
reimbursement, including the DRA. |
|
|
|
States Implementing Medicaid Cost Containment Measures.
A number of states have incurred budget deficits within recent
years. To address these budget deficits, certain states have
reduced spending and increased taxes. State cost containment
activity continues to focus on reducing provider payments and
limiting eligible enrollees under the state Medicaid programs.
The following is a summary of four states where we believe
there will be a negative impact on our revenues in 2006: |
|
|
|
Tennessee: |
|
We currently estimate that the reduction in the
TennCare Medicaid program will negatively impact us by
approximately between $6.0 million and $8.0 million during
2006. |
|
|
|
Alabama: |
|
The state of Alabama has implemented rate changes
and eliminated DSH payments. We currently estimate that these
changes will negatively impact us by approximately $6.4
million during 2006. |
59
|
|
|
|
|
|
|
Louisiana:
|
|
The state of Louisiana has recently
implemented Medicaid reductions of approximately 12% to 17% from our
current reimbursement levels. We currently estimate that this will
negatively impact us by approximately $2.8 million
during 2006. DRA, if enacted, provides approximately $2.0 billion in
Hurricane Katrina-related Medicaid relief, which may mitigate or
eliminate the previously announced reductions. |
|
|
|
|
|
|
|
Kentucky:
|
|
The Kentucky Medicaid program has implemented increased co-payments and discontinued
covering non-emergency department visits. We currently estimate that this will negatively
impact us by approximately $1.6 million during 2006. |
|
|
The changes in the various Medicaid programs and the reduction of enrollees in these programs
are resulting in higher self-pay revenues at our hospitals, which will cause increases in our
provision for doubtful accounts in the future. |
|
|
|
Increases in Provision for Doubtful Accounts. We experienced an increase in our
provision for doubtful accounts during recent years. These increases were the result of an
increased number of uninsured patients and an increase in co-payments and deductibles from
healthcare plan design changes. These changes increase collection costs and reduce overall
cash collections. Our provision for doubtful accounts was as follows for the periods presented
(in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for Doubtful Accounts |
|
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
First Quarter |
|
$ |
15.8 |
|
|
$ |
20.7 |
|
|
$ |
23.0 |
|
Second Quarter |
|
|
15.1 |
|
|
|
18.9 |
|
|
|
41.3 |
|
Third Quarter |
|
|
22.4 |
|
|
|
24.4 |
|
|
|
63.9 |
|
Fourth Quarter |
|
|
20.8 |
|
|
|
22.2 |
|
|
|
62.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
74.1 |
|
|
$ |
86.2 |
|
|
$ |
190.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision for doubtful accounts relates primarily to self-pay revenues. The following table
reflects our quarterly self-pay revenues for the periods presented (in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Self-Pay Revenues |
|
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
First Quarter |
|
$ |
17.6 |
|
|
$ |
21.0 |
|
|
$ |
24.2 |
|
Second Quarter |
|
|
16.6 |
|
|
|
21.4 |
|
|
|
47.6 |
|
Third Quarter |
|
|
21.4 |
|
|
|
26.8 |
|
|
|
71.5 |
|
Fourth Quarter |
|
|
20.1 |
|
|
|
23.7 |
|
|
|
66.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
75.7 |
|
|
$ |
92.9 |
|
|
$ |
210.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Our revenues are reduced when we write-off patient accounts identified as charity and indigent
care. Our hospitals write off a portion of a patients account upon the determination that the
patient qualifies under a hospitals charity/indigent care policy. The following table reflects
our charity and indigent care write offs for the periods presented (in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charity and Indigent Care Write-Offs |
|
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
First Quarter |
|
$ |
1.0 |
|
|
$ |
1.9 |
|
|
$ |
1.8 |
|
Second Quarter |
|
|
1.4 |
|
|
|
2.4 |
|
|
|
5.6 |
|
Third Quarter |
|
|
1.0 |
|
|
|
1.7 |
|
|
|
7.6 |
|
Fourth Quarter |
|
|
1.8 |
|
|
|
1.8 |
|
|
|
9.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5.2 |
|
|
$ |
7.8 |
|
|
$ |
24.0 |
|
|
|
|
|
|
|
|
|
|
|
60
|
|
The following table shows our revenue days outstanding reflected in our consolidated net
accounts receivable as of the dates indicated: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue Days Outstanding in |
|
|
Accounts Receivable |
|
|
2003 |
|
2004 |
|
2005 |
March 31 |
|
|
39.8 |
|
|
|
39.1 |
|
|
|
37.2 |
|
June 30 |
|
|
38.7 |
|
|
|
38.8 |
|
|
|
37.6 |
|
September 30 |
|
|
37.7 |
|
|
|
40.6 |
|
|
|
42.0 |
|
December 31 |
|
|
39.3 |
|
|
|
38.8 |
|
|
|
42.3 |
|
|
|
The approximate percentages of billed hospital receivables (which is a component of total
accounts receivable) are summarized as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2003 |
|
|
December 31, 2004 |
|
|
December 31, 2005 |
|
Insured receivables |
|
|
41.1 |
% |
|
|
40.9 |
% |
|
|
40.6 |
% |
Uninsured receivables (including
copayments and deductibles |
|
|
58.9 |
|
|
|
59.1 |
|
|
|
59.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
The approximate percentages of billed hospital receivables in summarized aging categories are as
follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2003 |
|
|
December 31, 2004 |
|
|
December 31, 2005 |
|
0 to 60 days |
|
|
47.5 |
% |
|
|
52.5 |
% |
|
|
51.4 |
% |
61 to 150 days |
|
|
23.6 |
|
|
|
20.8 |
|
|
|
20.9 |
|
Over 150 days |
|
|
28.9 |
|
|
|
26.7 |
|
|
|
27.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
We continue to implement a number of operating strategies as they relate to cash collections.
However, if the trend of increasing self-pay revenues continues, then this trend could have a
material adverse effect on our results of operations and financial position in the future. |
|
|
|
Substantial Indebtedness. We have substantial
indebtedness. Our consolidated debt was $1,516.3 million as of
December 31, 2005, and we incurred $60.3 million of interest
expense in 2005. We estimate we will incur a higher amount of
interest expense in 2006 because of higher interest rates and
additional debt incurred from the pending acquisition of five
HCA hospitals. Our substantial indebtedness increases our
cost of capital, decreases our net income and reduces the
amount of funds available for operations, capital expenditures
and future acquisitions. We are in compliance with our
financial debt covenants as of December 31, 2005 and believe
we will be in compliance with these throughout 2006. It is
not our intent to maintain large cash balances, and we will
focus on reducing our indebtedness during 2006. |
|
|
|
Physician Recruitment and Retention. Recruiting and
retaining both primary care physicians and specialists for our
non-urban communities is a key to increasing revenues and
patient volumes. Our management believes that continuing to
add specialists should help our hospitals increase volumes by
offering new services. We plan to spend $35.2 million to
recruit approximately 183 new admitting physicians during
2006. |
|
|
|
Increasing Purchase Prices for Acquisitions. As
previously discussed, we attempt to make acquisitions in a
highly competitive environment. Compared to historic trends,
we have seen an increase in prices being paid for hospital
acquisitions in recent years, including prices paid by us. In
some cases, the cost of an acquisition could result in a
dilutive effect on our results of operations depending on
various factors, including the acquired hospitals results of
operations, allocations of tangible and intangible assets,
effects of subsequent legislation changes and limitations on
rate increases. |
|
|
|
Start-up Costs at Our Two De Novo Hospitals. Each of our
two newly-constructed hospitals, Valley View Medical Center in
Fort Mohave, Arizona and Coastal Carolina Medical Center in
Hardeeville, South Carolina have incurred significant start-up
costs and will attempt to build market share over time.
In addition, as of February 6, 2006, we still have not
received Medicare certification at Valley View Medical Center.
We cannot bill Medicare and Medicaid for services provided
until we receive the Medicare certification. As a
|
61
|
|
result, these de novo facilities have adversely affected our earnings and profitability in 2005
and are expected to continue in 2006. |
|
|
|
Shortage of Clinical Personnel and Increased Contract
Labor Usage. In recent years, many hospitals, including the
hospitals we own, have encountered difficulty in recruiting
and retaining nursing and other clinical personnel. When we
are unable to staff our nursing and clinical positions, we are
required to use contract labor to ensure adequate patient
care. Contract labor generally costs more per hour than
employed labor. We have adopted a number of human resources
strategies in an attempt to improve our ability to recruit and
retain nursing and other clinical personnel. However, we
expect that the staffing issues related to nurses and other
clinical personnel will continue in the future. |
|
|
|
Increases in Supply Costs. During the past few years, we
have experienced an increase in supply costs as a percentage
of revenues, especially in the areas of pharmaceutical,
orthopaedic, oncology and cardiac supplies. We participate in
a group purchasing organization in an attempt to achieve lower
supply costs from our vendors. Because of the fixed
reimbursement nature of most governmental and commercial payor
arrangements, we may not be able to recover supply cost
increases through increased revenues. |
|
|
|
Challenges in Professional and General Liability Costs.
In recent years, we have incurred favorable loss experience,
as reflected in our external actuarial reports. We implemented
enhanced risk management processes for monitoring professional
and general liability claims and managing in high-risk areas.
Professional and general liability costs remain a challenge to
us, and we expect this pressure to continue in the future. |
|
|
|
Increases in Information Technology Costs and Costs of
Integration. Our acquisition activity requires transitions
from, and the integration of, various information systems that
are used by hospitals we acquire. We rely heavily on HCA-IT
for information systems integration pursuant to our
contractual arrangement for information technology services.
During 2005, we increased the number of hospitals we operate
from 30 to 53. This resulted in significant increases in
information technology costs and we expect that such costs
will continue to increase significantly as we integrate our
recent acquisitions onto the HCA-IT systems. We plan to
convert between seven to nine hospitals to the patient accounting Meditech
system in 2006. The fees that HCA-IT charged us for
information system services are as follows for the years
presented (in millions): |
|
|
|
|
|
|
|
HCA-IT Fees |
2003 |
|
$ |
13.7 |
|
2004 |
|
|
15.8 |
|
2005 |
|
|
25.4 |
|
Outlook
We expect to increase our revenues and net income by selectively acquiring hospitals and
improving the operating results of the hospitals we currently own and operate. We plan to adhere
to our selective acquisition strategy as we seek to acquire hospitals selectively. We intend to
continue to invest in additional healthcare services in our facilities and implement our operating
strategies. Our recent acquisitions will require significant attention from our management to
integrate the business practices and operations of these newly acquired hospitals.
By successfully focusing on each of the above-mentioned key challenges, we anticipate
increasing our revenues and profitability on both a short-term and long-term basis. These
challenges are intensified by our inability to control related trends and the associated risks.
Therefore, our actual results may differ from our expectations. To maintain or improve operating
margins in the future, we must, among other things, increase patient volumes through physician
recruiting and retention while controlling the costs of providing services.
62
Revenue Sources
Our hospitals generate revenues by providing healthcare services to our patients. The
majority of these healthcare services are directed by physicians. We are paid for these healthcare
services from a number of different sources, depending upon the patients medical insurance
coverage. Primarily, we are paid by governmental Medicare and Medicaid programs, commercial insurance, including managed care
organizations, and directly by the patient. The amounts we are paid for providing healthcare
services to our patients vary depending upon the payor. Governmental payors generally pay
significantly less than the hospitals customary charges for the services provided. Please refer
to Part I, Item 1. Business, Sources of Revenue for a detailed discussion of our revenue sources.
Revenues from governmental payors, such as Medicare and Medicaid, are controlled by complex
rules and regulations that stipulate the amount a hospital is paid for providing healthcare
services. Our compliance with these rules and regulations requires an extensive effort to ensure
we remain eligible to participate in these governmental programs. In addition, these rules and
regulations are subject to frequent changes as a result of legislative and administrative action on
both the federal and state level. For these reasons, revenues from governmental programs change
frequently and require us to monitor regularly the environment in which these governmental programs
operate. For example, MMA increased the payments received by non-urban healthcare providers
beginning in 2004.
Revenues from HMOs, PPOs and other private insurers are subject to contracts and other
arrangements that require us to discount the amounts we customarily charge for healthcare services.
These discounted arrangements often limit our ability to increase charges in response to
increasing costs. We actively negotiate with these payors to ensure we are appropriately pricing
our healthcare services. Insured patients are generally not responsible for any difference between
customary hospital charges and the amounts received from commercial insurance payors. However,
insured patients are responsible for payments not covered by insurance, such as exclusions,
deductibles and co-payments.
Self-pay revenues are primarily generated through the treatment of uninsured patients. Our
hospitals experienced an increase in self-pay revenues during the past three years.
Subsequent Event
On February 3, 2006, we announced that we
entered into a definitive agreement to sell our Smith County Memorial Hospital, which is located in Carthage, Tennessee, to Sumner Regional
Health System. We expect to complete this sale in the first quarter of 2006. The 2005 revenues of
Smith County Memorial Hospital were approximately $13.6 million.
63
Critical Accounting Estimates
The preparation of financial statements in accordance with U.S. generally accepted accounting
principles requires us to make estimates and assumptions that affect reported amounts and related
disclosures. We consider an accounting estimate to be critical if:
|
|
it requires assumptions to be made that were uncertain at the time the estimate was made; and |
|
|
|
changes in the estimate or different estimates that could have been made could have a material impact on our
consolidated results of operations or financial condition. |
Our management has discussed the development and selection of these critical accounting
estimates with the audit committee of our Board of Directors and with our independent registered
public accounting firm, and they both have reviewed the disclosure
presented below relating to our
critical accounting estimates.
The table of critical accounting estimates is not intended to be a comprehensive list of
all of our accounting policies that require estimates. We believe that of our significant
accounting policies, as discussed in Note 1 of our consolidated financial statements included
elsewhere in this report, the estimates discussed below
involve a higher degree of judgment and complexity. We believe the current assumptions and
other considerations used to estimate amounts reflected in our consolidated financial statements
are appropriate. However, if actual experience differs from the assumptions and other
considerations used in estimating amounts reflected in our consolidated financial statements, the
resulting changes could have a material adverse effect on our consolidated results of operations
and our financial condition.
The table that follows presents information about our critical accounting estimates, as well
as the effects of hypothetical changes in the material assumptions used to develop each estimate:
|
|
|
|
|
Balance Sheet or |
|
|
|
|
Income Statement Caption / |
|
|
|
|
Nature of Critical Estimate Item |
|
Assumptions / Approach Used |
|
Sensitivity Analysis |
Allowance for doubtful accounts and provision
for doubtful accounts |
|
|
|
|
|
|
|
|
|
Accounts receivable primarily consist of
amounts due from third-party payors and
patients. Our ability to collect outstanding
receivables is critical to our results of
operations and cash flows. To provide for
accounts receivable that could become
uncollectible in the future, we establish an
allowance for doubtful accounts to reduce the
carrying value of such receivables to their
estimated net realizable value. The primary
uncertainty lies with uninsured patient
receivables and deductibles, co-payments or
other amounts due from individual patients.
Our allowance for doubtful accounts, included
in our balance sheets as of December 31 was
as follows (in millions):
2005 $252.9 ; and
2004 $103.6.
Our provision for doubtful accounts, included
in our results of operations, was as follows
(in millions):
2005 $190.3
2004 $86.2; and
2003 $74.1.
|
|
The largest component of bad debts in our
patient accounts receivable relates to
accounts for which patients are responsible,
which we refer to as patient responsibility
accounts. These accounts include both amounts
payable by uninsured patients and co-payments
and deductibles payable by insured patients.
In general, we attempt to collect
deductibles, co-payments and self-pay
accounts prior to the time of service for
non-emergency care. If we do not collect
these patient responsibility accounts prior
to the delivery of care, the accounts are
handled through our billing and collections
processes.
We verify each patients insurance coverage
as early as possible before a scheduled
admission or procedure, including with
respect to eligibility, benefits and
authorization/pre-certification requirements,
in order to notify patients of the amounts
for which they will be responsible. We attempt to verify
insurance coverage within a reasonable amount
of time for all emergency room visits and
urgent admissions in compliance with the
Emergency Medical Treatment and Active Labor
Act.
In general, we follow the following steps in
collecting accounts receivable:
if possible, cash collection of
deductibles, co-payments and self-pay
accounts prior to or at the time
service is provided;
billing and follow-up with third party
payors;
collection calls;
utilization of collection agencies; and
if collection efforts are unsuccessful,
write off of the accounts.
|
|
If self-pay revenues during 2005 were changed
by 1%, our 2005 after-tax income from
continuing operations would change by
approximately $1.2 million or diluted
earnings per share of $0.02.
This is only one example of reasonably
possible sensitivity scenarios. The process
of determining the allowance requires us to
estimate uncollectible patient accounts that
are highly uncertain and requires a high
degree of judgment. It is impacted by changes
in regional economic conditions, business
office operations, payor mix and trends in
federal or state governmental healthcare coverage.
A significant increase in our provision for
doubtful accounts (as a percentage of
revenues) would lower our earnings. This
would adversely affect our results of
operations, financial condition, liquidity
and future access to capital. |
64
|
|
|
|
|
Balance Sheet or |
|
|
|
|
Income Statement Caption / |
|
|
|
|
Nature of Critical Estimate Item |
|
Assumptions / Approach Used |
|
Sensitivity Analysis |
Allowance for doubtful accounts and provision
for doubtful accounts (continued) |
|
Our policy is to write off accounts after all
collection efforts have failed, which is
typically no longer than one year after the
date of discharge of the patient. Patient
responsibility accounts represent the
majority of our write-offs. All of our
hospitals retain third-party collection
agencies for billing and collection of
delinquent accounts. At most of our
hospitals, more than one collection agency is used to promote
competition and improve performance results.
The selection of collection agencies and the
timing of referral of an account to a
collection agency vary among hospitals.
Generally, we do not write off accounts prior
to utilizing the services of a collection
agency. Once collection efforts have proven
unsuccessful, an account is written off from
our patient accounting system against the
allowance for doubtful accounts. |
|
|
|
|
|
|
|
|
|
We determine the adequacy of the allowance
for doubtful accounts utilizing a number of
analytical tools and benchmarks. No single
statistic or measurement alone determines the
adequacy of the allowance. |
|
|
|
|
|
|
|
|
|
As it relates to our recently-acquired
hospitals, we monitor trends in revenues and
cash collections on a monthly basis for 18 to
24 months subsequent to the acquisition on a
facility-by-facility basis. |
|
|
|
|
|
As it relates to our core hospitals, which we
refer to as same-hospital, we monitor the
revenue trends by payor classification on a
month-by-month basis along with the
composition of our accounts receivable
agings. This review is focused primarily on
trends in self-pay revenues, accounts
receivable, co-payment receivables and
historic payment patterns. |
|
|
|
|
|
|
|
|
|
In addition, we analyze other factors such as
revenue days in accounts receivable and we
review admissions and charges by physicians,
primarily focusing on recently recruited
physicians. |
|
|
|
|
|
|
|
|
|
The allowance for doubtful accounts relating
to the former Province facilities increased
by $21.0 million during 2005, which resulted
in a decrease in our diluted earnings per
share of $0.25 for 2005, to conform the
former Province facilities allowance for
doubtful accounts to our critical accounting
estimate. This adjustment constitutes a
change in the estimation process from the
former Province critical accounting estimate
and is reflected as transaction costs in our
consolidated statement of operations for
2005. The adjustment is the result of our
review of Provinces patient accounts
receivable and the application of the same
assumptions and processes we use. |
|
|
|
|
|
|
|
65
|
|
|
|
|
Balance Sheet or |
|
|
|
|
Income Statement Caption / |
|
|
|
|
Nature of Critical Estimate Item |
|
Assumptions / Approach Used |
|
Sensitivity Analysis |
Revenue recognition / Allowance for
contractual discounts |
|
|
|
|
|
|
|
|
|
We recognize revenues in the period in which
services are provided. Accounts receivable
primarily consist of amounts due from
third-party payors and patients. Amounts we
receive for treatment of patients covered by
governmental programs, such as Medicare and
Medicaid, and other third-party payors such
as HMOs, PPOs and other private insurers, are
generally less than our established billing
rates. Accordingly, our gross revenues and
accounts receivable are reduced to net
realizable value through an allowance for
contractual discounts.
Approximately 86.8% of our revenues
during
2005 relate to discounted
charges. The
sources of these revenues
were as follows (as
a percentage of total
revenues):
|
|
Revenues are recorded at estimated net
amounts due from patients, third-party payors
and others for healthcare services provided.
We utilize multiple patient accounting
systems. Therefore, estimates for contractual
allowances are calculated using computerized
and manual processes depending on the type of
payor involved and the patient accounting
system used by each of our hospitals. In
certain hospitals, the contractual allowances
are calculated by a computerized system based
on payment terms for each payor. In other
hospitals, the contractual allowances are
determined manually using historical
collections for each type of payor. For all
hospitals, certain manual estimates are used in
calculating contractual allowances based on
historical collections from payors that are
not significant or have not entered into a
contract with us. All contractual adjustments
regardless of type of payor or method of
calculation are reviewed and compared to
actual experience. |
|
|
Medicare 36.6%;
|
Medicaid 9.4%; and
|
Managed care 40.8%.
|
|
|
Governmental payors
|
|
Governmental payors |
|
|
|
|
|
|
|
The majority of services performed on
Medicare and Medicaid patients are reimbursed
at predetermined reimbursement rates. The
differences between the established billing
rates (i.e., gross charges) and the
predetermined reimbursement rates are
recorded as contractual discounts and
deducted from gross charges. Under this
prospective reimbursement system, there is no
adjustment or settlement of the difference
between the actual cost to provide the
service and the predetermined reimbursement
rates.
Discounts for retrospectively cost-based
revenues, which were more prevalent in
periods before 2000, are estimated based on
historical and current factors and are
adjusted in future periods when settlements
of filed cost reports are received. Final
settlements under these programs are subject
to adjustment based on administrative review
and audit by third party intermediaries,
which can take several years to resolve
completely.
|
|
Because the laws and regulations governing
the Medicare and Medicaid programs are
complex and subject to change, the estimates
of contractual discounts we record could
change by material amounts. Adjustments
related to final settlements increased our
revenues by the following amounts (in
millions):
2005 $9.3;
2004 $7.5; and
2003 $6.0. |
|
|
|
|
|
66
|
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|
|
Balance Sheet or |
|
|
|
|
Income Statement Caption / |
|
|
|
|
Nature of Critical Estimate Item |
|
Assumptions / Approach Used |
|
Sensitivity Analysis |
Revenue recognition / Allowance for
contractual discounts (continued) |
|
Managed care
|
|
Managed care |
|
|
|
|
|
| |
For most managed care plans, estimated
contractual allowances are adjusted to actual
contractual allowances as cash is received
and claims are reconciled. We evaluate the
following criteria in developing the
estimated contractual allowance percentages
each month: historical contractual allowance
trends based on actual claims paid by managed
care payors; review of contractual allowance
information reflecting current contract
terms; consideration and analysis of changes
in payor mix reimbursement levels; and other
issues that may impact contractual
allowances.
Accounts receivable primarily consist of
amounts due from third party payors and
patients. Amounts we receive for the
treatment of patients covered by HMOs, PPOs
and other private insurers are generally less
than our established billing rates. We
include contractual allowances as a reduction
to revenues in our financial statements based
on payor specific identification and payor
specific factors for rate increases and
denials.
|
|
If our overall estimated contractual discount
percentage on all of our managed care
revenues during 2005 were changed by 1%, our
2005 after-tax income from continuing
operations would change by approximately $7.5
million.
This is only one example of reasonably
possible sensitivity scenarios. The process
of determining the allowance requires us to
estimate the amount expected to be received
and requires a high degree of judgment. It is
impacted by changes in managed care contracts
and other
related factors.
A significant increase in our estimate of
contractual discounts would lower our
earnings. This would adversely affect our
results of operations, financial condition,
liquidity and future access to capital. |
|
|
|
|
|
|
|
Applying our process to the accounts
receivable from Provinces third-party payors
resulted in a $5.4 million charge and
decreased our diluted earnings per share by
$0.07 during 2005 to conform the former
Province facilities allowance for
contractual discounts to our critical
accounting estimate. This adjustment
constitutes a change in the estimation
process from the former Province critical
accounting
estimate and is reflected as transaction
costs in our consolidated statement of
operations for 2005. The adjustment is the
result of our review of Provinces patient
accounts receivable and the application of
the same assumptions and processes we use. |
|
|
67
|
|
|
|
|
Balance Sheet or |
|
|
|
|
Income Statement Caption / |
|
|
|
|
Nature of Critical Estimate Item |
|
Assumptions / Approach Used |
|
Sensitivity Analysis |
|
|
|
|
|
Goodwill and accounting for business
combinations |
|
|
|
|
|
|
|
|
|
Goodwill represents the excess of the
purchase price over the fair value of the net
assets of acquired companies. Our goodwill
included in our consolidated balance sheets as of December 31 for the following years was as follows (in
millions):
2005 $1,455.6; and
2004 $144.4.
The increase in our goodwill during 2005 was
primarily the result of the Province business
combination and the acquisitions of DRMC and
WCCH. Please refer to Note 4 to our
consolidated financial statements included
elsewhere in this report for a detailed
rollforward of our goodwill.
|
|
We follow the guidance in Statement of
Financial Accounting Standard (SFAS) No.
142, Goodwill and Other Intangible Assets,
and test goodwill for impairment using a fair
value approach. We are required to test for
impairment at least annually, absent some
triggering event that would accelerate an
impairment assessment. On an ongoing basis,
absent any impairment indicators, we perform
our goodwill impairment testing as of October
1 of each year. We determine fair value using
widely accepted valuation techniques,
including discounted cash flow and market
multiple analyses. These types of analyses
require us to make assumptions and estimates
regarding future cash flows, industry
economic factors and the profitability of
future business strategies.
The purchase price of acquisitions are
allocated to the assets acquired and
liabilities assumed based upon their
respective fair values and subject to change
during the twelve month period subsequent to
the acquisition date. We engage independent
third-party valuation firms to assist us in
determining the fair values of assets
acquired and liabilities assumed. Such
valuations require us to make significant
estimates and assumptions, including
projections of future events and operating
performance.
|
|
We performed our annual testing for goodwill
impairment as of October 1, 2003, 2004 and
2005 using the methodology described here,
and determined that no goodwill impairment
existed. If actual future results are not
consistent with our assumptions and
estimates, we may be required to record
goodwill impairment charges in the future.
Our estimate of fair value of acquired assets
and assumed liabilities are based upon
assumptions believed to be reasonable based
upon current facts and circumstances. If 10%
of the non-depreciable assets acquired during
2005 were allocated to a depreciable asset
with an average life of 20 years,
depreciation expense would have increased by
approximately $4.4 million in 2005. |
|
|
|
|
|
|
|
Fair value estimates are derived from
independent appraisals, established market
values of comparable assets, or internal
calculations of estimated future net cash
flows. Our estimate of future cash flows is
based on assumptions and projections we
believe to be currently reasonable and
supportable. Our assumptions take into
account revenue and expense growth rates,
patient volumes, changes in payor mix, and
changes in legislation and other payor
payment patterns. |
|
|
68
|
|
|
|
|
Balance Sheet or |
|
|
|
|
Income Statement Caption / |
|
|
|
|
Nature of Critical Estimate Item |
|
Assumptions / Approach Used |
|
Sensitivity Analysis |
|
|
|
|
|
Professional and general liability claims |
|
|
|
|
|
|
|
|
|
We are subject to potential medical
malpractice lawsuits and other claims as part
of providing healthcare services. To mitigate
a portion of this risk, we maintained
insurance for individual malpractice claims
exceeding a self-insured retention amount.
For 2001, the self-insured retention amount
was $1.0 million. For 2002, we increased our
self-insured retention level to $10.0 million
on individual malpractice claims. For 2003, we lowered our
self-insured retention level to $5.0 million
on individual malpractice claims and for
2004, we increased our self-insured retention
level back to $10.0 million. For 2005, we
increased our self-insured retention levels
to $15.0 million in substantially all states.
We maintained self-insured retention at $10.0
million for facilities located in Florida or
Texas. Additionally, certain of our
facilities operate in states having state
specific medical malpractice programs. We
have obtained commercial insurance policies
as of May 1, 2005 for claims in excess of
$50,000 in the following states: Colorado;
Indiana; Kansas; and Pennsylvania. The state
program in Louisiana limits our medical
malpractice retention to $100,000.
Each year, we obtain quotes from various
malpractice insurers with respect to the cost
of obtaining medical malpractice insurance
coverage. We compare these quotes to our most
recent actuarially determined estimates of
losses at various self-insured retention
levels. Accordingly, changes in insurance
costs affect the self-insurance retention
level we choose each year. As insurance costs
have increased in recent years, we have
accepted a higher level of risk in
self-insured retention levels.
The reserve for professional and general
liability claims included in our consolidated balance
sheets as of December 31 was as follows (in
millions):
2005 $55.3; and
2004 $27.2.
|
|
Our reserves for professional and general
liability claims are based upon independent
actuarial calculations, which consider
historical claims data, demographic
considerations, severity factors and other
actuarial assumptions in the determination of
reserve estimates. Reserve estimates are
discounted to present value using a 5.0%
discount rate.
During the first quarter of 2005, we revised
our reserve estimation process by obtaining
independent actuarial calculations every
quarter, rather than twice each year, from two
actuarial firms. Our estimated reserve for professional and general
liability claims will be significantly
affected if current and future claims differ
from historical trends. While we monitor
reported claims closely and consider
potential outcomes as estimated by our
independent actuaries when determining our
professional and general liability reserves,
the complexity of the claims, the extended
period of time to settle the claims and the
wide range of potential outcomes complicates
the estimation process. In addition, certain
states have passed varying forms of tort
reform which attempt to limit the amount of
medical malpractice awards. If such laws are
passed in the states where our hospitals are
located, our loss estimates could
decrease.
We implemented enhanced risk management
processes for monitoring professional and
general liability claims and managing losses
in high-risk areas during 2002 and 2003 to
attempt to reduce loss levels and
appropriately manage risk. We refined our
estimation process for determining our
reserves for professional and general
liability claims during 2003 by expanding
from using one actuary to using multiple
actuaries.
We use the valuations of two actuaries and
average their results in determining our
recorded reserve levels. This averaging
process results in a refined estimation
approach that we believe produces a more
reliable estimate of ultimate losses.
We currently receive actuarial calculations
each quarter from
two separate actuarial
firms. Province did not use the services of
either of these actuarial firms. Upon
conforming the hospitals that we acquired from Province to our
methodology by obtaining valuations from each
of our actuarial firms and averaging the
results, the reserves for professional and
general liability claims were increased by
$6.8 million. The impact of this change
decreased our diluted earnings per share by
$0.09 for the second quarter of 2005 and is
included in transaction costs in our consolidated statement of
operations.
|
|
During 2004, we ceased receiving reserve
estimates from one of the three actuaries
that had historically been used to calculate
loss reserve estimates. This change in our
estimation process reduced our reserve levels
and related professional and general
liability insurance expense for 2004 by $4.0
million, on a pretax basis, or $0.06 per
diluted share. We continue to derive our
estimates for financial
reporting purposes by using a mathematical
average of the actuarial valuations from our
other two actuaries. The results of the
updated actuarial valuations from these two
actuaries reduced our reserve estimates for
years prior to 2005 by $11.0 million on a
pretax basis, or $0.13 per diluted share,
which reduced our professional and general
liability expense in 2005.
Additionally, actuarial calculations include
a large number of variables that may
significantly impact the estimate of ultimate
losses that are recorded during a reporting
period. Professional judgment is used by each
actuary in determining their loss estimates
by selecting factors that are considered
appropriate by the actuary for our specific
circumstances. Changes in assumptions used by
our independent actuaries with respect to
demographics and geography, industry trends,
development patterns and judgmental selection
of other factors may impact our recorded
reserve levels and our results of
operations.
We derive our estimates for financial
reporting purposes by using a mathematical
average of our actuarial results. Changes in
our initial estimates of professional and
general liability claims are non-cash charges
and accordingly, there would be no material
impact on our liquidity or capital resources. |
69
|
|
|
|
|
Balance Sheet or |
|
|
|
|
Income Statement Caption / |
|
|
|
|
Nature of Critical Estimate Item |
|
Assumptions / Approach Used |
|
Sensitivity Analysis |
|
|
|
|
|
Professional
and general liability claims (continued) |
|
|
|
|
|
|
|
|
|
The reserve for professional and general
liability claims reflects the current
estimate of all outstanding losses, including
incurred but not reported losses, based upon
actuarial calculations as of the balance
sheet date. The loss estimates included in
the actuarial calculations may change in the
future based upon updated facts and
circumstances.
The total expense for professional and
general liability coverage, included in our
consolidated results of operations, was as follows (in
millions):
2005 $19.3;
2004 $5.4; and
2003 $8.3.
Our expense for professional and general
liability coverage each year includes the
actuarially determined estimate of losses for
the current year, including claims incurred
but not reported; the change in the estimate
of losses for prior years based upon actual
claims development experience as compared to
prior actuarial projections; the insurance
premiums for losses in excess of our
self-insured retention levels; the
administrative costs of the insurance program and interest
expense related to the discounted portion of
the liability. The 2005 expense also includes
$6.8 million of transaction costs recorded to
conform the hospitals that we acquired from Province to the our methodology
for determining medical malpractice reserves.
|
|
70
|
|
|
|
|
Balance Sheet or |
|
|
|
|
Income Statement Caption / |
|
|
|
|
Nature of Critical Estimate Item |
|
Assumptions / Approach Used |
|
Sensitivity Analysis |
Accounting for income taxes |
|
|
|
|
|
|
|
|
|
Deferred tax assets generally represent items
that will result in a tax deduction in future
years for which we have already recorded the
tax benefit in our income statement. We
assess the likelihood that deferred tax
assets will be recovered from future taxable
income. To the extent we believe that
recovery is not probable, a valuation
allowance is established. To the extent we
establish a valuation allowance or increase
this allowance, we must include an expense as
part of the income tax provision in our
results of operations. Our deferred tax asset
balances in our consolidated balance sheets as of December
31 for the following years were as follows
(in millions):
2005 $97.0; and
2004 $51.7.
Our valuation allowances for deferred tax
assets in our consolidated balance sheets as of December
31 for the following years were as follows
(in millions):
2005 $5.7; and
2004 $3.4.
In addition, significant judgment is required
in determining and assessing the impact of
certain tax-related contingencies. We
establish accruals when, despite our belief
that our tax return positions are fully
supportable, it is probable that we have
incurred a loss related to tax contingencies
and the loss or range of loss can be
reasonably estimated.
We adjust the accruals related to tax
contingencies as part of our provision for
income taxes in our results of operations
based upon changing facts and circumstances,
such as progress of a tax audit, development
of industry related examination issues, as
well as legislative, regulatory or judicial
developments. A number of years may elapse
before a particular matter, for which we have
established an accrual, is audited and
resolved.
|
|
The first step in determining the deferred
tax asset valuation allowance is identifying
reporting jurisdictions where we have a
history of tax and operating losses or are
projected to have losses in future periods as
a result of changes in operational
performance. We then determine if a valuation
allowance should be established against the
deferred tax assets for that reporting
jurisdiction.
The second step is to determine the amount of
the valuation allowance. We will generally
establish a valuation allowance equal to the
net deferred tax asset (deferred tax assets
less deferred tax liabilities) related to the
jurisdiction identified in step one of the
analysis. In certain cases, we may not reduce
the valuation allowance by the amount of the
deferred tax liabilities depending on the
nature and timing of future taxable income
attributable to deferred tax
liabilities.
In assessing tax contingencies, we identify
tax issues that we believe may be challenged
upon examination by the taxing authorities.
We also assess the likelihood of sustaining
tax benefits associated with tax planning
strategies and reduce tax benefits based on
managements judgment regarding such
likelihood. We compute the tax and related
interest on each contingency. We then
determine the amount of loss, or reduction in
tax benefits based upon the foregoing and
reflect such amount as a component of the
provision for income taxes in the reporting
period.
During each reporting period, we assess the
facts and circumstances related to recorded
tax contingencies. If tax contingencies are
no longer deemed probable based upon new
facts and circumstances, the contingency is
reflected as a reduction of the provision for
income taxes in the current period.
|
|
Our deferred tax liabilities exceeded our
deferred tax assets by $74.1 million as of
December 31, 2005, excluding the impact of
valuation allowances. Historically, we have
produced federal taxable income. Therefore,
we believe that the likelihood of our not
realizing the federal tax benefit of our
deferred tax assets is remote.
However, we do have subsidiaries with a
history of tax losses in certain state
jurisdictions and, based upon those
historical tax losses, w
e assumed that the
subsidiaries would not be profitable in the
future for those states tax purposes. If our
assertion regarding the future profitability
of those subsidiaries were incorrect, then
our deferred tax assets would be understated
by the amount of the valuation allowance of
$5.7 million at December 31, 2005.
The IRS may propose adjustments for items we
have failed to identify as tax contingencies.
If the IRS were to propose and sustain
assessments equal to 10% of our taxable
income for 2005, we would incur $5.1 million
of additional tax payments for 2005 plus
applicable penalties and interest. |
71
Results of Operations
The following definitions apply throughout Managements Discussion and Analysis of Financial
Condition and Results of Operations:
Admissions. Represents the total number of patients admitted (in the facility for a period in
excess of 23 hours) to our hospitals and used by management and investors as a general measure of
inpatient volume.
bps. Basis point change.
Continuing operations. Continuing operations information excludes the operations of hospitals which
are classified as discontinued operations.
Emergency room visits. Represents the total number of hospital-based emergency room visits.
Equivalent admissions. Management and investors use equivalent admissions as a general measure of
combined inpatient and outpatient volume. We compute equivalent admissions by multiplying
admissions (inpatient volume) by the outpatient factor (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.
ESOP. Employee stock ownership plan. The ESOP is a defined contribution retirement plan that covers
substantially all of our employees.
Medicare case mix index. Refers to the acuity or severity of illness of an average Medicare patient
at our hospitals.
N/A. Not applicable.
N/M. Not meaningful.
Outpatient surgeries. Outpatient surgeries are those surgeries that do not require admission to our
hospitals.
Same-hospital. Same-hospital information excludes the operations of hospitals that we acquired or
sold during the years presented. The costs of corporate overhead and discontinued operations are
excluded from same-hospital information for the comparison of 2005 versus 2004. However, the costs
of corporate overhead are included in same-hospital information for the comparison of 2004 versus
2003.
72
Operating Results Summary
The following tables present summaries of results of operations for the three months ended
December 31, 2004 and 2005 and for the years ended December 31, 2003, 2004 and 2005 (dollars in
millions, except revenues per equivalent admission):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, |
|
|
|
2004 |
|
|
2005 |
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
Amount |
|
|
Revenues |
|
|
Amount |
|
|
Revenues |
|
Revenues |
|
$ |
257.5 |
|
|
|
100.0 |
% |
|
$ |
559.2 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits |
|
|
102.7 |
|
|
|
39.9 |
|
|
|
222.0 |
|
|
|
39.7 |
|
Supplies |
|
|
33.7 |
|
|
|
13.1 |
|
|
|
78.2 |
|
|
|
14.0 |
|
Other operating expenses |
|
|
42.9 |
|
|
|
16.6 |
|
|
|
95.1 |
|
|
|
17.0 |
|
Provision for doubtful accounts |
|
|
22.2 |
|
|
|
8.6 |
|
|
|
62.1 |
|
|
|
11.1 |
|
Depreciation and amortization |
|
|
13.6 |
|
|
|
5.4 |
|
|
|
33.0 |
|
|
|
5.9 |
|
Interest expense, net |
|
|
2.9 |
|
|
|
1.1 |
|
|
|
22.0 |
|
|
|
3.9 |
|
Debt retirement costs |
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
|
|
ESOP expense |
|
|
2.3 |
|
|
|
0.9 |
|
|
|
3.8 |
|
|
|
0.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
220.3 |
|
|
|
85.6 |
|
|
|
516.3 |
|
|
|
92.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before
minority interests and income taxes |
|
|
37.2 |
|
|
|
14.4 |
|
|
|
42.9 |
|
|
|
7.7 |
|
Minority interests in earnings of
consolidated entities |
|
|
0.3 |
|
|
|
0.1 |
|
|
|
0.3 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before
income taxes |
|
|
36.9 |
|
|
|
14.3 |
|
|
|
42.6 |
|
|
|
7.6 |
|
Provision for income taxes |
|
|
13.9 |
|
|
|
5.3 |
|
|
|
16.6 |
|
|
|
3.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
23.0 |
|
|
|
9.0 |
% |
|
$ |
26.0 |
|
|
|
4.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
Amount |
|
|
Revenues |
|
|
Amount |
|
|
Revenues |
|
|
Amount |
|
|
Revenues |
|
Revenues |
|
$ |
875.6 |
|
|
|
100.0 |
% |
|
$ |
996.9 |
|
|
|
100.0 |
% |
|
$ |
1,855.1 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits |
|
|
352.3 |
|
|
|
40.2 |
|
|
|
399.4 |
|
|
|
40.1 |
|
|
|
730.5 |
|
|
|
39.4 |
|
Supplies |
|
|
114.2 |
|
|
|
13.0 |
|
|
|
129.1 |
|
|
|
12.9 |
|
|
|
251.6 |
|
|
|
13.6 |
|
Other operating expenses |
|
|
155.4 |
|
|
|
17.8 |
|
|
|
166.8 |
|
|
|
16.7 |
|
|
|
311.8 |
|
|
|
16.7 |
|
Provision for doubtful accounts |
|
|
74.1 |
|
|
|
8.5 |
|
|
|
86.2 |
|
|
|
8.7 |
|
|
|
190.3 |
|
|
|
10.3 |
|
Depreciation and amortization |
|
|
43.1 |
|
|
|
4.8 |
|
|
|
48.1 |
|
|
|
4.9 |
|
|
|
101.1 |
|
|
|
5.5 |
|
Interest expense, net |
|
|
12.8 |
|
|
|
1.5 |
|
|
|
12.6 |
|
|
|
1.3 |
|
|
|
60.3 |
|
|
|
3.2 |
|
Debt retirement costs |
|
|
|
|
|
|
|
|
|
|
1.5 |
|
|
|
0.1 |
|
|
|
12.2 |
|
|
|
0.7 |
|
Transaction costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43.2 |
|
|
|
2.3 |
|
ESOP expense |
|
|
6.9 |
|
|
|
0.8 |
|
|
|
9.4 |
|
|
|
0.9 |
|
|
|
14.8 |
|
|
|
0.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
758.8 |
|
|
|
86.6 |
|
|
|
853.1 |
|
|
|
85.6 |
|
|
|
1,715.8 |
|
|
|
92.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before
minority interests and income taxes |
|
|
116.8 |
|
|
|
13.4 |
|
|
|
143.8 |
|
|
|
14.4 |
|
|
|
139.3 |
|
|
|
7.5 |
|
Minority interests in earnings of
consolidated entities |
|
|
0.7 |
|
|
|
0.1 |
|
|
|
1.0 |
|
|
|
0.1 |
|
|
|
1.1 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before
income taxes |
|
|
116.1 |
|
|
|
13.3 |
|
|
|
142.8 |
|
|
|
14.3 |
|
|
|
138.2 |
|
|
|
7.4 |
|
Provision for income taxes |
|
|
45.9 |
|
|
|
5.3 |
|
|
|
56.0 |
|
|
|
5.6 |
|
|
|
58.4 |
|
|
|
3.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
70.2 |
|
|
|
8.0 |
% |
|
$ |
86.8 |
|
|
|
8.7 |
% |
|
$ |
79.8 |
|
|
|
4.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73
Operating Statistics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
December 31, |
|
Increase |
|
% Increase |
|
|
2004 |
|
2005 |
|
(Decrease) |
|
(Decrease) |
Admissions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-hospital |
|
|
22,094 |
|
|
|
21,930 |
|
|
|
(164 |
) |
|
|
(0.7 |
) |
Continuing operations |
|
|
22,769 |
|
|
|
45,447 |
|
|
|
22,678 |
|
|
|
99.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equivalent admissions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-hospital |
|
|
44,054 |
|
|
|
42,997 |
|
|
|
(1,057 |
) |
|
|
(2.4 |
) |
Continuing operations |
|
|
45,744 |
|
|
|
87,102 |
|
|
|
41,358 |
|
|
|
90.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues per equivalent admission: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-hospital |
|
$ |
5,603 |
|
|
$ |
5,992 |
|
|
$ |
389 |
|
|
|
6.9 |
|
Continuing operations |
|
$ |
5,630 |
|
|
$ |
6,420 |
|
|
$ |
790 |
|
|
|
14.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medicare case mix index: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-hospital |
|
|
1.19 |
|
|
|
1.21 |
|
|
|
0.02 |
|
|
|
1.7 |
|
Continuing operations |
|
|
1.20 |
|
|
|
1.24 |
|
|
|
0.04 |
|
|
|
3.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average length of stay (days): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-hospital |
|
|
4.0 |
|
|
|
4.2 |
|
|
|
0.2 |
|
|
|
5.0 |
|
Continuing operations |
|
|
4.0 |
|
|
|
4.3 |
|
|
|
0.3 |
|
|
|
7.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inpatient surgeries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-hospital |
|
|
6,212 |
|
|
|
6,411 |
|
|
|
199 |
|
|
|
3.2 |
|
Continuing operations |
|
|
6,500 |
|
|
|
13,426 |
|
|
|
6,926 |
|
|
|
106.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outpatient surgeries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-hospital |
|
|
18,179 |
|
|
|
17,002 |
|
|
|
(1,177 |
) |
|
|
(6.5 |
) |
Continuing operations |
|
|
19,133 |
|
|
|
32,961 |
|
|
|
13,828 |
|
|
|
72.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Emergency room visits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-hospital |
|
|
99,331 |
|
|
|
101,575 |
|
|
|
2,244 |
|
|
|
2.3 |
|
Continuing operations |
|
|
103,852 |
|
|
|
203,089 |
|
|
|
99,237 |
|
|
|
95.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outpatient factor: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-hospital |
|
|
2.00 |
|
|
|
1.96 |
|
|
|
(0.04 |
) |
|
|
(2.0 |
) |
Continuing operations |
|
|
2.01 |
|
|
|
1.92 |
|
|
|
(0.09 |
) |
|
|
(4.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outpatient revenues as a percentage
of total revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-hospital |
|
|
50.9 |
% |
|
|
49.3 |
% |
|
(160 |
)bps |
|
|
N/M |
|
Continuing operations |
|
|
52.8 |
% |
|
|
49.0 |
% |
|
(380 |
)bps |
|
|
N/M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of hospitals at end of period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-hospital |
|
|
28 |
|
|
|
28 |
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
29 |
|
|
|
50 |
|
|
|
21 |
|
|
|
72.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licensed beds at end of period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-hospital |
|
|
2,582 |
|
|
|
2,589 |
|
|
|
7 |
|
|
|
0.3 |
|
Continuing operations |
|
|
2,688 |
|
|
|
5,396 |
|
|
|
2,708 |
|
|
|
100.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average licensed beds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-hospital |
|
|
2,582 |
|
|
|
2,593 |
|
|
|
11 |
|
|
|
0.4 |
|
Continuing operations |
|
|
2,720 |
|
|
|
5,417 |
|
|
|
2,697 |
|
|
|
99.2 |
|
74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
|
|
|
December 31, |
|
Increase |
|
% Increase |
|
|
2004 |
|
2005 |
|
(Decrease) |
|
(Decrease) |
Admissions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-hospital |
|
|
90,444 |
|
|
|
91,424 |
|
|
|
980 |
|
|
|
1.1 |
|
Continuing operations |
|
|
91,772 |
|
|
|
155,279 |
|
|
|
63,507 |
|
|
|
69.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equivalent admissions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-hospital |
|
|
180,617 |
|
|
|
179,831 |
|
|
|
(786 |
) |
|
|
(0.4 |
) |
Continuing operations |
|
|
183,819 |
|
|
|
302,483 |
|
|
|
118,664 |
|
|
|
64.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues per equivalent admission: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-hospital |
|
$ |
5,402 |
|
|
$ |
5,750 |
|
|
$ |
348 |
|
|
|
6.4 |
|
Continuing operations |
|
$ |
5,423 |
|
|
$ |
6,133 |
|
|
$ |
710 |
|
|
|
13.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medicare case mix index: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-hospital |
|
|
1.18 |
|
|
|
1.20 |
|
|
|
0.02 |
|
|
|
1.7 |
|
Continuing operations |
|
|
1.18 |
|
|
|
1.22 |
|
|
|
0.04 |
|
|
|
3.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average length of stay (days): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-hospital |
|
|
4.0 |
|
|
|
4.1 |
|
|
|
0.1 |
|
|
|
2.5 |
|
Continuing operations |
|
|
4.0 |
|
|
|
4.2 |
|
|
|
0.2 |
|
|
|
5.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inpatient surgeries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-hospital |
|
|
25,692 |
|
|
|
25,893 |
|
|
|
201 |
|
|
|
0.8 |
|
Continuing operations |
|
|
26,235 |
|
|
|
44,716 |
|
|
|
18,481 |
|
|
|
70.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outpatient surgeries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-hospital |
|
|
73,754 |
|
|
|
72,241 |
|
|
|
(1,513 |
) |
|
|
(2.1 |
) |
Continuing operations |
|
|
75,508 |
|
|
|
117,415 |
|
|
|
41,907 |
|
|
|
55.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Emergency room visits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-hospital |
|
|
406,719 |
|
|
|
418,586 |
|
|
|
11,867 |
|
|
|
2.9 |
|
Continuing operations |
|
|
416,060 |
|
|
|
704,818 |
|
|
|
288,758 |
|
|
|
69.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outpatient factor: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-hospital |
|
|
2.00 |
|
|
|
1.97 |
|
|
|
(0.03 |
) |
|
|
(1.5 |
) |
Continuing operations |
|
|
2.00 |
|
|
|
1.95 |
|
|
|
(0.05 |
) |
|
|
(2.5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outpatient revenues as a percentage of total revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-hospital |
|
|
50.7 |
% |
|
|
48.9 |
% |
|
(180 |
)bps |
|
|
N/M |
|
Continuing operations |
|
|
51.5 |
% |
|
|
50.3 |
% |
|
(120 |
)bps |
|
|
N/M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of hospitals at end of period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-hospital |
|
|
28 |
|
|
|
28 |
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
29 |
|
|
|
50 |
|
|
|
21 |
|
|
|
72.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licensed beds at end of period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-hospital |
|
|
2,582 |
|
|
|
2,589 |
|
|
|
7 |
|
|
|
0.3 |
|
Continuing operations |
|
|
2,688 |
|
|
|
5,396 |
|
|
|
2,708 |
|
|
|
100.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average licensed beds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-hospital |
|
|
2,635 |
|
|
|
2,670 |
|
|
|
35 |
|
|
|
1.3 |
|
Continuing operations |
|
|
2,692 |
|
|
|
4,539 |
|
|
|
1,847 |
|
|
|
68.6 |
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
|
|
|
|
|
December 31, |
|
Increase |
% Increase |
|
|
2003 |
|
2004 |
|
(Decrease) |
(Decrease) |
Admissions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-hospital |
|
|
88,108 |
|
|
|
88,461 |
|
|
|
353 |
|
|
|
0.4 |
|
Continuing operations |
|
|
88,695 |
|
|
|
91,772 |
|
|
|
3,077 |
|
|
|
3.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equivalent admissions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-hospital |
|
|
174,013 |
|
|
|
175,064 |
|
|
|
1,051 |
|
|
|
0.6 |
|
Continuing operations |
|
|
175,439 |
|
|
|
183,819 |
|
|
|
8,380 |
|
|
|
4.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues per equivalent admission: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-hospital |
|
$ |
4,995 |
|
|
$ |
5,436 |
|
|
$ |
441 |
|
|
|
8.8 |
|
Continuing operations |
|
$ |
4,991 |
|
|
$ |
5,423 |
|
|
$ |
432 |
|
|
|
8.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medicare case mix index: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-hospital |
|
|
1.17 |
|
|
|
1.18 |
|
|
|
0.01 |
|
|
|
0.9 |
|
Continuing operations |
|
|
1.17 |
|
|
|
1.18 |
|
|
|
0.01 |
|
|
|
0.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average length of stay (days): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-hospital |
|
|
4.0 |
|
|
|
4.1 |
|
|
|
0.1 |
|
|
|
2.5 |
|
Continuing operations |
|
|
4.0 |
|
|
|
4.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inpatient surgeries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-hospital |
|
|
24,362 |
|
|
|
25,030 |
|
|
|
668 |
|
|
|
2.7 |
|
Continuing operations |
|
|
24,528 |
|
|
|
26,235 |
|
|
|
1,707 |
|
|
|
7.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outpatient surgeries: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-hospital |
|
|
70,821 |
|
|
|
71,077 |
|
|
|
256 |
|
|
|
0.4 |
|
Continuing operations |
|
|
71,488 |
|
|
|
75,508 |
|
|
|
4,020 |
|
|
|
5.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Emergency room visits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-hospital |
|
|
404,768 |
|
|
|
392,422 |
|
|
|
(12,346 |
) |
|
|
(3.1 |
) |
Continuing operations |
|
|
408,321 |
|
|
|
416,060 |
|
|
|
7,739 |
|
|
|
1.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outpatient factor: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-hospital |
|
|
1.98 |
|
|
|
1.98 |
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
1.98 |
|
|
|
2.00 |
|
|
|
0.02 |
|
|
|
1.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outpatient revenues as a
percentage of total revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-hospital |
|
|
50.3 |
% |
|
|
50.2 |
% |
|
(10 |
)bps |
|
|
N/M |
|
Continuing operations |
|
|
49.7 |
% |
|
|
51.5 |
% |
|
180 |
bps |
|
|
N/M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of hospitals at end of period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-hospital |
|
|
27 |
|
|
|
27 |
|
|
|
|
|
|
|
|
|
Continuing operations |
|
|
28 |
|
|
|
29 |
|
|
|
1 |
|
|
|
3.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Licensed beds at end of period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-hospital |
|
|
2,568 |
|
|
|
2,507 |
|
|
|
(61 |
) |
|
|
(2.4 |
) |
Continuing operations |
|
|
2,681 |
|
|
|
2,688 |
|
|
|
7 |
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average licensed beds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-hospital |
|
|
2,567 |
|
|
|
2,638 |
|
|
|
71 |
|
|
|
2.8 |
|
Continuing operations |
|
|
2,595 |
|
|
|
2,692 |
|
|
|
97 |
|
|
|
3.7 |
|
76
For the Three Months Ended December 31, 2004 and 2005
Revenues
The increase in revenues for the quarter ended December 31, 2005 was primarily the result of
the Province business combination as well as the DRMC and WCCH
acquisitions (together, the 2005
Acquisitions). The table below shows the sources of our revenues (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
December 31, |
|
|
Increase |
|
|
% Increase |
|
|
|
2004 |
|
|
2005 |
|
|
(Decrease) |
|
|
(Decrease) |
|
Same-hospital |
|
$ |
247.1 |
|
|
$ |
257.6 |
|
|
$ |
10.5 |
|
|
|
4.4 |
% |
Former Province hospitals |
|
|
|
|
|
|
235.1 |
|
|
|
235.1 |
|
|
|
N/M |
|
2005 Acquisitions |
|
|
|
|
|
|
54.1 |
|
|
|
54.1 |
|
|
|
N/M |
|
Other acquisitions |
|
|
10.4 |
|
|
|
12.4 |
|
|
|
2.0 |
|
|
|
19.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
257.5 |
|
|
$ |
559.2 |
|
|
$ |
301.7 |
|
|
|
117.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inpatient Revenues
In spite of a decrease in our same-hospital admissions, our same-hospital inpatient revenues
increased by 8.9% for the quarter ended December 31, 2005 as compared to the quarter ended December
31, 2004. This inpatient revenue growth was primarily the result of an increase of 6.9% in our
same-hospital revenues per equivalent admission and a 3.2% increase in our same-hospital inpatient
surgeries.
Outpatient Revenues
Our same-hospital outpatient revenues for the quarter ended December 31, 2005 increased by
1.9% as compared to the quarter ended December 31, 2004 despite a 6.5% decrease in same-hospital
outpatient surgeries. This outpatient growth was largely driven by an increase in emergency room
visits, radiology procedures such as CT-scans, laboratory and cardiac catheterization procedures.
This increase was partially offset by a decrease in same-hospital outpatient surgeries. We plan to
focus on physician recruitment and retention during 2006 to reverse the negative trend in our
outpatient surgeries.
Other
Adjustments to estimated reimbursement amounts increased our revenues by $2.7 million and $3.7
million for the quarters ended December 31, 2005 and 2004, respectively.
The table below shows the sources of our revenues for the quarters ended December 31 of the
years indicated, expressed as percentages of total revenues, including adjustments to estimated
reimbursement amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations |
|
Same-hospital |
|
|
2004 |
|
2005 |
|
2004 |
|
2005 |
Medicare |
|
|
36.5 |
% |
|
|
35.9 |
% |
|
|
36.8 |
% |
|
|
36.8 |
% |
Medicaid |
|
|
11.4 |
|
|
|
8.9 |
|
|
|
11.5 |
|
|
|
10.3 |
|
HMOs, PPOs and other private insurers |
|
|
38.8 |
|
|
|
42.2 |
|
|
|
38.9 |
|
|
|
39.1 |
|
Self-Pay |
|
|
9.2 |
|
|
|
11.9 |
|
|
|
8.9 |
|
|
|
10.4 |
|
Other |
|
|
4.1 |
|
|
|
1.1 |
|
|
|
3.9 |
|
|
|
3.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
Expenses
Salaries and Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
Increase |
|
|
% Increase |
|
|
|
2004 |
|
|
Revenues |
|
|
2005 |
|
|
Revenues |
|
|
(Decrease) |
|
|
(Decrease) |
|
Salaries and benefits (dollars in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and wages |
|
$ |
82.0 |
|
|
|
31.9 |
% |
|
$ |
170.5 |
|
|
|
30.5 |
% |
|
$ |
88.5 |
|
|
|
108.0 |
% |
Stock-based compensation |
|
|
0.5 |
|
|
|
0.2 |
|
|
|
2.2 |
|
|
|
0.4 |
|
|
|
1.7 |
|
|
|
391.6 |
|
Employee benefits |
|
|
17.5 |
|
|
|
6.8 |
|
|
|
39.0 |
|
|
|
7.0 |
|
|
|
21.5 |
|
|
|
122.5 |
|
Contract labor |
|
|
2.7 |
|
|
|
1.0 |
|
|
|
10.3 |
|
|
|
1.8 |
|
|
|
7.6 |
|
|
|
280.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
102.7 |
|
|
|
39.9 |
% |
|
$ |
222.0 |
|
|
|
39.7 |
% |
|
$ |
119.3 |
|
|
|
116.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ESOP expense (dollars in millions) |
|
$ |
2.3 |
|
|
|
0.9 |
% |
|
$ |
3.8 |
|
|
|
0.7 |
% |
|
$ |
1.5 |
|
|
|
64.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Man-hours per equivalent admission |
|
|
85.6 |
|
|
|
N/A |
|
|
|
93.6 |
|
|
|
N/A |
|
|
|
8.0 |
|
|
|
9.4 |
|
Salaries and benefits per equivalent admission |
|
$ |
2,130 |
|
|
|
N/A |
|
|
$ |
2,465 |
|
|
|
N/A |
|
|
$ |
335 |
|
|
|
15.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate office salaries and benefits (dollars in millions) |
|
$ |
4.6 |
|
|
|
1.8 |
% |
|
$ |
6.9 |
|
|
|
1.2 |
% |
|
$ |
2.3 |
|
|
|
49.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-hospital (dollars in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and wages |
|
$ |
74.5 |
|
|
|
30.2 |
% |
|
$ |
76.7 |
|
|
|
29.8 |
% |
|
$ |
2.2 |
|
|
|
2.9 |
|
Employee benefits |
|
|
16.5 |
|
|
|
6.7 |
|
|
|
18.1 |
|
|
|
7.0 |
|
|
|
1.6 |
|
|
|
9.8 |
|
Contract labor |
|
|
2.5 |
|
|
|
1.0 |
|
|
|
2.6 |
|
|
|
1.0 |
|
|
|
0.1 |
|
|
|
2.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
93.5 |
|
|
|
37.9 |
% |
|
$ |
97.4 |
|
|
|
37.8 |
% |
|
$ |
3.9 |
|
|
|
4.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-hospital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Man-hours per equivalent admission |
|
|
84.9 |
|
|
|
N/A |
|
|
|
87.1 |
|
|
|
N/A |
|
|
|
2.2 |
|
|
|
2.7 |
|
Salaries and benefits per equivalent admission |
|
$ |
2,108 |
|
|
|
N/A |
|
|
$ |
2,270 |
|
|
|
N/A |
|
|
$ |
162 |
|
|
|
7.7 |
|
Our salaries and benefits increased primarily as a result of the Province business
combination and the 2005 Acquisitions. Salaries and benefits as a percentage of revenues decreased
as a result of effective management of our salary costs. Contract labor as a percentage of
revenues increased because of a higher utilization of contract labor at the former Province
hospitals and the 2005 Acquisitions. We are implementing strategies to reduce contract labor by
retaining nurses and other clinical personnel.
Our
ESOP expense increased as a result of a change in the expense
calculation. During 2005, the Company began calculating ESOP expense
at 2.5% of salaries and wages expense. Prior to 2005, ESOP expense
was recognized using the average market price of our common stock released to
participants in the ESOP retirement plan. Subsequent to the Province business
combination and the 2005 Acquisitions, we determined that the fixed number of
shares we historically released to ESOP participants was not adequate
to provide the appropriate employee benefit to our increased number
of employees. Therefore, we increased the
expense and began funding a portion of the expense in cash during
2005. We contributed approximately $3.2 million
to the ESOP retirement plan during the quarter ended
December 31, 2005.
78
Supplies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
% |
|
|
December 31, |
|
Increase |
|
Increase |
|
|
2004 |
|
2005 |
|
(Decrease) |
|
(Decrease) |
Continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplies (dollars in millions) |
|
$ |
33.7 |
|
|
$ |
78.2 |
|
|
$ |
44.5 |
|
|
|
131.6 |
% |
Supplies as a percentage of revenues |
|
|
13.1 |
% |
|
|
14.0 |
% |
|
90 |
bps |
|
|
N/M |
|
Supplies per equivalent admission |
|
$ |
731 |
|
|
$ |
892 |
|
|
$ |
161 |
|
|
|
22.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-hospital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplies (dollars in millions) |
|
$ |
32.2 |
|
|
$ |
34.4 |
|
|
$ |
2.2 |
|
|
|
7.2 |
% |
Supplies as a percentage of revenues |
|
|
13.0 |
% |
|
|
13.4 |
% |
|
40 |
bps |
|
|
N/M |
|
Supplies per equivalent admission |
|
$ |
724 |
|
|
$ |
802 |
|
|
$ |
78 |
|
|
|
10.9 |
% |
Our supplies expense increased as a result of the Province business combination and the 2005
Acquisitions. Supplies as a percentage of revenues and supplies per equivalent admission increased
as a result of rising supply costs particularly related to cardiology, pharmacy, orthopaedic
implants, blood and laboratory. In addition, we have experienced higher supply costs as a
percentage of revenues at our 2005 Acquisitions than at our other
hospitals.
Other Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
Increase |
|
|
% Increase |
|
|
|
2004 |
|
|
Revenues |
|
|
2005 |
|
|
Revenues |
|
|
(Decrease) |
|
|
(Decrease) |
|
Other operating expenses (dollars in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional fees |
|
$ |
3.5 |
|
|
|
1.4 |
% |
|
$ |
9.4 |
|
|
|
1.7 |
% |
|
$ |
5.9 |
|
|
|
170.6 |
% |
Utilities |
|
|
4.3 |
|
|
|
1.7 |
|
|
|
11.6 |
|
|
|
2.1 |
|
|
|
7.3 |
|
|
|
167.0 |
|
Repairs and maintenance |
|
|
5.4 |
|
|
|
2.1 |
|
|
|
10.7 |
|
|
|
1.9 |
|
|
|
5.3 |
|
|
|
96.7 |
|
Rents and leases |
|
|
2.5 |
|
|
|
1.0 |
|
|
|
5.2 |
|
|
|
0.9 |
|
|
|
2.7 |
|
|
|
109.2 |
|
Insurance |
|
|
(0.4 |
) |
|
|
(0.2 |
) |
|
|
5.1 |
|
|
|
0.9 |
|
|
|
5.5 |
|
|
|
N/M |
|
HCA-IT expense |
|
|
4.7 |
|
|
|
1.8 |
|
|
|
7.7 |
|
|
|
1.4 |
|
|
|
3.0 |
|
|
|
64.1 |
|
Physician recruiting |
|
|
4.6 |
|
|
|
1.8 |
|
|
|
7.1 |
|
|
|
1.3 |
|
|
|
2.5 |
|
|
|
53.7 |
|
Contract services |
|
|
8.2 |
|
|
|
3.2 |
|
|
|
20.2 |
|
|
|
3.6 |
|
|
|
12.0 |
|
|
|
145.8 |
|
Non-income taxes |
|
|
4.3 |
|
|
|
1.7 |
|
|
|
7.2 |
|
|
|
1.3 |
|
|
|
2.9 |
|
|
|
67.5 |
|
Other |
|
|
5.8 |
|
|
|
2.1 |
|
|
|
10.9 |
|
|
|
1.9 |
|
|
|
5.1 |
|
|
|
94.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
42.9 |
|
|
|
16.6 |
% |
|
$ |
95.1 |
|
|
|
17.0 |
% |
|
$ |
52.2 |
|
|
|
122.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate office other operating expenses (dollars in millions) |
|
$ |
3.6 |
|
|
|
1.4 |
% |
|
$ |
6.4 |
|
|
|
1.1 |
% |
|
$ |
2.8 |
|
|
|
78.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-hospital other operating expenses (dollars in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional fees |
|
$ |
3.3 |
|
|
|
1.3 |
% |
|
$ |
4.2 |
|
|
|
1.6 |
% |
|
$ |
0.9 |
|
|
|
26.5 |
|
Utilities |
|
|
4.0 |
|
|
|
1.6 |
|
|
|
4.7 |
|
|
|
1.8 |
|
|
|
0.7 |
|
|
|
17.2 |
|
Repairs and maintenance |
|
|
5.2 |
|
|
|
2.1 |
|
|
|
5.4 |
|
|
|
2.1 |
|
|
|
0.2 |
|
|
|
3.4 |
|
Rents and leases |
|
|
2.0 |
|
|
|
0.8 |
|
|
|
2.2 |
|
|
|
0.8 |
|
|
|
0.2 |
|
|
|
7.5 |
|
Insurance |
|
|
(0.9 |
) |
|
|
(0.4 |
) |
|
|
1.7 |
|
|
|
0.7 |
|
|
|
2.6 |
|
|
|
N/M |
|
HCA-IT expense |
|
|
4.6 |
|
|
|
1.9 |
|
|
|
3.9 |
|
|
|
1.5 |
|
|
|
(0.7 |
) |
|
|
(15.8 |
) |
Physician recruiting |
|
|
4.1 |
|
|
|
1.7 |
|
|
|
4.6 |
|
|
|
1.8 |
|
|
|
0.5 |
|
|
|
10.4 |
|
Contract services |
|
|
6.8 |
|
|
|
2.8 |
|
|
|
8.5 |
|
|
|
3.3 |
|
|
|
1.7 |
|
|
|
25.5 |
|
Non-income taxes |
|
|
4.2 |
|
|
|
1.7 |
|
|
|
4.3 |
|
|
|
1.7 |
|
|
|
0.1 |
|
|
|
3.0 |
|
Other |
|
|
3.5 |
|
|
|
1.5 |
|
|
|
3.5 |
|
|
|
1.4 |
|
|
|
|
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
36.8 |
|
|
|
15.0 |
% |
|
$ |
43.0 |
|
|
|
16.7 |
% |
|
$ |
6.2 |
|
|
|
16.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our other operating expenses are generally not volume driven. The large increase in other
operating expenses was attributable to the Province business combination and the 2005 Acquisitions.
Our HCA-IT expense increased as a result of more hospitals utilizing the HCA-IT systems and
additional information system conversion fees as a result of our recent acquisitions. In addition,
we experienced an increase in our utility expenses as a result of higher natural gas and oil
prices.
79
Provision for Doubtful Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
December 31, |
|
Increase |
|
% Increase |
|
|
2004 |
|
2005 |
|
(Decrease) |
|
(Decrease) |
Continuing operations (dollars in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for doubtful accounts |
|
$ |
22.2 |
|
|
$ |
62.1 |
|
|
$ |
39.9 |
|
|
|
178.9 |
% |
Percentage of revenues |
|
|
8.6 |
% |
|
|
11.1 |
% |
|
|
250 |
bps |
|
|
N/M |
|
Charity care write-offs |
|
$ |
1.8 |
|
|
$ |
9.0 |
|
|
$ |
7.2 |
|
|
|
398.8 |
% |
Same-hospital (dollars in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for doubtful accounts |
|
$ |
20.7 |
|
|
$ |
22.8 |
|
|
$ |
2.1 |
|
|
|
9.4 |
% |
Percentage of revenues |
|
|
8.4 |
% |
|
|
8.8 |
% |
|
|
40 |
bps |
|
|
N/M |
|
Charity care write-offs |
|
$ |
1.8 |
|
|
$ |
2.3 |
|
|
$ |
0.5 |
|
|
|
27.8 |
% |
The provision for doubtful accounts relates primarily to self-pay amounts due from patients.
Our self-pay revenues increased as a result of the changes in the eligibility requirements of the
Tennessee, Texas and the Mississippi Medicaid programs. Other factors influencing this increase are
the increased number of uninsured patients and healthcare plan design changes that resulted in
increased copayments and deductibles. The provision for doubtful accounts as a percentage of
revenues was higher at the former Province hospitals (13.4%), WCCH (12.5%) and DRMC (8.9%) than we
have historically incurred. The provision and allowance for doubtful accounts are critical
accounting estimates and are further discussed in Part II, Item 7. Managements Discussion and
Analysis of Financial Condition and Results of Operations, Critical Accounting Estimates.
Depreciation and Amortization
Depreciation and amortization expense increased primarily as a result of the Province business
combination and the 2005 Acquisitions. Same-hospital depreciation and amortization expense
increased as a result of capital improvements at some of our facilities. The following table sets
forth our depreciation and amortization expense for the periods presented (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
December 31, |
|
|
Increase |
|
|
% Increase |
|
|
|
2004 |
|
|
2005 |
|
|
(Decrease) |
|
|
(Decrease) |
|
Same-hospital |
|
$ |
12.9 |
|
|
$ |
13.9 |
|
|
$ |
1.0 |
|
|
|
7.2 |
% |
Former Province hospitals |
|
|
|
|
|
|
14.6 |
|
|
|
14.6 |
|
|
|
N/M |
|
2005 Acquisitions |
|
|
|
|
|
|
3.5 |
|
|
|
3.5 |
|
|
|
N/M |
|
Other acquisitions/corporate office |
|
|
0.7 |
|
|
|
1.0 |
|
|
|
0.3 |
|
|
|
35.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
13.6 |
|
|
$ |
33.0 |
|
|
$ |
19.4 |
|
|
|
141.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
December 31, |
|
|
Increase |
|
|
|
2004 |
|
|
2005 |
|
|
(Decrease) |
|
Interest expense (dollars in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
Prior bank credit facility, including commitment fees |
|
$ |
0.1 |
|
|
$ |
|
|
|
$ |
(0.1 |
) |
New senior credit facility, including commitment fees |
|
|
|
|
|
|
19.6 |
|
|
|
19.6 |
|
4 1/2% convertible notes |
|
|
2.5 |
|
|
|
|
|
|
|
(2.5 |
) |
7 1/2% senior subordinated notes |
|
|
|
|
|
|
0.1 |
|
|
|
0.1 |
|
3 1/4% convertible notes |
|
|
|
|
|
|
1.8 |
|
|
|
1.8 |
|
Other |
|
|
0.4 |
|
|
|
0.5 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.0 |
|
|
|
22.0 |
|
|
|
19.0 |
|
Amortization of deferred loan costs |
|
|
0.4 |
|
|
|
1.3 |
|
|
|
0.9 |
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations interest expense allocation |
|
|
|
|
|
|
(0.1 |
) |
|
|
(0.1 |
) |
Interest income |
|
|
|
|
|
|
(0.5 |
) |
|
|
(0.5 |
) |
Capitalized interest |
|
|
(0.5 |
) |
|
|
(0.7 |
) |
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2.9 |
|
|
$ |
22.0 |
|
|
$ |
19.1 |
|
|
|
|
|
|
|
|
|
|
|
The increase in
interest expense during the quarter ended December 31, 2005 as compared to the
same period in 2004 was a direct result of the increases in debt associated with the Province
business combination and the DRMC acquisition.
Our weighted-average monthly debt balance increased from $221.0 million during the three months
ended December 31, 2004 to $1,495.5 million during the same period in 2005. For a further
discussion, see Part II, Item 7. Managements Discussion and Analysis of Financial Condition and
Results of Operations, Liquidity and Capital Resources Debt.
80
Provision for Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
December 31, |
|
Increase |
|
|
2004 |
|
2005 |
|
(Decrease) |
Provision for income taxes (in millions) |
|
$ |
13.9 |
|
|
$ |
16.6 |
|
|
$ |
2.7 |
|
Effective income tax rate |
|
|
37.5 |
% |
|
|
38.9 |
% |
|
|
140 bps |
The increase in the effective income tax rate was a result of a higher non-deductible ESOP
expense during the quarter ended December 31, 2005 as compared to the same period in 2004.
For the Years Ended December 31, 2004 and 2005
Revenues
The increase in revenues for 2005 was a result of the Province business combination and the
2005 Acquisitions. The table below shows the sources of our revenues (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
|
|
|
|
|
|
December 31, |
|
|
Increase |
|
|
% Increase |
|
|
|
2004 |
|
|
2005 |
|
|
(Decrease) |
|
|
(Decrease) |
|
Same-hospital |
|
$ |
975.8 |
|
|
$ |
1,034.0 |
|
|
$ |
58.2 |
|
|
|
6.0 |
% |
Former Province hospitals |
|
|
|
|
|
|
663.2 |
|
|
|
663.2 |
|
|
|
N/M |
|
2005 Acquisitions |
|
|
|
|
|
|
113.0 |
|
|
|
113.0 |
|
|
|
N/M |
|
Other acquisitions |
|
|
21.1 |
|
|
|
44.9 |
|
|
|
23.8 |
|
|
|
112.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
996.9 |
|
|
$ |
1,855.1 |
|
|
$ |
858.2 |
|
|
|
86.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inpatient Revenues
Our same-hospital inpatient revenues increased by 10.4% and our same-hospital admissions
increased by 1.1%. These increases were attributed to increases in cardiology cases and a higher
Medicare case-mix. We have attempted to comply with the current phase-in schedule of the revised
inpatient rehabilitation 75% Rule, which negatively impacted our volumes for 2005 by approximately
20% lower inpatient rehabilitation admissions. This negatively impacted our revenues by
approximately $8.0 million for 2005. For a further description of the 75% Rule, see Part I, Item
1. Business, Sources of Revenue.
Outpatient Revenues
Our same-hospital outpatient revenues for 2005 increased by 3.1% compared to 2004. This
outpatient growth was largely driven by an increase in emergency room visits, radiology procedures
such as CT-scans and MRIs, and cardiac catheterization procedures. This increase was partially
offset by a decrease in same-hospital outpatient surgeries.
Other
Adjustments to estimated reimbursement amounts increased our revenues by $9.3 million for 2005
compared to $7.5 million for 2004 as a result of the assumption of the third-party accounts in the
Province business combination.
81
The table below shows the sources of our revenues for the years indicated, expressed as
percentages of total revenues, including adjustments to estimated reimbursement amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations |
|
Same-hospital |
|
|
2004 |
|
2005 |
|
2004 |
|
2005 |
Medicare |
|
|
36.9 |
% |
|
|
36.6 |
% |
|
|
36.9 |
% |
|
|
37.1 |
% |
Medicaid |
|
|
11.2 |
|
|
|
9.4 |
|
|
|
11.3 |
|
|
|
10.7 |
|
HMOs, PPOs and other private insurers |
|
|
38.7 |
|
|
|
40.8 |
|
|
|
38.6 |
|
|
|
38.9 |
|
Self-Pay |
|
|
9.3 |
|
|
|
11.3 |
|
|
|
9.1 |
|
|
|
9.6 |
|
Other |
|
|
3.9 |
|
|
|
1.9 |
|
|
|
4.1 |
|
|
|
3.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
Salaries and Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
Increase |
|
|
% Increase |
|
|
|
2004 |
|
|
Revenues |
|
|
2005 |
|
|
Revenues |
|
|
(Decrease) |
|
|
(Decrease) |
|
Salaries and benefits (dollars in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and wages |
|
$ |
312.0 |
|
|
|
31.3 |
% |
|
$ |
564.1 |
|
|
|
30.4 |
% |
|
$ |
252.1 |
|
|
|
80.8 |
% |
Stock-based compensation |
|
|
1.8 |
|
|
|
0.2 |
|
|
|
6.6 |
|
|
|
0.4 |
|
|
|
4.8 |
|
|
|
278.0 |
|
Employee benefits |
|
|
73.4 |
|
|
|
7.4 |
|
|
|
133.2 |
|
|
|
7.2 |
|
|
|
59.8 |
|
|
|
81.2 |
|
Contract labor |
|
|
12.2 |
|
|
|
1.2 |
|
|
|
26.6 |
|
|
|
1.4 |
|
|
|
14.4 |
|
|
|
118.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
399.4 |
|
|
|
40.1 |
% |
|
$ |
730.5 |
|
|
|
39.4 |
% |
|
$ |
331.1 |
|
|
|
82.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ESOP expense (dollars in millions) |
|
$ |
9.4 |
|
|
|
0.9 |
% |
|
$ |
14.8 |
|
|
|
0.8 |
% |
|
$ |
5.4 |
|
|
|
57.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Man-hours per equivalent admission |
|
|
83.8 |
|
|
|
N/A |
|
|
|
89.3 |
|
|
|
N/A |
|
|
|
5.5 |
|
|
|
6.6 |
|
Salaries and benefits per equivalent admission |
|
$ |
2,059 |
|
|
|
N/A |
|
|
$ |
2,309 |
|
|
|
N/A |
|
|
$ |
250 |
|
|
|
12.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate office salaries and benefits (dollars in millions) |
|
$ |
17.7 |
|
|
|
1.8 |
% |
|
$ |
28.2 |
|
|
|
1.5 |
% |
|
$ |
10.5 |
|
|
|
59.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-hospital (dollars in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and wages |
|
$ |
290.9 |
|
|
|
29.8 |
% |
|
$ |
304.0 |
|
|
|
29.4 |
% |
|
$ |
13.1 |
|
|
|
4.5 |
|
Employee benefits |
|
|
70.0 |
|
|
|
7.2 |
|
|
|
75.0 |
|
|
|
7.2 |
|
|
|
5.0 |
|
|
|
7.2 |
|
Contract labor |
|
|
11.6 |
|
|
|
1.2 |
|
|
|
10.1 |
|
|
|
1.0 |
|
|
|
(1.5 |
) |
|
|
(12.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
372.5 |
|
|
|
38.2 |
% |
|
$ |
389.1 |
|
|
|
37.6 |
% |
|
$ |
16.6 |
|
|
|
4.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-hospital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Man-hours per equivalent admission |
|
|
83.4 |
|
|
|
N/A |
|
|
|
83.3 |
|
|
|
N/A |
|
|
|
(0.1 |
) |
|
|
(0.2 |
) |
Salaries and benefits per equivalent admission |
|
$ |
2,040 |
|
|
|
N/A |
|
|
$ |
2,158 |
|
|
|
N/A |
|
|
$ |
118 |
|
|
|
5.8 |
|
Our salaries and benefits increased primarily as a result of the Province business
combination and the 2005 Acquisitions. Salaries and benefits as a percentage of revenues decreased
as a result of effective management of our salary costs. Contract labor as a percentage of
revenues increased because of a higher utilization of contract labor at the former Province
hospitals and the 2005 Acquisitions. We are implementing strategies to recruit and retain nurses
and other clinical personnel.
Our
ESOP expense increased as a result of a change in the expense
calculation. During 2005, the Company began calculating ESOP expense
at 2.5% of salaries and wages expense. Prior to 2005, ESOP expense
was recognized using the average market price of our common stock released to
participants in the ESOP retirement plan. Subsequent to the Province business
combination and the 2005 Acquisitions, we determined that the fixed number of
shares we historically released to ESOP participants was not adequate
to provide the appropriate employee benefit to our increased number
of employees. Therefore, we increased the
expense and began funding a portion of the expense in cash during
2005. We contributed approximately $3.2 million
to the ESOP retirement plan during 2005.
82
Supplies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
|
|
|
December 31, |
|
Increase |
|
% Increase |
|
|
2004 |
|
2005 |
|
(Decrease) |
|
(Decrease) |
Continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplies (dollars in millions) |
|
$ |
129.1 |
|
|
$ |
251.6 |
|
|
$ |
122.5 |
|
|
|
94.9 |
% |
Supplies as a percentage of revenues |
|
|
12.9 |
% |
|
|
13.6 |
% |
|
70bps |
|
|
N/M |
|
Supplies per equivalent admission |
|
$ |
698 |
|
|
$ |
831 |
|
|
$ |
133 |
|
|
|
19.0 |
% |
Same-hospital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplies (dollars in millions) |
|
$ |
125.9 |
|
|
$ |
135.5 |
|
|
$ |
9.6 |
|
|
|
7.7 |
% |
Supplies as a percentage of revenues |
|
|
12.9 |
% |
|
|
13.1 |
% |
|
20bps |
|
|
N/M |
|
Supplies per equivalent admission |
|
$ |
694 |
|
|
$ |
756 |
|
|
$ |
62 |
|
|
|
9.0 |
% |
Our supplies expense increased as a result of the Province business combination and the 2005
Acquisitions. Supplies as a percentage of revenues and supplies per equivalent admission increased
as a result of rising supply costs, particularly related to cardiology, pharmacy, orthopaedic
implants and laboratory. In addition, we experienced higher supply costs as a percentage of
revenues at our 2005 Acquisitions than at our other hospitals.
Other Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
Increase |
|
|
% Increase |
|
|
|
2004 |
|
|
Revenues |
|
|
2005 |
|
|
Revenues |
|
|
(Decrease) |
|
|
(Decrease) |
|
Other operating expenses (dollars in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional fees |
|
$ |
13.1 |
|
|
|
1.3 |
% |
|
$ |
29.6 |
|
|
|
1.6 |
% |
|
$ |
16.5 |
|
|
|
126.4 |
% |
Utilities |
|
|
16.7 |
|
|
|
1.7 |
|
|
|
35.1 |
|
|
|
1.9 |
|
|
|
18.4 |
|
|
|
110.1 |
|
Repairs and maintenance |
|
|
20.4 |
|
|
|
2.0 |
|
|
|
35.4 |
|
|
|
1.9 |
|
|
|
15.0 |
|
|
|
73.9 |
|
Rents and leases |
|
|
9.5 |
|
|
|
1.0 |
|
|
|
18.1 |
|
|
|
1.0 |
|
|
|
8.6 |
|
|
|
90.3 |
|
Insurance |
|
|
8.3 |
|
|
|
0.8 |
|
|
|
18.3 |
|
|
|
1.0 |
|
|
|
10.0 |
|
|
|
121.3 |
|
HCA-IT expense |
|
|
15.8 |
|
|
|
1.6 |
|
|
|
25.4 |
|
|
|
1.4 |
|
|
|
9.6 |
|
|
|
61.4 |
|
Physician recruiting |
|
|
14.8 |
|
|
|
1.5 |
|
|
|
26.8 |
|
|
|
1.4 |
|
|
|
12.0 |
|
|
|
80.6 |
|
Contract services |
|
|
32.5 |
|
|
|
3.3 |
|
|
|
64.5 |
|
|
|
3.5 |
|
|
|
32.0 |
|
|
|
98.8 |
|
Non-income taxes |
|
|
15.7 |
|
|
|
1.6 |
|
|
|
26.8 |
|
|
|
1.4 |
|
|
|
11.1 |
|
|
|
71.2 |
|
Other |
|
|
20.0 |
|
|
|
1.9 |
|
|
|
31.8 |
|
|
|
1.6 |
|
|
|
11.8 |
|
|
|
58.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
166.8 |
|
|
|
16.7 |
% |
|
$ |
311.8 |
|
|
|
16.7 |
% |
|
$ |
145.0 |
|
|
|
87.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate office other operating expenses (dollars in millions) |
|
$ |
11.4 |
|
|
|
1.1 |
% |
|
$ |
21.1 |
|
|
|
1.1 |
% |
|
$ |
9.7 |
|
|
|
84.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-hospital other operating expenses (dollars in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional fees |
|
$ |
12.5 |
|
|
|
1.3 |
% |
|
$ |
15.2 |
|
|
|
1.5 |
% |
|
$ |
2.7 |
|
|
|
22.3 |
|
Utilities |
|
|
16.1 |
|
|
|
1.7 |
|
|
|
18.1 |
|
|
|
1.8 |
|
|
|
2.0 |
|
|
|
12.6 |
|
Repairs and maintenance |
|
|
19.8 |
|
|
|
2.0 |
|
|
|
21.4 |
|
|
|
2.1 |
|
|
|
1.6 |
|
|
|
7.7 |
|
Rents and leases |
|
|
8.1 |
|
|
|
0.8 |
|
|
|
8.3 |
|
|
|
0.8 |
|
|
|
0.2 |
|
|
|
2.3 |
|
Insurance |
|
|
6.6 |
|
|
|
0.7 |
|
|
|
6.6 |
|
|
|
0.6 |
|
|
|
|
|
|
|
(0.3 |
) |
HCA-IT expense |
|
|
15.5 |
|
|
|
1.6 |
|
|
|
15.7 |
|
|
|
1.5 |
|
|
|
0.2 |
|
|
|
0.9 |
|
Physician recruiting |
|
|
13.8 |
|
|
|
1.4 |
|
|
|
14.7 |
|
|
|
1.4 |
|
|
|
0.9 |
|
|
|
6.6 |
|
Contract services |
|
|
29.6 |
|
|
|
3.0 |
|
|
|
33.5 |
|
|
|
3.2 |
|
|
|
3.9 |
|
|
|
13.2 |
|
Non-income taxes |
|
|
15.2 |
|
|
|
1.6 |
|
|
|
17.6 |
|
|
|
1.7 |
|
|
|
2.4 |
|
|
|
15.5 |
|
Other |
|
|
13.4 |
|
|
|
1.3 |
|
|
|
12.5 |
|
|
|
1.3 |
|
|
|
(0.9 |
) |
|
|
(6.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
150.6 |
|
|
|
15.4 |
% |
|
$ |
163.6 |
|
|
|
15.9 |
% |
|
$ |
13.0 |
|
|
|
8.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our other operating expenses are generally not volume driven. The large increase in other
operating expenses was attributed to the Province business combination and the 2005 Acquisitions.
Our same-hospital professional and general liability insurance expense was $5.1 million for 2005
compared to $5.2 million for 2004. This decrease relates to favorable loss experience as reflected
in our quarterly actuarial reports. We believe this favorable loss experience was a direct result
of our implementation of risk management programs, risk assessment surveys and follow-up, and
quality care programs. Our HCA-IT expense increased because of more hospitals utilizing the HCA-IT
systems and additional information system conversion fees as a result of our recent acquisitions.
83
Provision for Doubtful Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
|
|
|
December 31, |
|
Increase |
|
% Increase |
|
|
2004 |
|
2005 |
|
(Decrease) |
|
(Decrease) |
Continuing operations (dollars in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for doubtful accounts |
|
$ |
86.2 |
|
|
$ |
190.3 |
|
|
$ |
104.1 |
|
|
|
120.6 |
% |
Percentage of revenues |
|
|
8.7 |
% |
|
|
10.3 |
% |
|
160 |
bps |
|
|
N/M |
|
Charity care write-offs |
|
$ |
7.8 |
|
|
$ |
24.0 |
|
|
$ |
16.2 |
|
|
|
209.0 |
% |
Same-hospital (dollars in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for doubtful accounts |
|
$ |
83.3 |
|
|
$ |
87.4 |
|
|
$ |
4.1 |
|
|
|
4.9 |
% |
Percentage of revenues |
|
|
8.5 |
% |
|
|
8.4 |
% |
|
(10) |
bps |
|
|
N/M |
|
Charity care write-offs |
|
$ |
7.8 |
|
|
$ |
8.5 |
|
|
$ |
0.7 |
|
|
|
10.0 |
% |
The provision for doubtful accounts relates primarily to self-pay amounts due from patients.
Our provision for doubtful accounts increased because of a combination of broad economic factors,
including the increased number of uninsured patients, healthcare plan design changes that resulted
in increased copayments and deductibles, the effects of hurricanes Katrina and Rita, and changes in
eligibility in the Tennessee, Texas and Mississippi Medicaid programs. The provision for doubtful
accounts as a percentage of revenues was higher at the former Province hospitals (12.6%), WCCH
(12.0%) and DRMC (10.2%) than we have historically incurred. The provision and allowance for
doubtful accounts are critical accounting estimates and are further discussed under Part II, Item
7. Managements Discussion and Analysis of Financial Condition and Results of Operations, Critical
Accounting Estimates.
Depreciation and Amortization
Depreciation and amortization expense increased during 2005 primarily as a result of the
Province business combination and the 2005 Acquisitions. Same-hospital depreciation and
amortization expense increased as a result of capital improvements at some of our facilities. The
following table sets forth our depreciation and amortization expense for the periods presented
(dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
|
|
|
|
|
|
December 31, |
|
|
Increase |
|
|
% Increase |
|
|
|
2004 |
|
|
2005 |
|
|
(Decrease) |
|
|
(Decrease) |
|
Same-hospital |
|
$ |
46.5 |
|
|
$ |
53.0 |
|
|
$ |
6.5 |
|
|
|
14.0 |
% |
Former Province hospitals |
|
|
|
|
|
|
38.1 |
|
|
|
38.1 |
|
|
|
N/M |
|
2005 Acquisitions |
|
|
|
|
|
|
7.0 |
|
|
|
7.0 |
|
|
|
N/M |
|
Other acquisitions/corporate office |
|
|
1.6 |
|
|
|
3.0 |
|
|
|
1.4 |
|
|
|
87.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
48.1 |
|
|
$ |
101.1 |
|
|
$ |
53.0 |
|
|
|
110.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84
Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
|
|
|
December 31, |
|
|
Increase |
|
|
|
2004 |
|
|
2005 |
|
|
(Decrease) |
|
Interest expense (dollars in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
Prior bank credit facility, including commitment fees |
|
$ |
1.2 |
|
|
$ |
|
|
|
$ |
(1.2 |
) |
New senior credit facility, including commitment fees |
|
|
|
|
|
|
50.8 |
|
|
|
50.8 |
|
Senior subordinated credit agreement |
|
|
|
|
|
|
2.1 |
|
|
|
2.1 |
|
4 1/2% convertible notes |
|
|
10.6 |
|
|
|
4.5 |
|
|
|
(6.1 |
) |
4 1/4% convertible notes |
|
|
|
|
|
|
0.3 |
|
|
|
0.3 |
|
7 1/2% senior subordinated notes |
|
|
|
|
|
|
0.3 |
|
|
|
0.3 |
|
3 1/4% convertible notes |
|
|
|
|
|
|
2.8 |
|
|
|
2.8 |
|
Other |
|
|
0.7 |
|
|
|
0.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.5 |
|
|
|
61.5 |
|
|
|
49.0 |
|
Amortization of deferred loan costs |
|
|
1.5 |
|
|
|
4.1 |
|
|
|
2.6 |
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations interest expense allocation |
|
|
|
|
|
|
(0.4 |
) |
|
|
(0.4 |
) |
Interest income |
|
|
(0.3 |
) |
|
|
(1.9 |
) |
|
|
(1.6 |
) |
Capitalized interest |
|
|
(1.1 |
) |
|
|
(3.0 |
) |
|
|
(1.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
12.6 |
|
|
$ |
60.3 |
|
|
$ |
47.7 |
|
|
|
|
|
|
|
|
|
|
|
The increase in interest expense during 2005 is primarily a direct result of the increases in
debt associated with the Province business combination and the DRMC
acquisition. Our weighted-average monthly debt balance increased from $235.5
million during 2004 to $1,138.6 million in 2005. For a further discussion, see Part II, Item 7.
Managements Discussion and Analysis of Financial Condition and Results of Operations, Liquidity
and Capital Resources-Debt.
Debt Retirement Costs
Debt retirement costs for 2005 increased to $12.2 million as compared to $1.5 million in 2004.
Debt retirement costs incurred during 2004 and 2005 are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
December 31, |
|
|
|
2004 |
|
|
2005 |
|
Legal fees paid for retirement of assumed
Province debt, our convertible notes and
previous credit facility |
|
$ |
|
|
|
$ |
1.2 |
|
Tender premiums paid on convertible notes |
|
|
0.9 |
|
|
|
4.8 |
|
Deferred loan costs expensed on tender of our
convertible notes and previous credit facility |
|
|
0.6 |
|
|
|
5.7 |
|
Creditor fees and other expenses |
|
|
|
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
$ |
1.5 |
|
|
$ |
12.2 |
|
|
|
|
|
|
|
|
Transaction Costs
Transaction costs of $43.2 million were incurred during 2005 in connection with the Province
business combination, comprised of the following (in millions):
|
|
|
|
|
Adjustment to Province acquired accounts receivable |
|
$ |
26.4 |
|
Adjustment to Province assumed liabilities, primarily related to professional
and general liability claims |
|
|
7.3 |
|
Retention bonuses paid to former Province employees |
|
|
4.2 |
|
Compensation expense (primarily restricted stock vesting from change in control) |
|
|
5.3 |
|
|
|
|
|
|
|
$ |
43.2 |
|
|
|
|
|
85
Provision for Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
|
December 31, |
|
Increase |
|
|
2004 |
|
2005 |
|
(Decrease) |
Provision for income taxes (in millions): |
|
$ |
56.0 |
|
|
$ |
58.4 |
|
|
$ |
2.4 |
|
Effective income tax rate |
|
|
39.2 |
% |
|
|
42.3 |
% |
|
310 |
bps |
The increase in the effective income tax rate in 2005 as compared to 2004 relates primarily to
the non-deductibility of certain transaction costs, higher ESOP
expense and
an increase in the valuation allowance against deferred tax assets.
For the Years Ended December 31, 2003 and 2004
Revenues
The table below shows the sources of our revenues (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
|
|
|
|
|
|
December 31, |
|
|
Increase |
|
|
% Increase |
|
|
|
2003 |
|
|
2004 |
|
|
(Decrease) |
|
|
(Decrease) |
|
Same-hospital |
|
$ |
869.1 |
|
|
$ |
951.7 |
|
|
$ |
82.6 |
|
|
|
9.5 |
% |
Acquisitions |
|
|
6.5 |
|
|
|
45.2 |
|
|
|
38.7 |
|
|
|
N/M |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
875.6 |
|
|
$ |
996.9 |
|
|
$ |
121.3 |
|
|
|
13.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inpatient Revenues
Inpatient revenues increased on a same-hospital basis by 10.0% from $421.1 million in 2003 to
$463.4 million in 2004, primarily as a result of increases in admissions and inpatient surgeries,
which involve higher intensity procedures. The increase in higher intensity procedures was the
result of capital spending at our facilities and strong physician recruitment during 2004.
Outpatient Revenues
Our same-hospital outpatient revenues for 2004 increased by $40.2 million, or 9.2%, to $477.7
million compared to 2003. This outpatient growth was largely driven by an increase in same-hospital
outpatient surgeries, an increase in radiology procedures such as CT-scans and MRIs, as well as
cardiac catheterization procedures. The decline in emergency room visits was the result of a weaker
flu season in 2004 compared to 2003.
Other
Adjustments to estimated reimbursement amounts increased our revenues by $7.5 million for 2004
compared to $6.0 million for 2003. In addition, as discussed in Note 1 to our consolidated
financial statements included elsewhere in this report, we recognized $3.2 million in additional
revenues during 2004 following the confirmation by CMS of a Medicare DSH designation at one of our
hospitals. Our DSH payments from Medicare for 2004 were $21.2 million, an increase of $11.2 million
over 2003. This increase was primarily the result of the DSH payment increases under MMA.
86
The table below shows the sources of our revenues for the years indicated, expressed as
percentages of total revenues including adjustments to estimated reimbursement amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations |
|
Same-hospital |
|
|
2003 |
|
2004 |
|
2003 |
|
2004 |
Medicare |
|
|
35.9 |
% |
|
|
36.9 |
% |
|
|
36.6 |
% |
|
|
37.3 |
% |
Medicaid |
|
|
10.9 |
|
|
|
11.2 |
|
|
|
10.9 |
|
|
|
11.3 |
|
HMOs, PPOs and other private insurers |
|
|
40.5 |
|
|
|
38.7 |
|
|
|
39.8 |
|
|
|
38.7 |
|
Self-Pay |
|
|
8.6 |
|
|
|
9.3 |
|
|
|
8.6 |
|
|
|
9.0 |
|
Other |
|
|
4.1 |
|
|
|
3.9 |
|
|
|
4.1 |
|
|
|
3.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
Salaries and Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
Increase |
|
|
% Increase |
|
|
|
2003 |
|
|
Revenues |
|
|
2004 |
|
|
Revenues |
|
|
(Decrease) |
|
|
(Decrease) |
|
Salaries and benefits (dollars in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and wages |
|
$ |
276.3 |
|
|
|
31.6 |
% |
|
$ |
312.0 |
|
|
|
31.3 |
% |
|
$ |
35.7 |
|
|
|
12.9 |
% |
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
1.8 |
|
|
|
0.2 |
|
|
|
1.8 |
|
|
|
N/M |
|
Employee benefits |
|
|
62.6 |
|
|
|
7.1 |
|
|
|
73.4 |
|
|
|
7.4 |
|
|
|
10.8 |
|
|
|
17.5 |
|
Contract labor |
|
|
13.4 |
|
|
|
1.5 |
|
|
|
12.2 |
|
|
|
1.2 |
|
|
|
(1.2 |
) |
|
|
(8.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
352.3 |
|
|
|
40.2 |
% |
|
$ |
399.4 |
|
|
|
40.1 |
% |
|
$ |
47.1 |
|
|
|
13.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ESOP expense (dollars in millions) |
|
$ |
6.9 |
|
|
|
0.8 |
% |
|
$ |
9.4 |
|
|
|
0.9 |
% |
|
$ |
2.5 |
|
|
|
37.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Man-hours per equivalent admission |
|
|
83.3 |
|
|
|
N/A |
|
|
|
83.8 |
|
|
|
N/A |
|
|
|
0.5 |
|
|
|
0.6 |
|
Salaries and benefits per equivalent admission |
|
$ |
1,925 |
|
|
|
N/A |
|
|
$ |
2,059 |
|
|
|
N/A |
|
|
$ |
134 |
|
|
|
7.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate office salaries and benefits (dollars in millions) |
|
$ |
14.3 |
|
|
|
1.6 |
% |
|
$ |
17.7 |
|
|
|
1.8 |
% |
|
$ |
3.4 |
|
|
|
24.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-hospital (dollars in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and wages |
|
$ |
273.9 |
|
|
|
31.5 |
% |
|
$ |
296.8 |
|
|
|
31.2 |
% |
|
$ |
22.9 |
|
|
|
8.4 |
|
Employee benefits |
|
|
62.0 |
|
|
|
7.2 |
|
|
|
70.2 |
|
|
|
7.4 |
|
|
|
8.2 |
|
|
|
13.2 |
|
Contract labor |
|
|
13.3 |
|
|
|
1.5 |
|
|
|
11.7 |
|
|
|
1.2 |
|
|
|
(1.6 |
) |
|
|
(12.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
349.2 |
|
|
|
40.2 |
% |
|
$ |
378.7 |
|
|
|
39.8 |
% |
|
$ |
29.5 |
|
|
|
8.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-hospital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Man-hours per equivalent admission |
|
|
83.2 |
|
|
|
N/A |
|
|
|
83.4 |
|
|
|
N/A |
|
|
|
0.2 |
|
|
|
0.2 |
|
Salaries and benefits per equivalent admission |
|
$ |
1,923 |
|
|
|
N/A |
|
|
$ |
2,045 |
|
|
|
N/A |
|
|
$ |
122 |
|
|
|
6.3 |
|
Salaries and benefits decreased slightly as a percentage of revenues for 2004 as compared
to 2003, primarily as a result of the 13.9% increase in our revenues. Our contract labor costs
decreased by 8.9% as we have focused on recruiting and retraining nurses and other clinical
personnel.
87
Supplies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
|
|
|
December 31, |
|
Increase |
|
% Increase |
|
|
2003 |
|
2004 |
|
(Decrease) |
|
(Decrease) |
Continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplies (dollars in millions) |
|
$ |
114.2 |
|
|
$ |
129.1 |
|
|
$ |
14.9 |
|
|
|
13.1 |
% |
Supplies as a percentage of revenues |
|
|
13.0 |
% |
|
|
12.9 |
% |
|
(10 |
) bps |
|
|
N/M |
|
Supplies per equivalent admission |
|
$ |
650 |
|
|
$ |
698 |
|
|
$ |
48 |
|
|
|
7.3 |
% |
Same-hospital: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplies (dollars in millions) |
|
$ |
113.2 |
|
|
$ |
122.9 |
|
|
$ |
9.7 |
|
|
|
8.5 |
% |
Supplies as a percentage of revenues |
|
|
13.0 |
% |
|
|
12.9 |
% |
|
(10 |
) bps |
|
|
N/M |
|
Supplies per equivalent admission |
|
$ |
650 |
|
|
$ |
697 |
|
|
$ |
47 |
|
|
|
7.3 |
% |
On both a continuing operations and same-hospital basis, our cost of supplies per equivalent
admission increased as a result of rising supply costs, particularly in the pharmaceutical, cardiac
and spine and joint implant areas. In addition, our same-hospital inpatient surgeries, which
generally incur higher supply costs per equivalent admission, increased by 2.7% for 2004 over 2003.
Other Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
Increase |
|
|
% Increase |
|
|
|
2003 |
|
|
Revenues |
|
|
2004 |
|
|
Revenues |
|
|
(Decrease) |
|
|
(Decrease) |
|
Other operating expenses (dollars in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional fees |
|
$ |
14.7 |
|
|
|
1.7 |
% |
|
$ |
13.1 |
|
|
|
1.3 |
% |
|
$ |
(1.6 |
) |
|
|
(11.2 |
)% |
Utilities |
|
|
14.6 |
|
|
|
1.7 |
|
|
|
16.7 |
|
|
|
1.7 |
|
|
|
2.1 |
|
|
|
14.4 |
|
Repairs and maintenance |
|
|
17.2 |
|
|
|
2.0 |
|
|
|
20.4 |
|
|
|
2.0 |
|
|
|
3.2 |
|
|
|
18.6 |
|
Rents and leases |
|
|
8.4 |
|
|
|
1.0 |
|
|
|
9.5 |
|
|
|
1.0 |
|
|
|
1.1 |
|
|
|
13.6 |
|
Insurance |
|
|
11.2 |
|
|
|
1.3 |
|
|
|
8.3 |
|
|
|
0.8 |
|
|
|
(2.9 |
) |
|
|
(26.3 |
) |
HCA-IT expense |
|
|
14.2 |
|
|
|
1.6 |
|
|
|
15.8 |
|
|
|
1.6 |
|
|
|
1.6 |
|
|
|
11.1 |
|
Physician recruiting |
|
|
13.0 |
|
|
|
1.5 |
|
|
|
14.8 |
|
|
|
1.5 |
|
|
|
1.8 |
|
|
|
14.4 |
|
Contract services |
|
|
30.8 |
|
|
|
3.5 |
|
|
|
32.5 |
|
|
|
3.3 |
|
|
|
1.7 |
|
|
|
5.5 |
|
Non-income taxes |
|
|
14.2 |
|
|
|
1.6 |
|
|
|
15.7 |
|
|
|
1.6 |
|
|
|
1.5 |
|
|
|
10.3 |
|
Other |
|
|
17.1 |
|
|
|
1.9 |
|
|
|
20.0 |
|
|
|
1.9 |
|
|
|
2.9 |
|
|
|
17.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
155.4 |
|
|
|
17.8 |
% |
|
$ |
166.8 |
|
|
|
16.7 |
% |
|
$ |
11.4 |
|
|
|
7.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate office other operating expenses (dollars in millions) |
|
$ |
9.9 |
|
|
|
1.1 |
% |
|
$ |
11.4 |
|
|
|
1.1 |
% |
|
$ |
1.5 |
|
|
|
15.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-hospital other operating expenses (dollars in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional fees |
|
$ |
14.7 |
|
|
|
1.7 |
% |
|
$ |
12.9 |
|
|
|
1.4 |
% |
|
$ |
(1.8 |
) |
|
|
(12.3 |
) |
Utilities |
|
|
14.5 |
|
|
|
1.7 |
|
|
|
15.8 |
|
|
|
1.7 |
|
|
|
1.3 |
|
|
|
8.8 |
|
Repairs and maintenance |
|
|
17.0 |
|
|
|
2.0 |
|
|
|
19.4 |
|
|
|
2.0 |
|
|
|
2.4 |
|
|
|
13.9 |
|
Rents and leases |
|
|
8.3 |
|
|
|
1.0 |
|
|
|
8.8 |
|
|
|
0.9 |
|
|
|
0.5 |
|
|
|
5.6 |
|
Insurance |
|
|
11.1 |
|
|
|
1.3 |
|
|
|
7.6 |
|
|
|
0.8 |
|
|
|
(3.5 |
) |
|
|
(31.2 |
) |
HCA-IT expense |
|
|
13.7 |
|
|
|
1.6 |
|
|
|
15.2 |
|
|
|
1.6 |
|
|
|
1.5 |
|
|
|
11.4 |
|
Physician recruiting |
|
|
12.0 |
|
|
|
1.4 |
|
|
|
13.8 |
|
|
|
1.4 |
|
|
|
1.8 |
|
|
|
14.3 |
|
Contract services |
|
|
30.8 |
|
|
|
3.5 |
|
|
|
30.4 |
|
|
|
3.2 |
|
|
|
(0.4 |
) |
|
|
(1.3 |
) |
Non-income taxes |
|
|
14.1 |
|
|
|
1.6 |
|
|
|
14.7 |
|
|
|
1.5 |
|
|
|
0.6 |
|
|
|
4.3 |
|
Other |
|
|
17.9 |
|
|
|
1.9 |
|
|
|
19.5 |
|
|
|
2.1 |
|
|
|
1.6 |
|
|
|
9.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
154.1 |
|
|
|
17.7 |
% |
|
$ |
158.1 |
|
|
|
16.6 |
% |
|
$ |
4.0 |
|
|
|
2.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our other operating expenses are generally not volume driven. Our professional and
general liability insurance expense was $5.4 million during 2004 compared to $8.3 million in 2003.
This decrease relates to favorable loss experience as reflected in our year-end external actuarial
reports and our estimate changes regarding the use of multiple actuaries to estimate projected
losses under the self-insured portion of our insurance program, as further discussed under Part II,
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations,
Critical Accounting Estimates. However, our physician recruiting costs increased as a result of
our increased number of recruited physicians. Our HCA-IT expense for 2004 increased as a result of
an increased number of hospitals and information system conversion fees.
88
Provision for Doubtful Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
|
|
|
December 31, |
|
Increase |
|
% Increase |
|
|
2003 |
|
2004 |
|
(Decrease) |
|
(Decrease) |
Continuing operations (dollars in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for doubtful accounts |
|
$ |
74.1 |
|
|
$ |
86.2 |
|
|
$ |
12.1 |
|
|
|
16.3 |
% |
Percentage of revenues |
|
|
8.5 |
% |
|
|
8.7 |
% |
|
20 |
bps |
|
|
N/M |
|
Charity care write-offs |
|
$ |
5.2 |
|
|
$ |
7.8 |
|
|
$ |
2.6 |
|
|
|
51.2 |
% |
Same-hospital (dollars in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for doubtful accounts |
|
$ |
73.5 |
|
|
$ |
81.1 |
|
|
$ |
7.6 |
|
|
|
10.2 |
% |
Percentage of revenues |
|
|
8.5 |
% |
|
|
8.5 |
% |
|
|
|
|
|
|
N/M |
|
Charity care write-offs |
|
$ |
5.2 |
|
|
$ |
7.8 |
|
|
$ |
2.6 |
|
|
|
51.2 |
% |
The provision for doubtful accounts related primarily to self-pay amounts due from patients.
Self-pay revenues increased primarily as a result of a combination of broad economic factors,
including the increased number of uninsured patients and healthcare plan design changes that
resulted in increased copayments and deductibles. The provision and allowance for doubtful accounts
are critical accounting estimates and are further discussed under Part II, Item 7. Managements
Discussion and Analysis of Financial Condition and Results of Operations, Critical Accounting
Estimates.
Depreciation and Amortization
Same-hospital depreciation and amortization expense increased as a result of capital
improvements at some of our hospitals. The following table sets forth our depreciation and
amortization expense for the periods presented (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
|
|
|
|
|
|
December 31, |
|
|
Increase |
|
|
% Increase |
|
|
|
2003 |
|
|
2004 |
|
|
(Decrease) |
|
|
(Decrease) |
|
Same-hospital |
|
$ |
43.0 |
|
|
$ |
46.5 |
|
|
$ |
3.5 |
|
|
|
8.3 |
% |
Acquisitions |
|
|
0.1 |
|
|
|
1.6 |
|
|
|
1.5 |
|
|
|
961.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
43.1 |
|
|
$ |
48.1 |
|
|
$ |
5.0 |
|
|
|
11.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
|
|
|
December 31, |
|
|
Increase |
|
|
|
2003 |
|
|
2004 |
|
|
(Decrease) |
|
Interest expense (dollars in millions): |
|
|
|
|
|
|
|
|
|
|
|
|
Prior bank credit facility, including commitment fees |
|
$ |
1.0 |
|
|
$ |
1.2 |
|
|
$ |
0.2 |
|
4 1/2% convertible notes |
|
|
11.3 |
|
|
|
10.6 |
|
|
|
(0.7 |
) |
Other |
|
|
0.5 |
|
|
|
0.7 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.8 |
|
|
|
12.5 |
|
|
|
(0.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred loan costs |
|
|
1.6 |
|
|
|
1.5 |
|
|
|
(0.1 |
) |
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
(0.8 |
) |
|
|
(0.3 |
) |
|
|
0.5 |
|
Capitalized interest |
|
|
(0.8 |
) |
|
|
(1.1 |
) |
|
|
(0.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
12.8 |
|
|
$ |
12.6 |
|
|
$ |
(0.2 |
) |
|
|
|
|
|
|
|
|
|
|
The decrease in interest on the 4 1/2% Convertible Notes was because of the early retirement
of $29.0 million of the notes in June 2004.
Provision for Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
|
|
|
December 31, |
|
|
Increase |
|
|
|
2003 |
|
|
2004 |
|
|
(Decrease) |
|
Provision
for income taxes (dollars in millions): |
|
$ |
45.9 |
|
|
$ |
56.0 |
|
|
$ |
10.1 |
|
Effective income tax rate |
|
|
39.6 |
% |
|
|
39.2 |
% |
|
|
(40 |
) bps |
The decline in the effective income tax rate was a result of larger pretax income in 2004
compared to 2003 and because the non-deductible ESOP expense component was lower as a percentage of
pretax income in 2004.
89
Liquidity and Capital Resources
Liquidity
Our primary sources of liquidity are cash flows provided by our operations and our debt
borrowings. We believe that our internally generated cash flows and amounts available under our
debt agreements will be adequate to service existing debt, finance internal growth, expend funds on
capital expenditures and fund certain small to mid-size acquisitions. The principal uses of our
cash flows from operations are to fund our capital
expenditures and small to mid-size hospital
acquisitions and repayments on our debt borrowings. It is not our intent to maintain large cash
balances.
The following table presents summarized cash flow information for the years ended December 31
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
Net cash flows provided by continuing
operating activities |
|
$ |
105.0 |
|
|
$ |
148.6 |
|
|
$ |
296.4 |
|
Less: Purchase of property and equipment |
|
|
68.3 |
|
|
|
82.0 |
|
|
|
170.1 |
|
|
|
|
|
|
|
|
|
|
|
Free operating cash flow |
|
|
36.7 |
|
|
|
66.6 |
|
|
|
126.3 |
|
Acquisitions |
|
|
(16.5 |
) |
|
|
(30.5 |
) |
|
|
(963.6 |
) |
Proceeds from sale of hospital |
|
|
|
|
|
|
|
|
|
|
32.5 |
|
Proceeds from borrowings |
|
|
20.0 |
|
|
|
30.0 |
|
|
|
1,967.0 |
|
Payments on borrowings |
|
|
|
|
|
|
(79.9 |
) |
|
|
(1,156.9 |
) |
Payment of debt issue costs |
|
|
|
|
|
|
|
|
|
|
(40.7 |
) |
Repurchase of common stock |
|
|
(45.7 |
) |
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options |
|
|
3.7 |
|
|
|
10.2 |
|
|
|
43.6 |
|
Other |
|
|
1.6 |
|
|
|
0.8 |
|
|
|
(1.4 |
) |
Cash (used in) provided by discontinued operations |
|
|
(2.2 |
) |
|
|
0.8 |
|
|
|
5.0 |
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash
and cash equivalents |
|
$ |
(2.4 |
) |
|
$ |
(2.0 |
) |
|
$ |
11.8 |
|
|
|
|
|
|
|
|
|
|
|
The non-GAAP metric of free operating cash flow is an important liquidity measure for us. Our
computation of free operating cash flow consists of net cash flow provided by continuing operations
less cash flows used for purchases of property and equipment. We believe that free operating cash
flow is useful to investors and management as a measure of the ability of our business to generate
cash. Computations of free operating cash flow may differ from company to company. Therefore,
free operating cash flow should be used as a complement to, and in conjunction with, our
consolidated statements of cash flows presented in our consolidated financial statements included
elsewhere in the report.
Working Capital
Net working capital at December 31, 2003, 2004 and 2005 is summarized as follows (dollars in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
Total current assets |
|
$ |
205.3 |
|
|
$ |
230.9 |
|
|
$ |
421.6 |
|
Total current liabilities |
|
|
68.8 |
|
|
|
82.3 |
|
|
|
230.1 |
|
|
|
|
|
|
|
|
|
|
|
Net working capital |
|
$ |
136.5 |
|
|
$ |
148.6 |
|
|
$ |
191.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current ratio |
|
|
2.98 |
|
|
|
2.81 |
|
|
|
1.83 |
|
|
|
|
|
|
|
|
|
|
|
90
Capital Expenditures
Our management believes that capital expenditures in key areas at our hospitals should
increase our local market share and help persuade patients to obtain healthcare services within
their communities. The following table reflects our capital expenditures for the years presented
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
Capital projects |
|
$ |
42.1 |
|
|
$ |
52.5 |
|
|
$ |
101.7 |
|
Routine |
|
|
22.7 |
|
|
|
21.6 |
|
|
|
43.2 |
|
Purchase of buildings |
|
|
|
|
|
|
|
|
|
|
3.2 |
|
Information systems |
|
|
3.5 |
|
|
|
7.9 |
|
|
|
22.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
68.3 |
|
|
$ |
82.0 |
|
|
$ |
170.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense |
|
$ |
42.4 |
|
|
$ |
47.3 |
|
|
$ |
99.8 |
|
|
|
|
|
|
|
|
|
|
|
Ratio of capital expenditures
to depreciation expense |
|
|
161.5 |
% |
|
|
173.4 |
% |
|
|
170.4 |
% |
|
|
|
|
|
|
|
|
|
|
We have a formal and intensive review procedure for the authorization of capital expenditures.
The most important financial measure of acceptability for a discretionary capital project is
whether its projected discounted cash flow return on investment exceeds our cost of capital. We
will continue to invest in modern technologies, emergency rooms and operating rooms expansions, the
construction of medical office buildings for physician expansion and reconfiguring the flow of
patient care.
Debt
An analysis and roll-forward of our long-term debt is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of |
|
|
Proceeds from |
|
|
Payments of |
|
|
|
|
|
|
Balance as of |
|
|
|
December 31, 2004 |
|
|
Debt Borrowings |
|
|
Borrowings (g) |
|
|
Other |
|
|
December 31, 2005 |
|
Senior Credit Facility: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term B Loans (a) (e) |
|
$ |
|
|
|
$ |
1,400.0 |
|
|
$ |
(118.1 |
) |
|
$ |
|
|
|
$ |
1,281.9 |
|
Revolving Credit Loans (b) (e) |
|
|
|
|
|
|
150.0 |
|
|
|
(150.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Subordinated Credit Agreement (c) (d) |
|
|
|
|
|
|
192.0 |
|
|
|
(192.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Previous Province Credit Facility (a) (f) |
|
|
|
|
|
|
|
|
|
|
(27.0 |
) |
|
|
27.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provinces 7 1/2% Senior Subordinated Notes (a) (f) |
|
|
|
|
|
|
|
|
|
|
(193.9 |
) |
|
|
200.0 |
|
|
|
6.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provinces 4 1/4% Convertible Subordinated Notes (a)
(f) |
|
|
|
|
|
|
|
|
|
|
(172.4 |
) |
|
|
172.5 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provinces 4 1/2% Convertible Subordinated Notes (a)
(f) |
|
|
|
|
|
|
|
|
|
|
(76.0 |
) |
|
|
76.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LifePoints 4 1/2% Convertible Subordinated Notes (c) |
|
|
221.0 |
|
|
|
|
|
|
|
(185.1 |
) |
|
|
(35.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 1/4% Convertible Senior Subordinated Debentures (d) |
|
|
|
|
|
|
225.0 |
|
|
|
|
|
|
|
|
|
|
|
225.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other, including capital leases (f) |
|
|
|
|
|
|
|
|
|
|
(0.2 |
) |
|
|
3.4 |
|
|
|
3.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
221.0 |
|
|
$ |
1,967.0 |
|
|
$ |
(1,114.7 |
) |
|
$ |
443.0 |
|
|
$ |
1,516.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Represents the borrowings of $1,250.0 million of Term B loans under our senior credit
facility to finance the Province business combination and repay the Province assumed debt. |
|
(b) |
|
Represents the borrowings of $150.0 million in the form of revolving loans under our senior
credit facility, the proceeds of which were used in connection with the DRMC acquisition. The
revolving loans were borrowed as a temporary financing until additional Term B loans could be
borrowed. |
|
(c) |
|
Represents the borrowings under the Senior Subordinated Credit Agreement to purchase and
retire $185.1 million of the 4 1/2% Convertible Subordinated Notes, another $35.9 million of
the 4 1/2% Convertible Subordinated Notes were converted to 757,482 shares of common stock. |
|
(d) |
|
Represents the issuance of the 3 1/4% Convertible Senior Subordinated Debentures, the
proceeds of which were used to retire the Senior Subordinated Credit Agreement. The Senior
Subordinated Credit Agreement was entered into as a temporary financing until we could issue
the 3 1/4% Convertible Senior Subordinated Debentures. |
91
|
|
|
(e) |
|
Represents the borrowings of $150.0 million in the form of additional Term B loans, the
proceeds of which were used to repay the $150.0 million of the revolving loans. |
|
(f) |
|
Represents the assumption of debt in connection with the Province business combination. |
|
(g) |
|
Payments on borrowings do not include $42.3 million of premiums paid to retire such debt. |
We use leverage, or our debt to total capitalization ratio, to make financing decisions. The
following table illustrates our financial statement leverage and the classification of our debt
(dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
Increase |
|
|
|
2004 |
|
|
2005 |
|
|
(Decrease) |
|
Current portion of long-term debt |
|
$ |
|
|
|
$ |
0.5 |
|
|
$ |
0.5 |
|
Long-term debt |
|
|
221.0 |
|
|
|
1,515.8 |
|
|
|
1,294.8 |
|
|
|
|
|
|
|
|
|
|
|
Total debt |
|
|
221.0 |
|
|
|
1,516.3 |
|
|
|
1,295.3 |
|
Total stockholders equity |
|
|
509.5 |
|
|
|
1,287.8 |
|
|
|
778.3 |
|
|
|
|
|
|
|
|
|
|
|
Total capitalization |
|
$ |
730.5 |
|
|
$ |
2,804.1 |
|
|
|
2,073.6 |
|
|
|
|
|
|
|
|
|
|
|
Total debt to total capitalization |
|
|
30.3 |
% |
|
|
54.1 |
% |
|
|
2,380 |
bps |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of: |
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate debt |
|
|
100.0 |
% |
|
|
15.5 |
% |
|
|
|
|
Variable rate debt |
|
|
|
|
|
|
84.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of: |
|
|
|
|
|
|
|
|
|
|
|
|
Senior debt |
|
|
|
% |
|
|
84.8 |
% |
|
|
|
|
Subordinated debt |
|
|
100.0 |
|
|
|
15.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The incurrence of additional debt was related primarily to the Province business combination
and the DRMC acquisition. We financed the Province business combination and the DRMC
acquisition with senior variable rate debt due to the favorable market conditions and the ability
to pre-pay such debt without penalties.
Capital Resources
New Senior Secured Credit Facilities
On April 15, 2005, in connection with the Province business combination, we entered into a
Credit Agreement with Citicorp North America, Inc. (CITI), as administrative agent and the
lenders party thereto, Bank of America, N.A., CIBC World Markets Corp., SunTrust Bank and UBS
Securities LLC, as co-syndication agents and Citigroup Global Markets Inc., as sole lead arranger
and sole book runner (the Credit Agreement). The Credit Agreement provides for secured term B
loans up to $1,250.0 million maturing on April 15, 2012 (the Term B Loans) and revolving loans of
up to $300.0 million maturing on April 15, 2012 (the Revolving Loans). In addition, the Credit
Agreement provided that we may request additional tranches of Term B Loans up to $400.0 million and
additional tranches of Revolving Loans up to $100.0 million. The Credit Agreement is guaranteed on
a senior secured basis by our subsidiaries with certain limited exceptions. On August 23, 2005, we
exercised our right under the Credit Agreement in connection with additional tranches of Term B
Loans by borrowing $150.0 million in the form of the incremental Term B loans (the Incremental
Term B Loans). Under the terms of the Credit Agreement, Term B Loans available for borrowing were
$250.0 million as of December 31, 2005.
Interest on the outstanding balances of the Term B Loans is payable, at our option, at CITIs
base rate (the alternate base rate or ABR) plus a margin of 0.625% and/or at Adjusted LIBO Rate
plus a margin of 1.625%. Interest on the Revolving Loans is payable at ABR or Adjusted LIBO Rate
plus a margin. The margin on ABR
92
Revolving Loans ranges from 0.25% to 1.25% based on the total
leverage ratio being less than 2.00:1.00 to greater than 4.50:1.00. The margin on the Eurodollar
Revolving Loans ranges from 1.25% to 2.25% based on the total leverage ratio being less then
2.00:1.00 to greater than 4.50:1.00.
In connection with the Province business combination, we made two Term B Loan borrowings under
the Credit Agreement that totaled $1,250.0 million. As of December 31, 2005, the applicable annual
interest rate under the Term B Loans was approximately 6.185%. The six month Adjusted LIBO Rate was
4.56% at December 31, 2005. The weighted average applicable annual interest rate since April 15,
2005 under the Term B Loans was 5.291%.
The Term B Loans outstanding principal balances were scheduled to be repaid in consecutive
quarterly installments of approximately $3.1 million each over six years beginning on June 30,
2005. However, we made early installment payments under the Term B Loans totaling $118.1 million
during the year ended December 31, 2005. These installment payments extinguished our required
repayments through March 31, 2011. The remaining balances of the Term B Loans are scheduled to be
repaid in 2011 and 2012 in four installments totaling $1,281.9 million. The Term B Loans are
subject to additional mandatory prepayments with net proceeds from asset sales, equity issuances
other than excluded equity issuances, debt issuances other than excluded debt issuances, and
insurance proceeds. In addition, the Term B Loans are subject to additional mandatory payments with
a certain percentage of excess cash flow as specifically defined in the Credit Agreement.
The Credit Agreement requires us to satisfy certain financial covenants, including a minimum
interest coverage ratio and a maximum total leverage ratio, as defined in the Credit Agreement. The
minimum interest coverage ratio can be no less than 3.25:1.00 for the period ending on December 31,
2005 and 3.50:1.00 for all periods ending after December 31, 2005. These calculations are based on
the trailing four quarters. The maximum total leverage ratios cannot exceed 4.75:1.00 for the
periods ending on September 30, 2005 through December 31, 2006; 4.50:1.00 for the periods ending on
March 31, 2007 through December 31, 2007; 4.25:1.00 for the periods ending on March 31, 2008
through December 31, 2008; 4.00:1.00 for the periods ending on March 31, 2009 through December 31,
2009; and 3.75:1.00 for the periods ending thereafter. In addition, on an annualized basis, we are
also limited with respect to amounts spent on capital expenditures. Such amounts cannot exceed 12%
of revenues for periods ending December 31, 2005 and 2006, and cannot exceed 10% thereafter.
The financial covenant requirements and ratios are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level at |
|
|
|
Requirement |
|
|
December 31, 2005 |
|
Minimum Interest Coverage Ratio |
|
|
³ 3.25:1.00 |
|
|
|
5.61 |
|
Maximum Total Leverage Coverage Ratio |
|
|
£ 4.75:1.00 |
|
|
|
3.43 |
|
In addition, the Credit Agreement contains customary affirmative and negative covenants, which
among other things, limit our ability to incur additional debt, create liens, pay dividends, effect
transactions with our affiliates, sell assets, pay subordinated debt, merge, consolidate, enter
into acquisitions, and effect sale leaseback transactions.
On June 30, 2005, in connection with the DRMC acquisition, we borrowed $150.0 million in the
form of Revolving Loans. On August 23, 2005, we executed an Incremental Facility Amendment
borrowing $150.0 million under the Incremental Term B Loans, the proceeds of which were used to pay
the $150.0 million borrowed under the Revolving Loans.
On October 14, 2005, we entered into an amendment to the Credit Agreement. The amendment
provides for the increase in the maximum amount of letters of credit from $50.0 million to $75.0
million, the increase in the amount of the general basket for permitted asset sales from $300.0
million to $600.0 million and certain other amendments and clarifications.
As of December 31, 2005, we had $23.6 million in letters of credit outstanding under the
revolving loans. Of the $23.6 million in letters of credit outstanding as of December 31, 2005,
$23.5 million was related to self-insured retention level of our general and professional liability
insurance and workers compensation programs
93
as security for payment of claims and $0.1 million was
related to certain utility companies. Under the terms of the Credit Agreement, Revolving Loans
available for borrowing were $276.4 million as of December 31, 2005.
Our Credit Agreement does not contain provisions that would accelerate the maturity date of
the loans under the Credit Agreement upon a downgrade in our credit rating. However, a downgrade in
our credit rating could adversely affect our ability to obtain other capital sources in the future
and could increase our costs of borrowings.
Debt Ratings
Our debt is rated by two credit rating agencies designated as Nationally Recognized
Statistically Rating Organizations (NRSRO) by the SEC:
|
|
|
Moodys Investors Service, Inc. (Moodys); and |
|
|
|
|
Standard & Poors Rating Services, a division of McGraw-Hill Companies, Inc. (S&P). |
A credit rating reflects an assessment by the rating agency of the credit risk associated with
particular securities we issue, based on information provided by us and other sources. Credit
ratings are not recommendations to buy, sell or hold securities and are subject to revision or
withdrawal at any time by the assigning rating agency. Each rating agency may have different
criteria for evaluating company risk and, therefore, ratings should be evaluated independently for
each rating agency. Lower credit ratings generally result in higher borrowing costs and reduced
access to capital markets. Our recent ratings are primarily a reflection of the rating agencies
concern regarding our higher leverage and increased activity in acquisitions.
The following chart summarizes our credit ratings history and the outlooks assigned since our
inception in 1999:
|
|
|
|
|
|
|
|
|
|
|
|
|
Moodys |
|
S&P |
|
|
Senior |
|
Senior Implied |
|
|
|
|
|
|
|
|
Unsecured |
|
Issuer |
|
|
|
Issuer |
|
|
Date |
|
Issuer Rating |
|
Rating |
|
Outlook |
|
Rating |
|
Outlook |
|
April 1999
|
|
|
|
|
|
|
|
B+
|
|
Stable |
October 1999
|
|
|
|
B1
|
|
Stable
|
|
B+
|
|
Stable |
February 2001
|
|
|
|
B1
|
|
Positive
|
|
B+
|
|
Stable |
May 2001
|
|
|
|
Ba3
|
|
Stable
|
|
B+
|
|
Stable |
June 2001
|
|
B2
|
|
Ba3
|
|
Stable
|
|
BB-
|
|
Stable |
June 2002
|
|
B2
|
|
Ba3
|
|
Stable
|
|
BB-
|
|
Stable |
December 2003
|
|
B2
|
|
Ba3
|
|
Stable
|
|
BB
|
|
Stable |
August 2004
|
|
B2
|
|
Ba3
|
|
Negative
|
|
BB
|
|
Negative |
March 2005
|
|
B2
|
|
Ba3
|
|
Stable
|
|
BB
|
|
Stable |
July 2005
|
|
B2
|
|
Ba3
|
|
Stable
|
|
BB
|
|
Negative |
|
|
|
Note: Dates represent change in rating or outlook. |
Senior Subordinated Credit Agreement
On June 15, 2005, we entered into a $192.0 million senior subordinated credit agreement with
CITI. The net proceeds of the borrowings were used to pay the redemption price, plus accrued and
unpaid interest of $190.2 million for the extinguishment of Historic LifePoints 4 1/2% convertible
subordinated notes due June 1, 2009.
We repaid the Senior Subordinated Credit Agreement on August 4, 2005 with the proceeds from
the issuance of 3 1/4% Convertible Senior Subordinated Debentures due August 10, 2025. We cannot
borrow further amounts under this credit agreement. We incurred a charge to debt retirement costs
of $2.1 million related to the deferred loan costs for the year ended December 31, 2005 in
connection with the repayment of borrowings under the Senior Subordinated Credit Agreement.
94
Previous Credit Facilities
In connection with the Province business combination, we repaid the $27.0 million outstanding
principal balance under the Province senior credit facility. At the time of the Province business
combination, we had no amounts outstanding under our prior senior credit facility.
Province 7 1/2% Senior Subordinated Notes
In connection with the Province business combination, approximately $193.9 million of the
$200.0 million outstanding principal amount of Provinces 7 1/2% Senior Subordinated Notes due 2013
(the 7 1/2% Notes) was purchased and subsequently retired. The fair value assigned to the 7 1/2% Notes in the
Province purchase price allocation included tender premiums of $19.5 million paid in connection
with the debt retirement.
The supplemental indenture incorporating the amendments to the indenture governing the 7 1/2%
Notes in connection with Provinces consent solicitation with respect to such 7 1/2% Notes became
operative on April 15, 2005 and is binding upon the holders of any 7 1/2% Notes that were not
tendered pursuant to such tender offer.
The remaining $6.1 million outstanding principal amount of the 7 1/2% Notes bear interest at
the rate of 7 1/2% payable semi-annually on June 1 and December 1. We may redeem all or a portion
of the 7 1/2% Notes on or after June 1, 2008, at the then current redemption prices, plus accrued
and unpaid interest. The 7 1/2% Notes are unsecured and subordinated to our existing and future
senior indebtedness. The supplemental indenture contains no material covenants or restrictions.
Province 4 1/4% Convertible Subordinated Notes
In connection with the Province business combination, approximately $172.4 million of the
$172.5 million outstanding principal amount of Provinces 4 1/4% Convertible Subordinated Notes due
2008 was purchased and subsequently retired. The fair value assigned
to the Province 4 1/4% Convertible
Subordinated Notes in the Province purchase price allocation included tender premiums of $12.1
million paid in connection with the debt retirement.
Province 4 1/2% Convertible Subordinated Notes
In connection with the business combination with Province, Province redeemed all of the $76.0
million outstanding principal amount of its 4 1/2% Convertible Subordinated Notes due 2005, at a
redemption price of 100.9% of its principal amount, plus accrued and unpaid interest to, but
excluding, May 16, 2005, the redemption date.
4 1/2% Convertible Subordinated Notes
We called for redemption all of the $221.0 million outstanding principal amount of our 4 1/2%
Convertible Subordinated Notes due June 1, 2009, at a redemption price of 102.571% of the principal
amount, plus accrued and unpaid interest to, but excluding,
June 15, 2005, the redemption date. The
4 1/2% Convertible Subordinated Notes were convertible at the option of the holder into shares of
our Common Stock at a conversion price of $47.36. The closing market price of our Common Stock on
the date of redemption was $48.74.
Prior to the redemption date, holders of approximately $35.9 million in the aggregate
principal amount of the 4 1/2% Convertible Subordinated Notes due June 1, 2009, elected to convert
their notes into an aggregate of 757,482 shares of our Common Stock. Approximately $185.1 million
in aggregate principal amount of the 4 1/2% Convertible Subordinated Notes due June 1, 2009, was
redeemed at the redemption price of 102.571% of the principal amount or approximately $189.9
million. Deferred finance costs of $3.1 million, bond premium of $4.8 million and legal and other
fees of $0.1 million were expensed and included in debt retirement costs for the year ended
December 31, 2005. Deferred finance costs of $0.6 million were subtracted from the $35.9 million of
principal converted and included in stockholders equity as part of the conversion to equity.
95
3 1/4% Convertible Senior Subordinated Debentures due August 15, 2025
On August 10, 2005, we sold $225.0 million of our Convertible Senior Subordinated Debentures
due 2025 (3 1/4% Debentures). The net proceeds were approximately $218.4 million and were used to
repay the indebtedness under the Senior Subordinated Credit Agreement, described above, and for
working capital and general corporate purposes. The 3 1/4% Debentures bear interest at the rate of
3 1/4% per year, payable semi-annually on February 15 and August 15.
The 3 1/4% Debentures are convertible (subject to certain limitations imposed by our Credit
Agreement) under the following circumstances: (1) if the price of our common stock reaches a
specified threshold during the specified periods, (2) if the trading price of the 3 1/4% Debentures have been called for
redemption, or (3) if specified corporate transactions or other specified events occur. Subject to
certain exceptions, we will deliver cash and shares of our common stock, as follows: (i) an amount
in cash (the principal return) equal to the lesser of (a) the principal amount of the 3 1/4%
Debentures surrendered for conversion and (b) the product of the conversion rate and the average
price of our common stock, as defined in the indenture governing the securities (the conversion
value) and (ii) if the conversion value is greater than the principal return, an amount in shares
of our common stock. Our ability to pay the principal return in cash is subject to important
limitations imposed by the Credit Agreement and other indebtedness we may incur in the future. In
certain circumstances, even if any of the foregoing conditions to conversion have occurred, the 3
1/4% Debentures will not be convertible because of the Credit Agreement and holders of the 3 1/4%
Debentures will not be able to declare an event of default under the 3 1/4%
Debentures.
The conversion rate is initially 16.3345 shares of our common stock per $1,000 principal
amount of 3 1/4% Debentures (subject to adjustment in certain events). This is equivalent to a
conversion price of $61.22 per share of common stock. In addition, if certain corporate
transactions that constitute a change of control occur on or prior to February 20, 2013, we will
increase the conversion rate in certain circumstances, unless such transaction constitutes a public
acquirer change of control and we elect to modify the conversion rate into public acquirer common
stock. Because the principal portion of the 3 1/4% Debentures is payable only in cash and our
common stock price during 2005 was trading below the conversion price of $61.22 per share of our
common stock, there are no potential common shares related to the 3 1/4% Debentures included in our
earnings per share calculations.
On or after February 20, 2013, we may redeem for cash some or all of the 3 1/4% Debentures at
any time at a price equal to 100% of the principal amount of the 3 1/4% Debentures to be purchased,
plus any accrued and unpaid interest. Holders may require us to purchase for cash some or all of
the 3 1/4% Debentures on February 15, 2013, February 15, 2015, and February 15, 2020 or upon the
occurrence of a fundamental change, at 100% of the principal amount of the 3 1/4% Debentures to be
purchased, plus any accrued and unpaid interest.
The indenture for the 3 1/4% Debentures does not contain any financial covenants or any
restrictions on the payment of dividends, the incurrence of senior or secured debt or other
indebtedness, or the issuance or repurchase of securities by us. The indenture contains no
covenants or other provisions to protect holders of the 3 1/4% Debentures in the event of a highly
leveraged transaction or fundamental change.
Liquidity and Capital Resources Outlook
We expect the level of capital expenditures in 2006 to be in a range of $180.0 million to
$210.0 million. We have large projects in process at a number of our facilities. We are
reconfiguring some of our hospitals to more effectively accommodate patient services and
restructuring existing surgical capacity in some of our hospitals to permit additional patient
volume and a greater variety of services. At December 31, 2005, we had projects under construction
with an estimated additional cost to complete and equip of approximately $118.7 million. We
anticipate that these projects will be completed over the next two years. See Note 8 to the
consolidated financial statements included elsewhere in this report for a discussion of required
capital expenditures for certain facilities. We anticipate funding these expenditures through cash
provided by operating activities, available cash and borrowings under our borrowing arrangements.
Our business strategy contemplates the selective acquisition of additional hospitals, and we
regularly review potential acquisitions. These acquisitions may, however, require additional
financing. We regularly evaluate
96
opportunities to sell additional equity or debt securities, obtain credit facilities from
lenders or restructure our long-term debt or equity for strategic reasons or to further strengthen
our financial position. The sale of additional equity or convertible debt securities could result
in additional dilution to our stockholders.
We have never declared or paid cash dividends on our common stock. We intend to retain future
earnings to finance the growth and development of our business and, accordingly, do not currently
intend to declare or pay any cash dividends on our common stock. Our Board of Directors will
evaluate our future earnings, results of operations, financial condition and capital requirements
in determining whether to declare or pay cash dividends. Delaware law prohibits us from paying any
dividends unless we have capital surplus or net profits available for this purpose. In addition,
our credit facilities impose restrictions on our ability to pay dividends.
We believe that cash flows from operations, amounts available under our credit facility and
our anticipated access to capital markets are sufficient to fund the purchase prices for any
potential acquisitions, meet expected liquidity needs, including repayment of our debt obligations,
planned capital expenditures and other expected operating needs over the next three years.
Contractual Obligations, Commitments and Off-Balance Sheet Arrangements
Contractual Obligations
We have various contractual obligations, which are recorded as liabilities in our consolidated
financial statements. Other items, such as certain purchase commitments and other executory
contracts, are not recognized as liabilities in our consolidated financial statements but are
required to be disclosed. For example, we are required to make certain minimum lease payments for
the use of property under certain of our operating lease agreements.
The following table summarizes our significant contractual obligations as of December 31, 2005
and the future periods in which such obligations are expected to be settled in cash (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment Due by Period |
|
Contractual Obligations |
|
Total |
|
|
2006 |
|
|
2007-2008 |
|
|
2009-2010 |
|
|
After 2010 |
|
Long-term debt obligations (a) |
|
$ |
2,127.8 |
|
|
$ |
87.1 |
|
|
$ |
174.2 |
|
|
$ |
174.1 |
|
|
$ |
1,692.4 |
|
Capital lease obligations |
|
|
4.2 |
|
|
|
0.7 |
|
|
|
1.3 |
|
|
|
0.9 |
|
|
|
1.3 |
|
Operating lease obligations (b) |
|
|
66.7 |
|
|
|
13.3 |
|
|
|
18.8 |
|
|
|
11.9 |
|
|
|
22.7 |
|
Other long-term liabilities (c) |
|
|
2.5 |
|
|
|
0.4 |
|
|
|
0.3 |
|
|
|
0.3 |
|
|
|
1.5 |
|
Purchase obligations (d) |
|
|
328.8 |
|
|
|
127.0 |
|
|
|
124.5 |
|
|
|
38.6 |
|
|
|
38.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,530.0 |
|
|
$ |
228.5 |
|
|
$ |
319.1 |
|
|
$ |
225.8 |
|
|
$ |
1,756.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Included in long-term debt obligations are principal and interest owed on our outstanding
debt obligations. These obligations are explained further in Note 6 to our consolidated
financial statements included elsewhere in this report. We used the
6.185% effective interest rate at December 31, 2005 for our
$1,281.9 million outstanding Term B Loans to estimate interest
payments on this variable rate debt. Holders of our $225.0 million
outstanding 3 1/4% Debentures may require us to purchase for cash
some or all of the 3 1/4% Debentures on February 15, 2013, February
15, 2015, and February 15, 2020. For purposes of the above table, we
assumed that our 3 1/4% Debentures would be outstanding during its
entire term, which ends on August 15, 2025. |
|
(b) |
|
This reflects our future minimum operating lease payments. We enter into operating leases in
the normal course of business. Substantially all of our operating lease agreements have fixed payment
terms based on the passage of time. Some lease agreements provide us with the option to renew
the lease. Our future operating lease obligations would change if we exercised these renewal
options and if we entered into additional operating lease agreements. Please refer to Note
8 to our consolidated financial statements included elsewhere in this report for more
information regarding our operating leases. |
|
(c) |
|
We had a $60.3 million other long-term liability balance on our consolidated balance
sheet as of December 31, 2005. This balance reflected a $55.3 million reserve for professional
and general liability claims and $5.0 million related to other liabilities. We excluded the
$55.3 million reserve for professional and general liability claims
and $2.5 million of other
liabilities because of the uncertainty of the dollar amounts to be ultimately paid as well as
the timing of such amounts. Please refer to Part II, Item 7. Managements Discussion and
Analysis of Financial Condition and Results of Operations, Critical Accounting Estimates
Professional and general liability claims in this report for more information. |
97
|
|
|
(d) |
|
The following table summarizes our significant purchase obligations as of December 31, 2005
and the future periods in which such obligations are expected to be settled in cash (in
millions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment Due by Period |
|
Purchase Obligations |
|
Total |
|
|
2006 |
|
|
2007-2008 |
|
|
2009-2010 |
|
|
After 2010 |
|
HCA-IT services (e) |
|
$ |
112.1 |
|
|
$ |
23.7 |
|
|
$ |
58.3 |
|
|
$ |
30.1 |
|
|
$ |
|
|
Capital expenditure obligations (f) |
|
|
66.9 |
|
|
|
36.1 |
|
|
|
26.6 |
|
|
|
|
|
|
|
4.2 |
|
Physician commitments (g) |
|
|
16.0 |
|
|
|
16.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
GEMS obligations (h) |
|
|
22.7 |
|
|
|
10.1 |
|
|
|
12.6 |
|
|
|
|
|
|
|
|
|
Other purchase obligations (i) |
|
|
111.1 |
|
|
|
41.1 |
|
|
|
27.0 |
|
|
|
8.5 |
|
|
|
34.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
328.8 |
|
|
$ |
127.0 |
|
|
$ |
124.5 |
|
|
$ |
38.6 |
|
|
$ |
38.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(e) |
|
HCA-IT provides various information systems services, including, but not limited to,
financial, clinical, patient accounting and network information services to us under a
contract that expires on December 31, 2009. The amounts are based on estimated fees that will
be charged to our hospitals as of December 31, 2005 with an annual fee increase that is capped
by the consumer price index increase. We used a 4.0% annual rate increase as the estimated
consumer price index increase for the contract period. These fees will increase if we acquire
additional hospitals and use HCA-IT for information system conversion services at the acquired
hospitals. |
|
(f) |
|
We had projects under construction with an estimated additional cost to complete and equip of
approximately $118.7 million as of December 31, 2005. Because we can terminate substantially all
of the related construction contracts at any time without paying a termination fee, these
costs are excluded from the above table except for amounts contractually committed by us. In
addition, as discussed in Part I, Item 3. Legal Proceedings of this report, we may be required
to make significant expenditures in order to bring our facilities into compliance with the
ADA. We are currently unable to estimate the costs that could be associated with modifying our
facilities because these costs are negotiated and determined on a facility-by-facility basis
and, therefore, have varied and will continue to vary significantly among facilities. |
|
(g) |
|
In consideration for a physician relocating to one of the communities, in which our hospitals
are located and agreeing to engage in private practice for the benefit of the respective
community, we may loan certain amounts to a physician, normally over a period of one year, to
assist in establishing his or her practice. We have committed to advance a maximum amount of
approximately $40.0 million as of December 31, 2005. The actual amount of such commitments to
be advanced often depends upon the financial results of a physicians private practice during
the loan period. The physician commitment amounts reflected in the above table were estimated
based on our historical amounts actually paid to physicians. |
|
(h) |
|
General Electric Medical Services (GEMS) provides diagnostic imaging equipment maintenance
and bio-medical services to us pursuant to a contract that expires on March 31, 2008. The
amounts in this table reflect our obligation based on the equipment we owned as of December
31, 2005. |
|
(i) |
|
Reflects our minimum commitments to purchase goods or services under non-cancelable contracts
as of December 31, 2005. |
Legal and Tax Matters
As disclosed in Note 5 and Note 8 to our consolidated financial statements included elsewhere
in this report, we have exposure for certain legal and tax matters.
Off-Balance Sheet Arrangements
We had standby letters of credit outstanding of approximately $23.6 million as of December 31,
2005. Of the $23.6 million outstanding, $23.5 million of this amount relates to the self-insured
retention levels of our professional and general liability insurance and workers compensation
programs as security for the payment of claims and $0.1 million was related to obligations to
certain utility companies.
98
Recently Issued Accounting Pronouncements
In
December 2004, the Financial Accounting Standards Board (the
FASB) issued SFAS No. 123R, Share-Based Payments (SFAS No. 123R), a
revision of SFAS No. 123, Accounting for Stock-Based Compensation (SFAS No. 123), which
requires companies to measure all employee stock-based compensation awards using a fair value
method and record such expense in their consolidated financial statements. The provisions of SFAS
No. 123R are effective for the first annual reporting period that begins after June 15, 2005. We
have adopted this standard effective January 1, 2006 and elected the modified-prospective
transition method. Under the modified-prospective transition method, awards that are granted,
modified, repurchased or canceled after the date of adoption should be measured and accounted for
in accordance with SFAS No. 123R. Stock-based awards that are granted prior to the effective date
should continue to be accounted for in accordance with SFAS No. 123, except that stock option
expense for unvested options must be recognized in the statement of operations. The impact of
adoption of SFAS No. 123R is estimated to increase our salaries and benefits expense by
approximately $7.6 million, or $0.08 per diluted share, for 2006. We estimate that our total
stock-based compensation expense, which includes stock options and nonvested stock awards, will be
approximately $20.6 million, or $0.22 per diluted share, for 2006. This estimate may materially
change because it will depend on, among other things, levels of share-based payments granted, the
market value of our common stock as well as assumptions regarding a number of complex variables.
These variables include, but are not limited to, our stock price, volatility and employee stock
option exercise behaviors and the related tax impact. Had we adopted SFAS No. 123R in prior
periods, we believe the impact of that standard would have approximated the impact of SFAS No. 123
as described in the Stock-Based Employee Compensation disclosure of pro forma net income and
earnings per share in Note 1 of our consolidated financial statements included elsewhere in this
report.
In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets an
amendment of APB Opinion No. 29 (SFAS 153). SFAS 153 eliminates the exception to account for
nonmonetary exchanges of similar productive assets at carrying value and replaces it with a general
exception for exchanges of nonmonetary assets that do not have commercial substance; otherwise, the
exchange principal of fair value applies. A nonmonetary exchange has commercial substance if the
future cash flows of the entity are expected to change significantly as a result of the exchange.
SFAS 153 is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after
June 15, 2005. Our adoption of SFAS 153 did not have a material impact on our results of
operations or financial condition.
In June 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections A
Replacement of APB Opinion No. 20 and FASB Statement No. 3 (SFAS 154). This statement requires
that a voluntary change in accounting principle be applied retroactively with all prior period
financial statements presented on the basis of the new accounting principle, unless it is
impracticable to do so. SFAS 154 also requires that a change in method of depreciating or
amortizing a long-lived nonfinancial asset be accounted for prospectively as a change in estimate,
and correction of errors in previously issued financial statements should be termed a
restatement. The new standard is effective for accounting changes and a correction of errors made
in fiscal years beginning after December 15, 2005. Early adoption of this standard is permitted for
accounting changes and correction of errors made in fiscal years beginning after June 1, 2005. We
do not anticipate that the adoption of this statement will have a material impact on our results of
operations or financial condition.
In November 2005, the FASB issued FASB Staff Position No. 45-3, Application of FASB
Interpretation No. 45 to Minimum Revenue Guarantees Granted to a Business or Its Owners (FSP FIN
45-3). It served as an amendment to FASB Interpretation No. 45, Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others
(FIN 45) by adding minimum revenue guarantees to the list of examples of contracts to which FIN
45 applies. Under FSP FIN 45-3, a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee.
One example cited in FSP FIN 45-3 involves a guarantee provided by a healthcare entity to a
non-employed physician in order to recruit such physician to move to the entitys geographical area
and establish a private practice, which is the approach we use in recruiting physicians to our
communities.
FSP FIN 45-3 is effective for new minimum revenue guarantees issued or modified on or after
January 1, 2006. We adopted FSP FIN 45-3 effective January 1, 2006. For periods before January 1,
2006, we expensed
99
the revenue guarantee amounts as incurred to the physicians, which was typically over a period of
one year. However, under FSP FIN 45-3, we will reflect the liability for these physician income
guarantees on our consolidated balance sheet at fair value and amortize the related contract-based
intangible asset over the period of the physicians contractual commitment to practice in the local
community, which is typically five years. Therefore, we estimate that the adoption of FSP FIN 45-3
will lower our physician recruiting expenses that are reported in our statement of operations by
approximately $18.8 million, or $0.20 per diluted share, for the year ended December 31, 2006.
Segment Reporting
We operate in one reportable operating segmenthealthcare services. SFAS No. 131, Disclosures
About Segments of an Enterprise and Related Information (SFAS No. 131), establishes standards
for the way that public business enterprises report information about operating segments in annual
consolidated financial statements. Although we had four operating divisions in 2005 and we will
have five in 2006, under the aggregation criteria set forth in SFAS No. 131, we only operate in one
reportable operating segmenthealthcare services.
Under SFAS No. 131, two or more operating segments may be aggregated into a single operating
segment for financial reporting purposes if aggregation is consistent with the objective and basic
principles of SFAS No. 131, if the segments have similar economic characteristics, and if the
segments are similar in each of the following areas:
|
|
|
the nature of the products and services; |
|
|
|
|
the nature of the production processes; |
|
|
|
|
the type or class of customer for their products and services; |
|
|
|
|
the methods used to distribute their products or provide their services; and |
|
|
|
|
if applicable, the nature of the regulatory environment, for example, banking,
insurance, or public utilities. |
We meet each of the aggregation criteria for the following reasons:
|
|
|
the treatment of patients in a hospital setting is the only material source of revenues
for each of our operating divisions; |
|
|
|
|
the healthcare services provided by each of our operating divisions are generally the
same; |
|
|
|
|
the healthcare services provided by each of our operating divisions are generally
provided to similar types of patients, which are patients in a hospital setting; |
|
|
|
|
the healthcare services are primarily provided by the direction of affiliated or
employed physicians and by the nurses, lab technicians and others employed or contracted at
each of our hospitals; and |
|
|
|
|
the healthcare regulatory environment is generally similar for each of our operating
divisions. |
Because we meet each of the criteria set forth above and each of our operating divisions has
similar economic characteristics, our management aggregates our results of operations in one
reportable operating segment.
Inflation
The healthcare industry is labor-intensive. Wages and other expenses increase during periods
of inflation and when labor shortages in marketplaces occur. In addition, suppliers pass along
rising costs to us in the form of higher prices. Private insurers pass along their rising costs in
the form of lower reimbursement to us. Our ability to pass on these increased costs in increased
rates is limited because of increasing regulatory and competitive pressures and the fact that the
majority of our revenues are fee-based. Accordingly, inflationary pressures could have a material
adverse effect on our results of operations.
100
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Interest Rates
The following discussion relates to our exposure to market risk based on changes in interest
rates:
Outstanding Debt
As of December 31, 2005, we had outstanding debt of $1,516.3 million, 84.5% or $1,281.9
million, of which was subject to variable rates of interest. As of December 31, 2005, the fair
value of our outstanding variable rate debt approximates its carrying value and the fair value of
our $225.0 million 31/4% Debentures was approximately $207.0 million, based on the quoted market
prices at December 30, 2005.
Based on a hypothetical 100 basis point increase in interest rates, the potential annualized
decrease in our future pre-tax earnings would be approximately $12.8 million as of December 31,
2005. The estimated change to our interest expense is determined considering the impact of
hypothetical interest rates on our borrowing cost and debt balances. These analyses do not
consider the effects, if any, of the potential changes in our credit ratings or the overall level
of economic activity. Further, in the event of a change of significant magnitude, our management
would expect to take actions intended to further mitigate our exposure to such change. We do not
currently use derivatives to alter the interest rate characteristics of our debt instruments.
Cash Balances
Certain of our outstanding cash balances are invested overnight with high credit quality
financial institutions. We do not have significant exposure to changing interest rates on invested
cash at December 31, 2005. As a result, the interest rate market risk implicit in these investments
at December 31, 2005, if any, is low.
Item 8. Financial Statements and Supplementary Data.
Information with respect to this Item is contained in our consolidated financial statements
beginning on Page F-1 of this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of management,
including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures as of the end of the period covered
by this report pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures
were effective in ensuring that information required to be disclosed by us (including our
consolidated subsidiaries) in reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported on a timely basis.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we have included a report of
managements assessment of the design and operating effectiveness of our internal controls as part
of this report. Our independent registered public accounting firm also attested to, and reported
on, managements assessment of the effectiveness of internal control over financial reporting.
Managements report and the independent registered public accounting firms attestation report are
included in our consolidated financial statements beginning on page F-1 of this report under the
captions entitled Managements Report on Internal Control Over Financial Reporting and Report of
Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting.
We acquired Danville Regional Medical Center and Wythe County Community Hospital during 2005
and excluded both of these hospitals from our assessment of the effectiveness of our internal
control over financial reporting. During 2005, these hospitals contributed approximately $113.0
million or 6.1% of our total revenues and, as of December 31, 2005, accounted for approximately
$164.9 million or 9.3% of our total assets, excluding goodwill.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting during the fourth
quarter ended December 31, 2005 that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
Item 9B. Other Information.
None.
101
PART III
Item 10. Directors and Executive Officers of the Registrant.
Executive Officers
Information with respect to our executive officers is incorporated by reference to the
information contained under the caption Executive Compensation Executive Officers of the
Company included in our proxy statement relating to our 2006 annual meeting of stockholders.
Code of Ethics
Our Board of Directors expects its members, as well as our officers and employees, to act
ethically at all times and to acknowledge in writing their adherence to the policies comprising our
Code of Conduct, which is known as Common Ground, and, as applicable, our Code of Ethics for
Senior Financial Officers and Chief Executive Officer (Code of Ethics). The Code of Ethics and
Common Ground is posted on our website located at
www.lifepointhospitals.com under the heading
Corporate Governance. We intend to disclose any amendments to our Code of Ethics and any waiver
from a provision of our code, as required by the SEC, on our website within four business days
following such amendment or waiver.
Directors
Information with respect to our directors is incorporated by reference to the information
contained under the caption Election of Directors included in our proxy statement relating to our
2006 annual meeting of stockholders.
Compliance with Section 16(a) of the Exchange Act
Information with respect to compliance with Section 16(a) of the Securities Exchange Act of
1934 is incorporated by reference to the information contained under the caption General
Information Section 16(a) Beneficial Ownership Reporting Compliance included in our proxy
statement relating to our 2006 annual meeting of stockholders.
Item 11. Executive Compensation.
This information is incorporated by reference to the information contained under the captions
Election of Directors Information Regarding the Board of Directors Compensation of Directors,
Executive Compensation, Compensation Committee Report on Executive Compensation and
Comparative Performance included in our proxy statement relating to our 2006 annual meeting of
stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
This information is incorporated by reference to the information contained under the caption
Voting Securities and Principal Holders Thereof and Executive Compensation Equity Compensation
Plan Information included in our proxy statement relating to our 2006 annual meeting of
stockholders.
Item 13. Certain Relationships and Related Transactions.
This information is incorporated by reference to the information contained under the caption
Certain Transactions included in our proxy statement relating to our 2006 annual meeting of
stockholders.
Item 14. Principal Accountant Fees and Services.
This information is incorporated by reference to the information contained under the caption
Ratification of Selection of Independent Registered Public Accounting Firm included in our proxy
statement relating to our 2006 annual meeting of stockholders.
102
PART IV
Item 15. Exhibit and Financial Statement Schedules.
(a) Index to Consolidated Financial Statements, Financial Statement Schedules and Exhibits:
(1) Consolidated Financial Statements:
See Item 8 in this report.
The consolidated financial statements required to be included in Part II, Item 8.,
Financial Statements and Supplementary Data, begin on Page F-1 and are submitted as a separate
section of this report.
(2) Consolidated Financial Statement Schedules:
All schedules are omitted because they are not applicable or not required, or because the
required information is included in the consolidated financial statements or notes in this
report.
(3) Exhibits:
|
|
|
|
|
Exhibit |
|
|
|
|
Number |
|
|
|
Description of Exhibits |
2.1
|
|
|
|
Agreement and Plan of Merger, dated as of August 15, 2004, by and among LifePoint
Hospitals, Inc., Lakers Holding Corp., Lakers Acquisition Corp., Pacers Acquisition
Corp., and Province Healthcare Company (a) |
|
2.2
|
|
|
|
Amendment No. 1 to Agreement and Plan of Merger, dated as of January 25, 2005, by
and among LifePoint Hospitals, Inc., Lakers Holding Corp., Lakers Acquisition Corp.,
Pacers Acquisition Corp. and Province Healthcare Company (b) |
|
2.3
|
|
|
|
Amendment No. 2 to Agreement
and Plan of Merger, dated as of March 15, 2005, by and among
LifePoint Hospitals, Inc., Lakers Holding Corp., Lakers Acquisition Corp., Pacers
Acquisition Corp., and Province Healthcare Company (c) |
|
2.4
|
|
|
|
Distribution Agreement dated May 11, 1999 by and among Columbia/HCA, Triad
Hospitals, Inc. and LifePoint Hospitals, Inc. (c) |
|
3.1
|
|
|
|
Amended and Restated Certificate of Incorporation (d) |
|
3.2
|
|
|
|
Amended and Restated Bylaws of LifePoint Hospitals, Inc. (d) |
|
4.1
|
|
|
|
Form of Specimen Stock Certificate (e) |
|
4.2
|
|
|
|
Rights Agreement, dated as of April 15, 2005, by and between LifePoint Hospitals,
Inc. and National City Bank, as Rights Agent (d) |
|
4.3
|
|
|
|
Subordinated Indenture, dated as of May 27, 2003, between Province Healthcare
Company and U.S. Bank Trust National Association, as Trustee (f) |
|
4.4
|
|
|
|
First Supplemental Indenture to Subordinated Indenture, dated as of May 27, 2003, by
and among Province Healthcare Company and U.S. Bank National Association, as
Trustee, relating to Province Healthcare Companys 7 1/2% Senior Subordinated Notes
due 2013 (f) |
|
4.5
|
|
|
|
Second Supplemental Indenture to Subordinated Indenture, dated as of April 1, 2005,
by and among Province Healthcare Company and U.S. Bank National Association, as
Trustee (g) |
|
4.6
|
|
|
|
Indenture, dated as of October 10, 2001, between Province Healthcare Company and
National City Bank, including the forms of Province Healthcare Companys 4 1/4%
Convertible Subordinated Notes due 2008 (h) |
|
4.7
|
|
|
|
First Supplemental Indenture, dated as of April 15, 2005, by and among Province
Healthcare Company, LifePoint Hospitals, Inc. and U.S. Bank National Association (as
successor in interest to National City Bank), as trustee to the Indenture dated as
of October 10, 2001, relating to Province Healthcare Companys 4 1/4% Convertible
Subordinated Notes due 2008 (i) |
|
4.8
|
|
|
|
Indenture, dated August 10, 2005, between LifePoint Hospitals, Inc. and Citibank,
N.A., as Trustee (j) |
|
4.9
|
|
|
|
Form of 3.25% Convertible Senior Subordinated Debenture due 2025 (included as part
of Exhibit 4.8) (j) |
|
4.10
|
|
|
|
Registration Rights Agreement, dated August 10, 2005, between LifePoint Hospitals,
Inc. and Citigroup Global Markets Inc. as Representatives of the Initial Purchasers
(j) |
|
10.1
|
|
|
|
Tax Sharing and Indemnification Agreement, dated May 11, 1999, by and among
Columbia/HCA, LifePoint Hospitals, Inc. and Triad Hospitals, Inc. (k) |
|
10.2
|
|
|
|
Benefits and Employment Matters Agreement, dated May 11, 1999 by and among
Columbia/HCA, LifePoint Hospitals, Inc. and Triad Hospitals, Inc. (k) |
|
10.3
|
|
|
|
Insurance Allocation and Administration Agreement, dated May 11, 1999, by and among
Columbia/ HCA, LifePoint Hospitals, Inc. and Triad Hospitals, Inc. (k) |
|
10.4
|
|
|
|
Computer and Data Processing Services Agreement dated May 11, 1999 by and between
Columbia Information Systems, Inc. and LifePoint Hospitals, Inc. (k) |
|
10.5
|
|
|
|
Amendment to Computer and Data Processing Services Agreement, dated April 28, 2004,
by and between HCA-Information Technology and Services, Inc. and LifePoint
Hospitals, Inc. (l) |
|
10.6
|
|
|
|
LifePoint Hospitals, Inc. Executive Stock Purchase Plan (k) |
|
10.7
|
|
|
|
LifePoint Hospitals, Inc. Management Stock Purchase Plan, as amended and restated (m) |
|
10.8
|
|
|
|
LifePoint Hospitals, Inc. Outside Directors Stock and Incentive Compensation Plan (k) |
|
10.9
|
|
|
|
Amended and Restated 1998 Long-Term Incentive Plan (n) |
|
10.10
|
|
|
|
Amendment to the LifePoint Hospitals, Inc. Outside Directors Stock and Incentive
Compensation Plan (o) |
|
10.11
|
|
|
|
Credit Agreement, dated as of April 15, 2005, by and among LifePoint Hospitals,
Inc., as borrower, the lenders referred to therein, Citicorp North America, Inc. as
administrative agent, Bank of America, N.A., CIBC World Markets Corp., SunTrust
Bank, UBS Securities LLC, as co-syndication agents and Citigroup Global Markets,
Inc., as sole lead arranger and sole bookrunner (i) |
|
10.12
|
|
|
|
Incremental Facility Amendment dated August 23, 2005, among LifePoint Hospitals,
Inc., as borrower, Citicorp North America, Inc., as administrative agent and the
lenders party thereto (p) |
|
10.13
|
|
|
|
Amendment No. 2 to Credit Agreement, dated October 14, 2005, among LifePoint
Hospitals, Inc. as borrower, Citicorp North America, Inc., as administrative agent
and the lenders party thereto (q) |
|
10.14
|
|
|
|
Corporate Integrity Agreement dated as of December 21, 2000 by and between the
Office of Inspector General of the Department of Health and Human Services and
LifePoint Hospitals, Inc. (r) |
|
10.15
|
|
|
|
Amendment to the Corporate Integrity Agreement, dated April 29, 2002, between the
Office of Inspector General of the Department of Health and Human Services and
LifePoint Hospitals, Inc. (m) |
|
10.16
|
|
|
|
Letter from the Office of Inspector General of the Department of Health and Human
Services, dated October 15, 2002 (m) |
|
10.17
|
|
|
|
Letter from the Office of Inspector of the Department of Health and Human Services,
dated December 18, 2003 (s) |
|
10.18
|
|
|
|
Letter from the Office of Inspector of the Department of Health and Human Services,
dated March 3, 2004 (s) |
|
10.19
|
|
|
|
LifePoint Hospitals, Inc. Employee Stock Purchase Plan (t) |
|
10.20
|
|
|
|
First Amendment to the LifePoint Hospitals, Inc. Employee Stock Purchase Plan (u) |
|
10.21
|
|
|
|
LifePoint Hospitals, Inc. Change in Control Severance Plan (v) |
|
10.22
|
|
|
|
LifePoint Hospitals, Inc. Executive Performance Incentive Plan (w) |
|
10.23
|
|
|
|
Employment Agreement of Kenneth C. Donahey, as amended and restated (s) |
|
10.24
|
|
|
|
Consulting Agreement, dated as of August 15, 2004, by and between LifePoint
Hospitals, Inc. and Martin S. Rash (b) |
|
10.25
|
|
|
|
Comprehensive Service Agreement for Diagnostic Imaging and Biomedical Services,
executed on January 7, 2005, between LifePoint Hospital Holdings, Inc. and GE
Healthcare Technologies (s) |
|
10.26
|
|
|
|
Form of LifePoint Hospitals, Inc. Nonqualified Stock Option Agreement (x) |
|
10.27
|
|
|
|
Form of LifePoint Hospitals, Inc. Restricted Stock Award Agreement (x) |
|
21.1
|
|
|
|
List of Subsidiaries |
|
23.1
|
|
|
|
Consent of Independent Registered Public Accounting Firm |
|
31.1
|
|
|
|
Certification of the Chief
Executive Officer of LifePoint Hospitals, Inc. pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
31.2
|
|
|
|
Certification of the Chief
Financial Officer of LifePoint Hospitals, Inc. pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
32.1
|
|
|
|
Certification of the Chief
Executive Officer of LifePoint Hospitals, Inc. pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
32.2
|
|
|
|
Certification of the Chief
Financial Officer of LifePoint Hospitals, Inc. pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 |
103
|
|
|
(a) |
|
Incorporated by reference from exhibits to LifePoint Hospitals
Current Report on Form 8-K filed on August 16, 2004, File No.
000-29818. |
|
(b) |
|
Incorporated by reference from exhibits to the Registration Statement
on Form S-4 filed by Lakers Holding Corp. on February 18, 2005 under
the Securities Act of 1933, as amended, File No. 333-119929. |
|
(c) |
|
Incorporated by reference from exhibits to the Current Report on Form
8-K filed by LifePoint Hospitals, Inc. on March 16, 2005, File No.
000-29818. |
|
(d) |
|
Incorporated by reference from exhibits to the Registration Statement
on Form S-8 filed by LifePoint Hospitals, Inc. on April 15, 2005, File
No. 333-124093. |
|
(e) |
|
Incorporated by reference from Appendix A to the Registration
Statement on Form S-4, as amended, filed by LifePoint Hospitals, Inc.
on February 18, 2005, File No. 333-119929. |
|
(f) |
|
Incorporated by reference from exhibits to Province Healthcare
Companys Quarterly Report on Form 10-Q for the quarter ended June 30,
2003, File No. 001-31320. |
|
(g) |
|
Incorporated by reference from exhibits to the Current Report on Form
8-K dated April 5, 2005 of Province Healthcare Company File No.
001-31320. |
|
(h) |
|
Incorporated by reference from the exhibits filed with the Province
Healthcare Companys Registration Statement on Form S-3, dated January
24, 2001, registration No. 333-54192. |
|
(i) |
|
Incorporated by reference from exhibits to the Current Report on Form
8-K dated April 15, 2005 of LifePoint Hospitals, Inc., File No.
000-51251. |
|
(j) |
|
Incorporated by reference from exhibits to the Current Report on Form
8-K dated August 10, 2005 of LifePoint Hospitals, Inc., File No.
000-51251. |
|
(k) |
|
Incorporated by reference from exhibits to LifePoint Hospitals
Quarterly Report on Form 10-Q for the quarter ended March 31, 1999,
File No. 000-29818. |
|
(l) |
|
Incorporated by reference from exhibits to LifePoint Hospitals
Quarterly Report on Form 10-Q for the quarter ended June 30, 2004,
File No. 000-29818. |
|
(m) |
|
Incorporated by reference from exhibits to LifePoint Hospitals Annual
Report on Form 10-K for the year ended December 31, 2002, File No.
000-29818. |
|
(n) |
|
Incorporated by reference from exhibits to the Current Report on Form
8-K dated July 7, 2005 of LifePoint Hospitals, Inc., File No.
000-51251. |
|
(o) |
|
Incorporated by reference from Appendix B to LifePoint Hospitals
Proxy Statement dated April 28, 2004, File No. 000-29818. |
|
(p) |
|
Incorporated by reference from exhibits to the Current Report on Form
8-K dated August 23, 2005 of LifePoint Hospitals, Inc., File No.
000-51251. |
|
(q) |
|
Incorporated by reference from exhibits to the Current Report on Form
8-K dated October 18, 2005 of LifePoint Hospitals, Inc., File No.
000-51251. |
|
(r) |
|
Incorporated by reference from exhibits to LifePoint Hospitals Annual
Report on Form 10-K for the year ended December 31, 2000, File No.
000-29818. |
|
(s) |
|
Incorporated by reference from exhibits to the Annual Report on Form
10-K for the year ended December 31, 2004 filed by LifePoint
Hospitals, Inc. on March 1, 2005, File No. 000-29818. |
|
(t) |
|
Incorporated by reference from exhibits to LifePoint Hospitals Annual
Report on Form 10-K for the year ended December 31, 2001, File No.
000-29818. |
|
(u) |
|
Incorporated by reference from exhibits to LifePoint Hospitals
Registration Statement on Form S-8 under the Securities Act of 1933,
File No. 333-105775. |
|
(v) |
|
Incorporated by reference from exhibits to LifePoint Hospitals
Current Report on Form 8-K dated May 16, 2002, File No. 000-29818. |
|
(w) |
|
Incorporated by reference from Appendix C to LifePoint Hospitals
Proxy Statement dated April 28, 2004, File No. 000-29818. |
|
(x) |
|
Incorporated by reference from exhibits to LifePoint Hospitals
Quarterly Report on Form 10-Q for the quarter ended June 30, 2005, File No. 000-51251. |
105
Compensation Plans and Arrangements
The following is a list of all of our compensation plans and arrangements filed as exhibits to
this annual report on Form 10-K:
|
1. |
|
LifePoint Hospitals, Inc. Executive Stock Purchase Plan (filed as Exhibit 10.6) |
|
|
2. |
|
LifePoint Hospitals, Inc. Management Stock Purchase Plan, as amended and restated
(filed as Exhibit 10.7) |
|
|
3. |
|
LifePoint Hospitals, Inc. Amended and Restated 1998 Long-Term Incentive Plan, as
amended (filed as Exhibit 10.9) |
|
|
4. |
|
LifePoint Hospitals, Inc. Outside Directors Stock and Incentive Compensation Plan
(filed as Exhibits 10.8 and 10.10) |
|
|
5. |
|
LifePoint Hospitals, Inc. Employee Stock Purchase Plan, as amended (filed as Exhibits 10.19
and 10.20) |
|
|
6. |
|
LifePoint Hospitals, Inc. Change in Control Severance Plan (filed as Exhibit 10.21)
|
|
|
7. |
|
LifePoint Hospitals, Inc. Executive Performance Incentive Plan (filed as Exhibit 10.22) |
|
|
8. |
|
Employment Agreement of Kenneth C. Donahey, as amended and restated (filed as Exhibit
10.23) |
|
|
9. |
|
Form of LifePoint Hospitals, Inc. Nonqualified Stock Option Agreement (filed as Exhibit
10.26) |
|
|
10. |
|
Form of LifePoint Hospitals, Inc. Restricted Stock Award Agreement (filed as Exhibit
10.27) |
106
INDEX TO FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page |
|
|
|
|
F-2 |
|
|
|
|
F-3 |
|
|
|
|
F-4 |
|
|
|
|
F-5 |
|
|
|
|
F-6 |
|
|
|
|
F-7 |
|
|
|
|
F-8 |
|
|
|
|
F-9 |
|
F-1
Managements Report on Internal Control Over Financial Reporting
Management of LifePoint Hospitals, Inc. is responsible for the preparation, integrity and fair
presentation of its published consolidated financial statements. The financial statements have been
prepared in accordance with U.S. generally accepted accounting principles and, as such, include
amounts based on judgments and estimates made by management. The Company also prepared the other
information included in the annual report and is responsible for its accuracy and consistency with
the consolidated financial statements.
Management is also responsible for establishing and maintaining effective internal control
over financial reporting. The Companys internal control over financial reporting includes those
policies and procedures that pertain to the Companys ability to record, process, summarize and
report reliable financial data. The Company maintains a system of internal control over financial
reporting, which is designed to provide reasonable assurance to the Companys management and board
of directors regarding the preparation of reliable published financial statements and safeguarding
of the Companys assets. The system includes a documented organizational structure and division of
responsibility, established policies and procedures, including a code of conduct to foster a strong
ethical climate, which are communicated throughout the Company, and the careful selection, training
and development of our people.
The Board of Directors, acting through its Audit and Compliance Committee, is responsible for
the oversight of the Companys accounting policies, financial reporting and internal control. The
Audit and Compliance Committee of the Board of Directors is comprised entirely of outside directors
who are independent of management. The Audit and Compliance Committee is responsible for the
appointment and compensation of the independent registered public accounting firm. It meets
periodically with management, the independent registered public accounting firm and the internal
auditors to ensure that they are carrying out their responsibilities. The Audit and Compliance
Committee is also responsible for performing an oversight role by reviewing and monitoring the
financial, accounting and auditing procedures of the Company in addition to reviewing the Companys
financial reports. Internal auditors monitor the operation of the internal control system and
report findings and recommendations to management and the Audit and Compliance Committee.
Corrective actions are taken to address control deficiencies and other opportunities for improving
the system as they are identified. The independent registered public accounting firm and the
internal auditors have full and unlimited access to the Audit and Compliance Committee, with or
without management, to discuss the adequacy of internal control over financial reporting, and any
other matters which they believe should be brought to the attention of the Audit and Compliance
Committee.
Management recognizes that there are inherent limitations in the effectiveness of any system
of internal control over financial reporting, including the possibility of human error and the
circumvention or overriding of internal control. Accordingly, even effective internal control over
financial reporting can provide only reasonable assurance with respect to financial statement
preparation and may not prevent or detect misstatements. Further, because of changes in conditions,
the effectiveness of internal control over financial reporting may vary over time.
The Company assessed its internal control system as of December 31, 2005 in relation to
criteria for effective internal control over financial reporting described in Internal Control
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on its assessment, the Company has determined that, as of December 31, 2005, its
system of internal control over financial reporting was effective.
The Company acquired Wythe County Community Hospital (Wythe County) and Danville Regional
Medical Center (Danville) on June 1, 2005 and July 1, 2005, respectively. The Company has
excluded Wythe County and Danville from its assessment of and conclusion on the effectiveness of
internal control over financial reporting. For the year ended December 31, 2005, Wythe County and
Danville constituted 9.3% of the Companys total assets, excluding goodwill, as of December 31,
2005, and 6.1% of the Companys revenues for the year then ended.
The consolidated financial statements have been audited by the independent registered public
accounting firm, Ernst & Young LLP, which was given unrestricted access to all financial records
and related data, including minutes of all meetings of stockholders, the Board of Directors and committees of
the Board. Reports of the independent registered public accounting firm, which includes the
independent registered public accounting firms attestation of managements assessment of internal
controls, are also presented within this document.
|
|
|
|
|
/s/ Kenneth C. Donahey
|
|
|
|
/s/ Michael J. Culotta |
Chairman, Chief Executive Officer and President
|
|
|
|
Chief Financial Officer |
|
|
|
|
|
Brentwood, Tennessee
|
|
|
|
|
February 6, 2006
|
|
|
|
|
F-2
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
The Board of Directors and Stockholders of LifePoint Hospitals, Inc.
We have audited managements assessment, included in the accompanying Managements Report on
Internal Control Over Financial Reporting, that LifePoint Hospitals, Inc. (the Company)
maintained effective internal control over financial reporting as of December 31, 2005, based on
criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). The Companys management is
responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting. Our responsibility is
to express an opinion on managements assessment and an opinion on the effectiveness of the
Companys internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating managements assessment, testing and evaluating the
design and operating effectiveness of internal control, and performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
As indicated in the accompanying Managements Report on Internal Control over Financial Reporting,
managements assessment of and conclusion on the effectiveness of internal control over financial
reporting did not include the internal controls of Wythe County Community
Hospital (Wythe County) and Danville Regional Medical Center (Danville) which are included in
the December 31, 2005 consolidated financial statements of the
Company and constituted $164.9 million and ($8.5) million
of the total assets, excluding goodwill, and of the net assets,
respectively as of December 31, 2005, $112.9 million and
$8.5 million of net revenues and net loss, respectively, for the year then
ended. Our audit of internal control over financial reporting of the Company also did not include
an evaluation of the internal control over financial reporting of Wythe County and Danville.
In our opinion, managements assessment that the Company maintained effective internal control over
financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on
the COSO criteria. Also, in our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2005, based on the COSO
criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of LifePoint Hospitals, Inc. as of December
31, 2004 and 2005, and the related consolidated statements of operations, stockholders equity and
cash flows for each of the three years in the period ended December 31, 2005, and our report dated
February 6, 2006 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Nashville, Tennessee
February 6, 2006
F-3
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of LifePoint Hospitals, Inc.
We have audited the accompanying consolidated balance sheets of LifePoint Hospitals, Inc. (the
Company) as of December 31, 2004 and 2005, and the related consolidated statements of operations,
stockholders equity and cash flows for each of the three years in the period ended December 31,
2005. These financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of LifePoint Hospitals, Inc. at December 31, 2004 and
2005, and the consolidated results of its operations and its cash flows for each of the three years
in the period ended December 31, 2005, in conformity with U.S. generally accepted accounting
principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the effectiveness of the Companys internal control over financial reporting
as of December 31, 2005, based on criteria established in Internal ControlIntegrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated
February 6, 2006 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Nashville, Tennessee
February 6, 2006
F-4
LIFEPOINT HOSPITALS, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2004 and 2005
(Dollars in millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2005 |
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
18.6 |
|
|
$ |
30.4 |
|
Accounts receivable, less allowances for doubtful accounts of $103.6 and
$252.9 at December 31, 2004 and 2005, respectively |
|
|
115.1 |
|
|
|
256.8 |
|
Inventories |
|
|
25.3 |
|
|
|
57.2 |
|
Assets held for sale |
|
|
33.0 |
|
|
|
10.0 |
|
Income taxes receivable |
|
|
7.5 |
|
|
|
|
|
Prepaid expenses |
|
|
7.1 |
|
|
|
12.0 |
|
Deferred tax assets |
|
|
17.9 |
|
|
|
44.2 |
|
Other current assets |
|
|
6.4 |
|
|
|
11.0 |
|
|
|
|
|
|
|
|
|
|
|
230.9 |
|
|
|
421.6 |
|
Property and equipment: |
|
|
|
|
|
|
|
|
Land |
|
|
20.5 |
|
|
|
64.7 |
|
Buildings and improvements |
|
|
385.4 |
|
|
|
992.4 |
|
Equipment |
|
|
342.0 |
|
|
|
547.1 |
|
Construction in progress (estimated cost to complete and equip after December
31, 2005 is $118.7) |
|
|
48.6 |
|
|
|
78.4 |
|
|
|
|
|
|
|
|
|
|
|
796.5 |
|
|
|
1,682.6 |
|
Accumulated depreciation |
|
|
(295.4 |
) |
|
|
(380.3 |
) |
|
|
|
|
|
|
|
|
|
|
501.1 |
|
|
|
1,302.3 |
|
|
|
|
|
|
|
|
|
|
Deferred loan costs, net |
|
|
4.9 |
|
|
|
35.4 |
|
Intangible assets, net |
|
|
3.3 |
|
|
|
4.2 |
|
Other |
|
|
5.8 |
|
|
|
5.5 |
|
Goodwill |
|
|
144.4 |
|
|
|
1,455.6 |
|
|
|
|
|
|
|
|
|
|
$ |
890.4 |
|
|
$ |
3,224.6 |
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
29.5 |
|
|
$ |
85.6 |
|
Accrued salaries |
|
|
31.2 |
|
|
|
58.8 |
|
Other current liabilities |
|
|
21.6 |
|
|
|
71.5 |
|
Income taxes payable |
|
|
|
|
|
|
13.7 |
|
Current maturities of long-term debt |
|
|
|
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
82.3 |
|
|
|
230.1 |
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
221.0 |
|
|
|
1,515.8 |
|
Deferred income taxes |
|
|
47.9 |
|
|
|
124.0 |
|
Professional and general liability claims and other liabilities |
|
|
28.4 |
|
|
|
60.3 |
|
|
|
|
|
|
|
|
|
|
Minority interests in equity of consolidated entities |
|
|
1.3 |
|
|
|
6.6 |
|
|
|
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value; 10,000,000 shares authorized; no shares issued |
|
|
|
|
|
|
|
|
Common stock, $.01 par value; 90,000,000 shares authorized; 40,123,768 shares
and 57,102,882 shares issued at December 31, 2004 and 2005, respectively |
|
|
0.4 |
|
|
|
0.6 |
|
Capital in excess of par value |
|
|
332.6 |
|
|
|
1,053.1 |
|
Unearned ESOP compensation |
|
|
(12.9 |
) |
|
|
(9.7 |
) |
Unearned compensation on nonvested stock |
|
|
(4.5 |
) |
|
|
(31.0 |
) |
Retained earnings |
|
|
222.8 |
|
|
|
274.8 |
|
Common stock in treasury, at cost, 1,198,800 shares at December 31, 2004 |
|
|
(28.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
509.5 |
|
|
|
1,287.8 |
|
|
|
|
|
|
|
|
|
|
$ |
890.4 |
|
|
$ |
3,224.6 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
F-5
LIFEPOINT HOSPITALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2003, 2004 and 2005
(In millions, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
Revenues |
|
$ |
875.6 |
|
|
$ |
996.9 |
|
|
$ |
1,855.1 |
|
|
Salaries and benefits |
|
|
352.3 |
|
|
|
399.4 |
|
|
|
730.5 |
|
Supplies |
|
|
114.2 |
|
|
|
129.1 |
|
|
|
251.6 |
|
Other operating expenses |
|
|
155.4 |
|
|
|
166.8 |
|
|
|
311.8 |
|
Provision for doubtful accounts |
|
|
74.1 |
|
|
|
86.2 |
|
|
|
190.3 |
|
Depreciation and amortization |
|
|
43.1 |
|
|
|
48.1 |
|
|
|
101.1 |
|
Interest expense, net |
|
|
12.8 |
|
|
|
12.6 |
|
|
|
60.3 |
|
Debt retirement costs |
|
|
|
|
|
|
1.5 |
|
|
|
12.2 |
|
Transaction costs |
|
|
|
|
|
|
|
|
|
|
43.2 |
|
ESOP expense |
|
|
6.9 |
|
|
|
9.4 |
|
|
|
14.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
758.8 |
|
|
|
853.1 |
|
|
|
1,715.8 |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before minority
interests and income taxes |
|
|
116.8 |
|
|
|
143.8 |
|
|
|
139.3 |
|
Minority interests in earnings of consolidated entities |
|
|
0.7 |
|
|
|
1.0 |
|
|
|
1.1 |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes |
|
|
116.1 |
|
|
|
142.8 |
|
|
|
138.2 |
|
Provision for income taxes |
|
|
45.9 |
|
|
|
56.0 |
|
|
|
58.4 |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
70.2 |
|
|
|
86.8 |
|
|
|
79.8 |
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations, net of income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations |
|
|
(1.7 |
) |
|
|
(1.1 |
) |
|
|
(0.4 |
) |
Impairment of assets |
|
|
|
|
|
|
|
|
|
|
(5.8 |
) |
Loss on sale of hospital |
|
|
|
|
|
|
|
|
|
|
(0.7 |
) |
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations |
|
|
(1.7 |
) |
|
|
(1.1 |
) |
|
|
(6.9 |
) |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
68.5 |
|
|
$ |
85.7 |
|
|
$ |
72.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
1.89 |
|
|
$ |
2.34 |
|
|
$ |
1.59 |
|
Discontinued operations |
|
|
(0.05 |
) |
|
|
(0.03 |
) |
|
|
(0.14 |
) |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1.84 |
|
|
$ |
2.31 |
|
|
$ |
1.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
1.80 |
|
|
$ |
2.20 |
|
|
$ |
1.56 |
|
Discontinued operations |
|
|
(0.04 |
) |
|
|
(0.03 |
) |
|
|
(0.13 |
) |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1.76 |
|
|
$ |
2.17 |
|
|
$ |
1.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares and dilutive securities
outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
37.2 |
|
|
|
37.0 |
|
|
|
50.1 |
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
43.3 |
|
|
|
42.8 |
|
|
|
53.2 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
F-6
LIFEPOINT HOSPITALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2003, 2004 and 2005
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
68.5 |
|
|
$ |
85.7 |
|
|
$ |
72.9 |
|
Adjustments to reconcile net income to net cash
provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations |
|
|
1.7 |
|
|
|
1.1 |
|
|
|
6.9 |
|
Stock-based compensation |
|
|
|
|
|
|
1.8 |
|
|
|
6.7 |
|
Depreciation and amortization |
|
|
43.1 |
|
|
|
48.1 |
|
|
|
101.1 |
|
Debt retirement costs |
|
|
|
|
|
|
1.5 |
|
|
|
12.2 |
|
Transaction costs |
|
|
|
|
|
|
|
|
|
|
43.2 |
|
ESOP expense (non-cash portion) |
|
|
6.9 |
|
|
|
9.4 |
|
|
|
12.0 |
|
Minority interests in earnings of consolidated entities |
|
|
0.7 |
|
|
|
1.0 |
|
|
|
1.1 |
|
Deferred income taxes (benefit) |
|
|
8.9 |
|
|
|
4.4 |
|
|
|
(3.2 |
) |
Reserve for professional and general liability claims, net |
|
|
2.4 |
|
|
|
(0.2 |
) |
|
|
1.8 |
|
Tax benefit from employee stock plans |
|
|
2.3 |
|
|
|
6.2 |
|
|
|
8.9 |
|
Increase (decrease) in cash from operating assets and liabilities,
net of effects from acquisitions and divestitures: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(15.5 |
) |
|
|
(11.1 |
) |
|
|
(25.4 |
) |
Inventories and other current assets |
|
|
(4.8 |
) |
|
|
(6.6 |
) |
|
|
9.5 |
|
Accounts payable and accrued expenses |
|
|
2.2 |
|
|
|
8.9 |
|
|
|
23.2 |
|
Income taxes payable |
|
|
(7.5 |
) |
|
|
(0.1 |
) |
|
|
20.3 |
|
Other |
|
|
(3.9 |
) |
|
|
(1.5 |
) |
|
|
5.2 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities-continuing operations |
|
|
105.0 |
|
|
|
148.6 |
|
|
|
296.4 |
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by discontinued operations |
|
|
(2.2 |
) |
|
|
0.8 |
|
|
|
5.0 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
102.8 |
|
|
|
149.4 |
|
|
|
301.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
|
(68.3 |
) |
|
|
(82.0 |
) |
|
|
(170.1 |
) |
Acquisitions, net of cash acquired |
|
|
(16.5 |
) |
|
|
(30.5 |
) |
|
|
(963.6 |
) |
Proceeds from sale of hospital |
|
|
|
|
|
|
|
|
|
|
32.5 |
|
Other |
|
|
0.6 |
|
|
|
(1.1 |
) |
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(84.2 |
) |
|
|
(113.6 |
) |
|
|
(1,100.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term debt |
|
|
20.0 |
|
|
|
30.0 |
|
|
|
1,967.0 |
|
Payments of borrowings |
|
|
|
|
|
|
(79.9 |
) |
|
|
(1,156.9 |
) |
Payment of debt issue costs |
|
|
|
|
|
|
|
|
|
|
(40.7 |
) |
Repurchase of common stock |
|
|
(45.7 |
) |
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options |
|
|
3.7 |
|
|
|
10.2 |
|
|
|
43.6 |
|
Other |
|
|
1.0 |
|
|
|
1.9 |
|
|
|
(1.7 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
(21.0 |
) |
|
|
(37.8 |
) |
|
|
811.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and cash equivalents |
|
|
(2.4 |
) |
|
|
(2.0 |
) |
|
|
11.8 |
|
Cash and cash equivalents at beginning of year |
|
|
23.0 |
|
|
|
20.6 |
|
|
|
18.6 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
20.6 |
|
|
$ |
18.6 |
|
|
$ |
30.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest payments |
|
$ |
12.4 |
|
|
$ |
12.1 |
|
|
$ |
55.7 |
|
|
|
|
|
|
|
|
|
|
|
Capitalized interest |
|
$ |
0.8 |
|
|
$ |
1.1 |
|
|
$ |
3.0 |
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid, net |
|
$ |
41.4 |
|
|
$ |
44.6 |
|
|
$ |
32.0 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
F-7
LIFEPOINT HOSPITALS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
For the Years Ended December 31, 2003, 2004 and 2005
(Amounts in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital in |
|
|
Unearned |
|
|
Compensation |
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Excess of |
|
|
ESOP |
|
|
on Nonvested |
|
|
Retained |
|
|
Treasury |
|
|
|
|
|
|
Shares |
|
|
Amount |
|
|
Par Value |
|
|
Compensation |
|
|
Stock |
|
|
Earnings |
|
|
Stock |
|
|
Total |
|
Balance at December 31, 2002 |
|
|
39.6 |
|
|
$ |
0.4 |
|
|
$ |
297.2 |
|
|
$ |
(19.3 |
) |
|
$ |
|
|
|
$ |
79.3 |
|
|
$ |
|
|
|
$ |
357.6 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68.5 |
|
|
|
|
|
|
|
68.5 |
|
ESOP compensation earned |
|
|
|
|
|
|
|
|
|
|
3.7 |
|
|
|
3.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.9 |
|
Exercise of stock options,
including tax benefits and other |
|
|
0.3 |
|
|
|
|
|
|
|
6.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.0 |
|
Stock activity in connection with
employee stock purchase plans |
|
|
0.1 |
|
|
|
|
|
|
|
1.3 |
|
|
|
|
|
|
|
|
|
|
|
(0.3 |
) |
|
|
|
|
|
|
1.0 |
|
Repurchases and retirement of
common stock |
|
|
(0.9 |
) |
|
|
|
|
|
|
(6.5 |
) |
|
|
|
|
|
|
|
|
|
|
(10.3 |
) |
|
|
|
|
|
|
(16.8 |
) |
Purchases of treasury stock at cost |
|
|
(1.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28.9 |
) |
|
|
(28.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003 |
|
|
37.9 |
|
|
|
0.4 |
|
|
|
301.7 |
|
|
|
(16.1 |
) |
|
|
|
|
|
|
137.2 |
|
|
|
(28.9 |
) |
|
|
394.3 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85.7 |
|
|
|
|
|
|
|
85.7 |
|
ESOP compensation earned |
|
|
|
|
|
|
|
|
|
|
6.2 |
|
|
|
3.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9.4 |
|
Exercise of stock options,
including tax benefits and other |
|
|
0.8 |
|
|
|
|
|
|
|
16.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16.4 |
|
Stock activity in connection with
employee stock purchase plans |
|
|
|
|
|
|
|
|
|
|
1.9 |
|
|
|
|
|
|
|
|
|
|
|
(0.1 |
) |
|
|
|
|
|
|
1.8 |
|
Nonvested stock issued to key
employees and outside directors,
net of forfeitures |
|
|
0.2 |
|
|
|
|
|
|
|
6.4 |
|
|
|
|
|
|
|
(6.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of nonvested stock
grants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.9 |
|
|
|
|
|
|
|
|
|
|
|
1.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2004 |
|
|
38.9 |
|
|
|
0.4 |
|
|
|
332.6 |
|
|
|
(12.9 |
) |
|
|
(4.5 |
) |
|
|
222.8 |
|
|
|
(28.9 |
) |
|
|
509.5 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72.9 |
|
|
|
|
|
|
|
72.9 |
|
ESOP compensation earned |
|
|
|
|
|
|
|
|
|
|
8.8 |
|
|
|
3.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12.0 |
|
Exercise of stock options,
including tax benefits and other |
|
|
1.5 |
|
|
|
|
|
|
|
52.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52.6 |
|
Stock activity in connection with
employee stock purchase plans |
|
|
0.1 |
|
|
|
|
|
|
|
1.4 |
|
|
|
|
|
|
|
|
|
|
|
(2.4 |
) |
|
|
|
|
|
|
(1.0 |
) |
Nonvested stock issued to key
employees and outside directors,
net of forfeitures |
|
|
0.8 |
|
|
|
|
|
|
|
37.2 |
|
|
|
|
|
|
|
(37.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of nonvested stock
grants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.7 |
|
|
|
|
|
|
|
|
|
|
|
6.7 |
|
Common stock issued in connection
with the Province Business
Combination |
|
|
15.0 |
|
|
|
0.2 |
|
|
|
595.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
595.9 |
|
Change of control vesting in
connection with the Province
Business Combination |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.0 |
|
|
|
|
|
|
|
|
|
|
|
4.0 |
|
Conversion of Convertible Notes to
common stock |
|
|
0.8 |
|
|
|
|
|
|
|
35.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35.2 |
|
Retirement of treasury stock |
|
|
|
|
|
|
|
|
|
|
(10.4 |
) |
|
|
|
|
|
|
|
|
|
|
(18.5 |
) |
|
|
28.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2005 |
|
|
57.1 |
|
|
$ |
0.6 |
|
|
$ |
1,053.1 |
|
|
$ |
(9.7 |
) |
|
$ |
(31.0 |
) |
|
$ |
274.8 |
|
|
$ |
|
|
|
$ |
1,287.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
F-8
LIFEPOINT HOSPITALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
Note 1. Organization and Summary of Significant Accounting Policies
Organization
LifePoint Hospitals, Inc. is one of the largest owners and operators of general acute care
hospitals in non-urban communities in the United States. LifePoint Hospitals, Inc. is a holding
company. Its subsidiaries own, lease and operate their respective facilities and other assets.
Unless the context otherwise indicates, references in the report to LifePoint, the Company,
we, our or us are references to LifePoint Hospitals, Inc., and/or its wholly-owned and
majority-owned subsidiaries. Any reference herein to its hospitals, facilities or employees refers
to the hospitals, facilities or employees of subsidiaries of LifePoint Hospitals, Inc.
At December 31, 2005, the Company operated 53 hospitals, including one hospital that was
disposed of effective January 1, 2006 and two hospitals that are part of discontinued operations
not yet divested. In all but four of the communities in which its hospitals are located, LifePoint
is the only provider of acute care hospital services. The Companys hospitals are geographically
diversified across 20 states: Alabama, Arizona, California, Colorado, Florida, Indiana, Kansas,
Kentucky, Louisiana, Mississippi, Nevada, New Mexico, Pennsylvania, South Carolina, Tennessee,
Texas, Utah, Virginia, West Virginia and Wyoming.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and all
subsidiaries and entities controlled by the Company through the Companys direct or indirect
ownership of a majority interest and exclusive rights granted to the Company as the sole general
partner of such entities. All significant intercompany accounts and transactions within the Company
have been eliminated in consolidation.
Fair Value of Financial Instruments
The carrying amounts reported in the consolidated balance sheets for cash and cash
equivalents, accounts receivable and accounts payable approximate fair value because of the
short-term maturity of these instruments.
The following table sets forth the carrying amounts and fair values of the Companys
significant financial instruments where the carrying amount differs from the fair value as of
December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2005 |
|
|
|
Carrying |
|
|
|
|
|
|
Carrying |
|
|
|
|
|
|
amount of |
|
|
Fair value |
|
|
amount of |
|
|
Fair value |
|
|
|
liability |
|
|
of liability |
|
|
liability |
|
|
of liability |
|
4 1/2% Subordinated Convertible Notes |
|
$ |
221.0 |
|
|
$ |
222.7 |
|
|
$ |
|
|
|
$ |
|
|
3 1/4% Convertible Senior Subordinated Debentures |
|
|
|
|
|
|
|
|
|
|
225.0 |
|
|
|
207.0 |
|
The carrying amounts of the Companys remaining long-term debt instruments
approximate fair value since they are subject to variable rates of interest. The fair value of the
Companys 4 1/2% Subordinated Convertible Notes was based on the quoted market prices at December 31,
2004. The fair value of the Companys 3 1/4% Convertible Senior Subordinated Debentures was based on
the quoted prices at December 30, 2005.
Revenue Recognition and Allowance for Contractual Discounts
The Company recognizes revenues in the period in which services are performed. Accounts
receivable primarily consist of amounts due from third-party payors and patients. Amounts the
Company receives for treatment of patients covered by governmental programs such as Medicare and
Medicaid and other third-party
F-9
payors such as health maintenance organizations, preferred provider
organizations and other private insurers are generally less than the Companys established billing
rates. Accordingly, the revenues and accounts receivable reported in the Companys consolidated
financial statements are recorded at the amount expected to be received.
The Company derives a significant portion of its revenues from Medicare, Medicaid and other
payors that receive discounts from its standard charges. The Company must estimate the total amount
of these discounts to prepare its consolidated financial statements. The Medicare and Medicaid
regulations and various managed care contracts under which these discounts must be calculated are
complex and are subject to interpretation and adjustment. The Company estimates the allowance for
contractual discounts on a payor-specific basis given its interpretation of the applicable
regulations or contract terms. These interpretations sometimes result in payments that differ from
the Companys estimates. Additionally, updated regulations and contract renegotiations occur
frequently, necessitating regular review and assessment of the estimation process by management.
Changes in estimates related to the allowance for contractual discounts affect revenues reported in
the Companys consolidated statements of operations.
Self-pay revenues are derived primarily from patients who do not have any form of healthcare
coverage. The revenues associated with self-pay patients are generally reported at the Companys
gross charges. The Company evaluates these patients, after the patients medical condition is
determined to be stable, for their ability to pay based upon federal and state poverty guidelines,
qualifications for Medicaid or other governmental assistance programs, as well as the local hospitals
policy for charity/indigent care. The Company provides care without charge to certain patients
that qualify under the local charity/indigent care policy of each of
its hospitals. The Company does not
report a charity/indigent care patients charges in revenues or in the provision for doubtful
accounts as it is the Companys policy not to pursue collection of amounts related to these
patients.
Settlements under reimbursement agreements with third-party payors are estimated and recorded
in the period the related services are rendered and are adjusted in future periods as final
settlements are determined. There is at least a reasonable possibility that recorded estimates will
change by a material amount in the near term. The net adjustments to estimated third-party payor
settlements resulted in increases to revenues from continuing operations of $6.0 million, $7.5
million and $9.3 million, increases to net income by
approximately $3.7 million, $4.6 million and $5.6 million, and
increases to diluted earnings per share by approximately $0.08, $0.11
and $0.11, (exclusive of the matter discussed in the following paragraph) for the
years ended December 31, 2003, 2004, and 2005, respectively. The net estimated third party payor
settlements as of December 31, 2004 and 2005 and included in other current liabilities in the
accompanying consolidated balance sheets approximated $0.1 million and $3.0 million, respectively. The Companys
management believes that adequate provisions have been made for adjustments that may result from
final determination of amounts earned under these programs.
During 2003, the Company received correspondence from one of its fiscal intermediaries
questioning a particular Medicare disproportionate share designation at one of its hospitals. This
hospital had this designation since 2001 and was previously approved for this designation by its
fiscal intermediary. The Company and the fiscal intermediary worked together and contacted the
Centers for Medicare and Medicaid Services (CMS) for resolution of the designation. The Company
reduced revenues by $3.0 million and $0.2 million during the third and fourth quarters of 2003,
respectively, representing the three-year difference in reimbursement from this change in
designation. The Company received notification from CMS late in the first quarter of 2004
reconfirming the original designation. Based upon the favorable resolution of this issue, the
Company increased revenues by $3.2 million in the first quarter of 2004.
Laws and regulations governing Medicare and Medicaid programs are complex and subject to
interpretation. The Company believes that it is in compliance with all applicable laws and
regulations and is not aware of any pending or threatened investigations involving allegations of
potential wrongdoing that would have a material effect on the Companys financial statements.
Compliance with such laws and regulations can be subject to future government review and
interpretation as well as significant regulatory action including fines, penalties and exclusion
from the Medicare and Medicaid programs.
Concentration of Revenues
During the years ended December 31, 2003, 2004, and 2005, approximately 46.8%, 48.1% and 46.0%
respectively, of the Companys revenues from continuing operations related to patients
participating in the
F-10
Medicare and Medicaid programs. The Companys management recognizes that
revenues and receivables from government agencies are significant to the Companys operations, but
it does not believe that there are significant credit risks associated with these government
agencies. The Companys management does not believe that there are any other significant
concentrations of revenues from any particular payor that would subject the Company to any
significant credit risks in the collection of its accounts receivable.
The Companys revenues are particularly sensitive to regulatory and economic changes in
certain states where the Company generates significant revenues from such locations. The following
is an analysis by state of revenues as a percentage of the Companys total revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hospitals |
|
|
|
|
in state as of |
|
Percentage of Total Revenues |
State |
|
December 31, 2005 |
|
2003 |
|
2004 |
|
2005 |
Kentucky |
|
8 |
|
|
34.5 |
% |
|
|
35.2 |
% |
|
|
20.9 |
% |
Tennessee |
|
7 |
|
|
20.5 |
|
|
|
19.5 |
|
|
|
11.1 |
|
Virginia |
|
3 |
|
|
|
|
|
|
|
|
|
|
10.2 |
|
Louisiana |
|
6 |
|
|
2.7 |
|
|
|
4.5 |
|
|
|
9.2 |
|
Alabama |
|
5 |
|
|
11.4 |
|
|
|
11.0 |
|
|
|
8.8 |
|
New Mexico |
|
2 |
|
|
|
|
|
|
|
|
|
|
7.4 |
|
Texas |
|
3 |
|
|
|
|
|
|
|
|
|
|
5.2 |
|
West Virginia |
|
2 |
|
|
8.2 |
|
|
|
8.0 |
|
|
|
4.2 |
|
The following is an analysis by state of Medicaid and indigent care payments as a percentage
of the Companys total revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hospitals |
|
|
|
|
in state as of |
|
Percentage of Total Revenues |
State |
|
December 31, 2005 |
|
2003 |
|
2004 |
|
2005 |
Alabama |
|
5 |
|
|
0.7 |
% |
|
|
0.7 |
% |
|
|
0.9 |
% |
Arizona |
|
2 |
|
|
|
|
|
|
|
|
|
|
0.3 |
% |
California |
|
1 |
|
|
|
|
|
|
|
|
|
|
0.1 |
% |
Colorado |
|
1 |
|
|
|
|
|
|
|
|
|
|
0.1 |
% |
Florida |
|
1 |
|
|
0.3 |
% |
|
|
0.5 |
% |
|
|
0.3 |
% |
Indiana |
|
1 |
|
|
|
|
|
|
|
|
|
|
0.1 |
% |
Kansas |
|
1 |
|
|
0.2 |
% |
|
|
0.2 |
% |
|
|
0.2 |
% |
Kentucky |
|
8 |
|
|
3.7 |
% |
|
|
4.1 |
% |
|
|
2.3 |
% |
Louisiana |
|
6 |
|
|
0.4 |
% |
|
|
0.4 |
% |
|
|
0.9 |
% |
Mississippi |
|
1 |
|
|
|
|
|
|
|
|
|
|
0.4 |
% |
Nevada |
|
1 |
|
|
|
|
|
|
|
|
|
|
0.1 |
% |
New Mexico |
|
2 |
|
|
|
|
|
|
|
|
|
|
1.2 |
% |
South Carolina |
|
1 |
|
|
|
|
|
|
|
|
|
|
* |
|
Tennessee |
|
7 |
|
|
2.8 |
% |
|
|
2.7 |
% |
|
|
1.4 |
% |
Texas |
|
3 |
|
|
|
|
|
|
|
|
|
|
0.5 |
% |
Utah |
|
2 |
|
|
1.0 |
% |
|
|
0.9 |
% |
|
|
0.4 |
% |
Virginia |
|
3 |
|
|
|
|
|
|
|
|
|
|
0.4 |
% |
West Virginia |
|
2 |
|
|
1.1 |
% |
|
|
0.9 |
% |
|
|
0.4 |
% |
Wyoming |
|
2 |
|
|
0.6 |
% |
|
|
0.5 |
% |
|
|
0.4 |
% |
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and marketable securities with original
maturities of three months or less. The Company places its cash in financial institutions that are
federally insured.
F-11
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable primarily consist of amounts due from third-party payors and patients. The
Companys ability to collect outstanding receivables is critical to its results of operations and
cash flows. To provide for accounts receivable that could become uncollectible in the future, the
Company establishes an allowance for doubtful accounts to reduce the carrying value of such
receivables to their estimated net realizable value. The primary uncertainty of such allowances
lies with uninsured patient receivables and deductibles, co-payments or other amounts due from
individual patients.
The Company has an established process to determine the adequacy of the allowance for doubtful
accounts that relies on a number of analytical tools and benchmarks to arrive at a reasonable
allowance. No single statistic or measurement determines the adequacy of the allowance for doubtful
accounts. Some of the analytical tools that the Company utilizes include, but are not limited to,
historical cash collection experience, revenue trends by payor classification and revenue days in
accounts receivable. Accounts receivable are written off after collection efforts have been
followed in accordance with the Companys policies.
A summary of activity in the Companys allowance for doubtful accounts is as follows (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances |
|
Additions |
|
Accounts |
|
|
|
|
|
|
|
|
at |
|
Charged to |
|
Written Off, |
|
|
|
|
|
Balances |
|
|
Beginning |
|
Costs and |
|
Net of |
|
|
|
|
|
at End |
|
|
of Year |
|
Expenses (a) |
|
Recoveries |
|
Acquisitions |
|
of Year |
Allowance for doubtful accounts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2003 |
|
$ |
109.1 |
|
|
$ |
81.5 |
|
|
$ |
(78.9 |
) |
|
$ |
|
|
|
$ |
111.7 |
|
Year ended December 31, 2004 |
|
|
111.7 |
|
|
|
94.7 |
|
|
|
(102.8 |
) |
|
|
|
|
|
|
103.6 |
|
Year ended December 31, 2005 |
|
|
103.6 |
|
|
|
216.1 |
|
|
|
(172.8 |
) |
|
|
106.0 |
|
|
|
252.9 |
|
|
|
|
(a) |
|
Additions charged to costs and expenses include amounts related to the Companys
continuing operations and discontinued operations in the Companys accompanying
consolidated financial statements. |
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market and are composed
of purchased items. These inventory items are primarily operating supplies used in the direct or
indirect treatment of patients.
Long-Lived Assets
(a) Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Routine maintenance
and repairs are charged to expense as incurred. Expenditures that increase capacities or extend
useful lives are capitalized. Fully depreciated assets are retained in property and equipment
accounts until they are disposed of. Interest on funds used to pay for the construction of major
capital additions is included in the cost of each capital addition.
Depreciation is computed by applying the straight-line method over the estimated useful lives
of buildings and improvements and equipment. Assets under capital leases are amortized using the
straight-line method over the shorter of the estimated useful life of the assets or life of the
lease term, excluding any lease renewals, unless the lease renewals are reasonably assured. Useful
lives are as follows:
|
|
|
|
|
Years |
Buildings and improvements |
|
10 - 40 |
Equipment |
|
3 - 10 |
Assets under capital leases: |
|
|
Buildings and improvements |
|
10 - 40 |
Equipment |
|
3 - 5 |
F-12
Depreciation expense from continuing operations was $42.4 million, $47.3 million and $99.8
million for the years ended December 31, 2003, 2004 and 2005, respectively. Amortization expense
related to assets under capital leases is included in depreciation expense.
As of December 31, 2005, the majority of the Companys assets under capital leases are
primarily comprised of prepaid capital leases, which were acquired as part of the Province Business
Combination. The Companys assets under capital leases are set forth in the following table at
December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2005 |
|
Buildings and improvements |
|
$ |
|
|
|
$ |
154.7 |
|
Equipment |
|
|
0.8 |
|
|
|
1.9 |
|
|
|
|
|
|
|
|
|
|
|
0.8 |
|
|
|
156.6 |
|
Accumulated amortization |
|
|
(0.6 |
) |
|
|
(6.3 |
) |
|
|
|
|
|
|
|
|
|
$ |
0.2 |
|
|
$ |
150.3 |
|
|
|
|
|
|
|
|
The Company evaluates its long-lived assets for possible impairment whenever circumstances
indicate that the carrying amount of the asset, or related group of assets, may not be recoverable
from estimated future cash flows, in accordance with Statement of Financial Accounting Standards
(SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No.
144). Fair value estimates are derived from independent appraisals, established market values of
comparable assets, or internal calculations of estimated future net cash flows. The Companys
estimates of future cash flows are based on assumptions and projections it believes to be
reasonable and supportable. The Companys assumptions take into account revenue and expense growth
rates, patient volumes, changes in payor mix, and changes in legislation and other payor payment
patterns. These assumptions vary by type of facility. The Company incurred a $5.8 million
impairment charge during the year ended December 31, 2005, as further described in Note 3.
(b) Deferred Loan Costs
The Company records deferred loan costs for expenditures related to acquiring or issuing new
debt instruments. These expenditures include bank fees and premiums
as well as attorneys and filing
fees. The Company amortizes these deferred loan costs over the life of the respective debt
instrument, using the effective interest method.
(c) Goodwill and Intangible Assets
The
Company accounts for its acquisitions in accordance with SFAS
No. 141, Business Combinations using the purchase
method of accounting. Goodwill represents the excess of the cost of an acquired entity over the net of the amounts
assigned to assets acquired and liabilities assumed. Under SFAS No. 142, Goodwill and Other
Intangible Assets (SFAS No. 142), goodwill and intangible assets with indefinite lives are
reviewed by the Company at least annually for impairment. The Company performed its annual
impairment tests as of October 1, 2003, 2004 and 2005, and did not incur an impairment charge. The
Companys business comprises a single reportable operating reporting unit for impairment test
purposes.
The Companys intangible assets relate to non-competition agreements and certificates of need.
Non-competition agreements are amortized over the terms of the agreements. The certificates of
need were determined to have indefinite lives by an independent appraiser and, accordingly, are not
amortized. See Note 4 for a summary of goodwill and intangible assets.
Discontinued Operations
In accordance with the provisions of SFAS No. 144, the Company has presented the operating
results, financial position and cash flows of Bartow Memorial Hospital (Bartow), Ashland Regional
Medical Center, Medical Center of Southern Indiana and Palo Verde Hospital, as discontinued
operations in the accompanying consolidated financial statements. The results of operations of
these four hospitals have been reflected as
F-13
discontinued operations, net of taxes, in the accompanying consolidated statements of
operations and certain assets of these four hospitals are reflected as assets held for sale in the
accompanying consolidated balance sheets, as further described in Note 3.
Income Taxes
The Company accounts for income taxes using the asset and liability method. Under this
method, deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that includes the
enactment date. The Company assesses the likelihood that deferred tax assets will be recovered
from future taxable income. To the extent the Company believes that recovery is not likely, a
valuation allowance is established. To the extent the Company establishes a valuation allowance or
increases this allowance, the Company must include an expense within the provision for income taxes
in the consolidated statements of operations.
Professional and General Liability Claims
Given the nature of the Companys operating environment, the Company is subject to potential
medical malpractice lawsuits and other claims as part of providing healthcare services. To mitigate
a portion of this risk, the Company maintained insurance for individual malpractice claims
exceeding $5.0 million on individual malpractice claims for 2003, the Company increased
its self-insured retention level to $10.0 million for 2004, and the Company increased its self
insurance level to $15.0 million for 2005 with the exception of facilities located in Florida and Texas,
which retained $10 million limits, and facilities located in states having state-specific medical
malpractice programs. The Companys reserves for professional and general liability claims are
based upon independent actuarial calculations, which consider historical claims data, demographic
considerations, severity factors, and other actuarial assumptions in determining reserve estimates.
Reserve estimates are discounted to present value using a 5.0% discount rate and are revised twice
each year for 2003 and 2004 by the Companys independent
actuaries. The Company obtained independent actuarial calculations
quarterly during 2005.
The Company implemented enhanced risk management processes in monitoring claims and managing
losses in high-risk areas during 2002 and 2003 to attempt to reduce loss levels and appropriately
manage risk. During 2003, the Company improved its estimation process for determining its reserves
for professional and general liability claims by expanding from using one actuary to using multiple
actuaries. The Company uses the calculations of each actuary by averaging each actuarys results
into the determination of its recorded reserve levels. This averaging process results in a refined
estimation approach that the Company believes produces a more reliable estimate of ultimate losses.
During 2004, the Company ceased receiving reserve estimates from one of the three actuaries
that had historically been used to calculate loss reserve estimates. This change in the Companys
estimation process reduced its reserve levels and related professional and general liability
insurance expense for continuing operations for the year ended
December 31, 2004 by $4.0 million. This change increased
the Companys net income and diluted earnings per share by
approximately $2.5 million and $0.06 per diluted share, respectively,
during such year. The Company obtained
semi-annual valuations from its other two actuaries in 2004. The mathematically averaged results of the
updated actuarial valuations from these two actuaries reduced the Companys reserve estimates for
years prior to 2004 by $2.4 million, which reduced
its professional and general liability expense in the year ended
December 31, 2004. This change increased the Companys net
income and diluted earnings per share by approximately $1.5 million
and $0.03 per diluted share, respectively, during such year.
During
2005, the Company obtained actuarial valuations for all legacy
LifePoint facilities (non-Province) on
a quarterly basis. The averaged results of the quarterly valuations from two actuarial firms
reduced the Companys reserve estimates for years prior to 2005 by $7.5 million, which reduced its professional and general liability expense in the
year ended December 31, 2005. This change increased the
Companys net income and diluted earnings per share by
approximately $4.5 million and $0.09 per diluted share, respectively,
during such year.
Also during 2005, the Company obtained actuarial valuations on the former Province facilities
to conform with its methodology with respect to medical malpractice. The mathematically averaged
results of the two
F-14
actuarial valuations caused the Company to increase the opening balance sheet reserve by $6.8
million. The $6.8 million ($4.2 million after-taxes), or $0.08 per diluted share was recorded as
transaction costs in the Companys consolidated statement of
operations. The former Province facilities were included
in the quarterly actuarial valuations beginning in the third quarter of 2005. The averaged results
of the quarterly valuations reduced the Companys reserve estimates for years prior to 2005 by $3.5
million, which reduced its professional and general
liability expense in the year ended December 31, 2005. This
increased the Companys net income and diluted earnings per
share by approximately $2.1 million and $0.04 per diluted share,
respectively, during such year.
The reserve for professional and general liability claims as of the balance sheet date
reflects the current estimate of all outstanding losses, including incurred but not reported
losses, based upon actuarial calculations. The loss estimates included in the actuarial
calculations may change in the future based upon updated facts and circumstances. The reserve for
professional and general liability claims was $27.2 million and $55.3 million at December 31, 2004
and 2005, respectively.
The Companys expense for professional and general liability claims each year includes: the
actuarially determined estimate of losses for the current year, including claims incurred but not
reported; the change in the estimate of losses for prior years based upon actual claims development
experience as compared to prior actuarial projections; the insurance premiums for losses in excess
of the Companys self-insured retention level; the administrative costs of the insurance program; and
interest expense related to the discounted portion of the liability. The total expense recorded for
professional and general liability claims from continuing operations,
including the previously mentioned
transaction costs for the years ended December 31, 2003, 2004
and 2005 was approximately $8.3
million, $5.4 million and $19.3 million, respectively.
Workers Compensation Reserves
Given the nature of the Companys operating environment, it is subject to potential workers
compensation claims as part of providing healthcare services. To mitigate a portion of this risk,
the Company maintained insurance for individual workers compensation claims exceeding
approximately $0.3 million, $0.5 million and $1.0 million in the years ended December 31, 2003,
2004 and 2005, respectively. The Companys facilities located in West Virginia and Wyoming
participate in state-specific programs rather than the Companys established program.
The
Companys reserve for workers compensation is based upon an independent actuarial
calculation, which considers historical claims data, demographic considerations, development
patterns, severity factors and other actuarial assumptions in determining reserve estimates.
Reserve estimates are discounted to present value using a 5.0% discount rate and are revised on an
annual basis. The reserve for workers compensation claims at the balance sheet date reflects
the current estimate of all outstanding losses, including incurred but not reported losses, based
upon an actuarial calculation. The loss estimates included in the actuarial calculation may change
based upon updated facts and circumstances. The Companys reserve for workers compensation claims was $3.4
million and $12.9 million at December 31, 2004 and 2005, respectively.
The
Companys expense for workers compensation claims each year includes: the actuarially
determined estimate of losses for the current year, including claims incurred but not reported; the
change in the estimate of losses for prior years based upon actual claims development experience as
compared to prior actuarial projections; the insurance premiums for
losses in excess of the Companys
self-insured retention level; the administrative costs of the insurance program; and interest
expense related to the discounted portion of the liability. The total expense recorded for
workers compensation claims from continuing operations for the years ended December 31, 2003, 2004
and 2005 was approximately $4.4 million, $4.1 million and
$13.8 million respectively. The 2005
expense also includes $4.2 million of workers compensation expense recorded on a pretax basis, or
$0.05 per diluted share, to conform Province to the Companys
methodology for determining workers
compensation reserves.
Self-Insured Medical Benefits
The Company is self-insured for substantially all of the medical expenses and benefits of its
employees. The reserve for medical benefits primarily reflects the current estimate of incurred
but not reported losses, based upon an actuarial calculation of the incurred but not recorded lag
period as of the balance sheet date. The
F-15
undiscounted reserve for self-insured medical benefits was $5.9 million and $9.4 million at
December 31, 2004 and 2005, respectively.
Minority Interests in Consolidated Entities
The consolidated financial statements include all assets, liabilities, revenues, and expenses
of less-than-100%-owned entities that the Company controls. Accordingly, the Company recorded
minority interests in the earnings and equity of such entities. The Company records adjustments to
minority interest for the allocable portion of income or loss to which the minority interest
holders are entitled based upon their portion of certain of the subsidiaries that they own.
General and Administrative Costs
The majority of the Companys expenses are cost of revenue items. Costs that could be
classified as general and administrative by the Company would include the LifePoint corporate
office costs, which were $23.6 million, $29.8 million and $50.9 million for the years ended
December 31, 2003, 2004 and 2005 respectively.
Physician Recruiting Costs
The Company has committed to provide certain financial assistance pursuant to recruiting
agreements, or physician minimum revenue guarantees, with various physicians practicing in the
communities it serves. In consideration for a physician relocating to one of its communities and
agreeing to engage in private practice for the benefit of the respective community, the Company may
loan certain amounts of money to a physician, normally over a period of one year, to assist in
establishing his or her practice. Generally, amounts advanced under the recruiting agreements may
be forgiven pro rata over a period of 48 months contingent upon the physician continuing to
practice in the respective community. The Company expenses these advances as they are paid over
the physicians first twelve months in the community. These physician recruiting expenses are
included in other operating expenses in the accompanying consolidated statements of operations and
were $12.0 million, $14.8 million and $26.8 million for the years ended December 31, 2003, 2004 and
2005, respectively. See Recently Issued Accounting Pronouncements subsequently in this Note 1
for a summary of the accounting changes related to physician minimum revenue guarantees. In
addition, see Note 8 for a discussion on the Companys commitments to advance amounts to recruited
physicians.
Comprehensive Income
SFAS No. 130, Reporting Comprehensive Income, requires that changes in certain amounts that
are recorded directly to stockholders equity be shown in the
consolidated financial statements as a component
of comprehensive income. For the years ended December 31, 2003, 2004 and 2005, the Company had no
items of comprehensive income recorded directly to stockholders equity. Therefore, comprehensive
income is equivalent to net income.
Segment Reporting
The Company operates in one reportable operating segmenthealthcare services. SFAS No. 131,
Disclosures about Segments of an Enterprise and Related Information (SFAS No. 131), establishes
standards for the way that public business enterprises report information about operating segments
in annual consolidated financial statements. Although the Company had four operating divisions in
2005 and it will have five in 2006, under the aggregation criteria set forth in SFAS No. 131, it
only operates in one reportable operating segmenthealthcare services.
Under SFAS No. 131, two or more operating segments may be aggregated into a single operating
segment for financial reporting purposes if aggregation is consistent with the objective and basic
principles of SFAS No. 131, if the segments have similar economic characteristics, and if the
segments are similar in each of the following areas:
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the nature of the products and services; |
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the nature of the production processes; |
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the type or class of customer for their products and services; |
F-16
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the methods used to distribute their products or provide their services; and |
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if applicable, the nature of the regulatory environment, for example, banking,
insurance, or public utilities. |
The Company meets each of the aggregation criteria for the following reasons:
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the treatment of patients in a hospital setting is the only material source of revenues
for each of the Companys operating divisions; |
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the healthcare services provided by each of the Companys operating divisions are
generally the same; |
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the healthcare services provided by each of the Companys operating divisions are
generally provided to similar types of patients, which are patients in a hospital setting; |
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the healthcare services are primarily provided by the direction of affiliated or
employed physicians and by the nurses, lab technicians and others or contracted at each of
the Companys hospitals; and |
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the healthcare regulatory environment is generally similar for each of the Companys
operating divisions. |
Because the Company meets each of the criteria set forth above and each of the Companys
operating divisions has similar economic characteristics, the Companys management aggregates its
results of operations in one reportable operating segment.
Stock-Based Compensation
In December 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 148,
Accounting for Stock-Based Compensation Transition and Disclosure, an Amendment of FASB
Statement No. 123 (SFAS No. 148). SFAS No. 148 amended SFAS No. 123, Accounting for
Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to
the fair-value based method of accounting for stock-based employee compensation. In addition, SFAS
No. 148 amended the disclosure requirements of SFAS No. 123 to require prominent disclosures in
both annual and interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results. SFAS No. 148 had no
material impact on the Company. The Company has included the required disclosures below and in
Note 7.
The Company issues stock options and other stock-based awards to key employees
and directors under stock-based compensation plans, which are described more fully in Note 7. SFAS
No. 123, Accounting for Stock-Based Compensation, encourages, but does not require, companies to
record compensation cost for stock-based employee compensation plans at fair value. The Company
has chosen to continue to account for employee stock-based compensation using the intrinsic value
method as prescribed in Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock
Issued to Employees, and related FASB Interpretations.
F-17
Since the exercise price of all options granted under the Companys incentive plans was equal
to the market price of the underlying Company common stock on the grant date, no stock-based
employee compensation was recognized in net income related to stock options. The following table
illustrates the effect on net income and earnings per share as if the Company had applied the fair
value recognition provisions of SFAS No. 123, as amended, to options granted under the Companys
stock option plans for the years ended December 31, 2003, 2004 and 2005 (in millions, except per
share amounts). For purposes of this pro-forma disclosure, the value of the options is estimated
using a Black-Scholes-Merton option pricing model and amortizes ratably to expense over the
options vesting periods. Because the estimated value is determined as of the date of grant, the
actual value ultimately realized by the employee may be significantly different.
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2003 |
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2004 |
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2005(a) |
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Net income, as reported |
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$ |
68.5 |
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$ |
85.7 |
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$ |
72.9 |
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Add: Stock-based compensation expense included in
reported net income, net of related tax effects |
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1.1 |
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6.7 |
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Less: Stock-based compensation expense
determined under fair value based
method for all awards, net of
related tax effects |
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(9.0 |
) |
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(9.0 |
) |
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(16.5 |
) |
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Pro forma net income |
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59.5 |
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77.8 |
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63.1 |
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Interest on Convertible Notes, net of taxes |
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7.8 |
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7.3 |
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Diluted pro forma net income |
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$ |
67.3 |
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$ |
85.1 |
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$ |
63.1 |
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Denominator for basic earnings per share weighted
average shares |
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37.2 |
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37.0 |
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50.1 |
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Effect of dilutive securities: |
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Employee stock benefit plans |
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0.8 |
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0.8 |
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0.9 |
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Convertible Notes |
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5.3 |
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5.0 |
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Denominator for diluted earnings per share
adjusted weighted average shares |
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43.3 |
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42.8 |
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51.0 |
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Earnings per share: |
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Basic as reported |
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$ |
1.84 |
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$ |
2.31 |
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$ |
1.45 |
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Basic pro forma |
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$ |
1.60 |
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$ |
2.10 |
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$ |
1.26 |
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Diluted as reported |
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$ |
1.76 |
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$ |
2.17 |
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$ |
1.43 |
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Diluted pro forma |
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$ |
1.56 |
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$ |
1.99 |
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$ |
1.24 |
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(a) |
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The impact of 2.2 million potential weighted average
shares of common stock, if converted, and interest
expense related to the Convertible Notes was not
included in the computation of diluted earnings per
share and pro forma diluted earnings per share
because the effect would have been anti-dilutive. |
The per share weighted-average fair value of stock options granted during 2003, 2004 and 2005
was $8.02, $12.66 and $19.62, respectively, on the date of grant using a Black-Scholes-Merton
option pricing model, assuming no expected dividends and the following weighted average
assumptions:
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2003 |
|
2004 |
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2005 |
Risk free interest rate |
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1.90 |
% |
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2.23 |
% |
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3.79 |
% |
Expected life, in years |
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3.0 |
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3.0 |
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4.0 |
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Expected volatility |
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53.0 |
% |
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53.1 |
% |
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54.7 |
% |
The Black-Scholes-Merton option valuation model was developed for use in estimating the fair
value of traded options that have no vesting restrictions and are fully transferable. Option
valuation models require the input of highly subjective assumptions including the expected stock
price volatility. The Companys employee stock options have characteristics significantly different
from those of traded options. Changes in the subjective input assumptions can materially affect the
fair value estimate. Other option valuation models may produce significantly different fair values
of the Companys employee stock options.
All outstanding stock options except for 28,500 stock options granted in December 2004, and
all of the outstanding nonvested stock awards on April 15, 2005 became fully vested as a result of
the Province Business Combination and the change of control provisions in the Companys stock-based
compensation plans. The estimated pro forma after-tax charge the Company would have incurred
during the year ended December 31, 2005 as a result of the accelerated vesting of stock options was
$4.9 million. This estimate is based on using a Black-Scholes-Merton option pricing model. In
addition, all outstanding stock options became options to purchase Company Common Stock (rather
than Historic LifePoint Common Stock); and all outstanding stock awards were converted into Company
Common Stock (rather than Historic LifePoint Common Stock). As a results of this change in control
vesting, the Company recognized $4.0 million of compensation expense related to the vesting on the
nonvested stock awards, which is reflected as transaction costs in the Companys consolidated
statement of operations during the year ended December 31, 2005.
Unearned compensation related to the nonvested stock awarded subsequent to the Province
Business Combination is being amortized on a straight-line basis in
the consolidated statements of operations
over the vesting periods of the awards. The total cost of the amortization related to these
nonvested stock awards was approximately $6.7 million for the year ended December 31, 2005.
F-18
In December 2004, the FASB issued Statement of Financial Accounting Standards (SFAS) No.
123R, Share-Based Payments (SFAS No. 123R), a revision of SFAS No. 123, Accounting for
Stock-Based Compensation (SFAS No. 123), which requires companies to measure all employee
stock-based compensation awards using a fair value method and record such expense in their
consolidated financial statements. The provisions of SFAS No. 123R are effective for the first
annual reporting period that begins after June 15, 2005. The Company has adopted this standard
effective January 1, 2006 and elected the modified-prospective transition method. Under the
modified-prospective transition method, awards that are granted, modified, repurchased or canceled
after the date of adoption should be measured and accounted for in accordance with SFAS No. 123R.
Stock-based awards that are granted prior to the effective date should continue to be accounted for
in accordance with SFAS No. 123, except that stock option expense for unvested options must be
recognized in the statement of operations. The impact of adoption of SFAS No. 123R is estimated to
increase the Companys salaries and benefits expense by approximately $7.6 million, or $0.08 per
diluted share, for the year ended December 31, 2006. The Company is estimating that its total
stock-based compensation expense, which includes stock options and nonvested stock awards, will be
approximately $20.6 million, or $0.22 per diluted share, for the year ended December 31, 2006. This
estimate may materially change because it will depend on, among other things, levels of share-based
payments granted, the market value of the Companys common stock as well as assumptions regarding a
number of complex variables. These variables include, but are not limited to, the Companys stock
price, volatility and employee stock option exercise behaviors and the related tax impact. Had the
Company adopted SFAs No, 123R in prior periods, the Company believes the impact of that standard
would have approximated the impact of SFAs No. 123 as described in the above Stock-based
Compensation disclosure of pro forma net income and earnings per share.
Earnings Per Share
Earnings per share (EPS) is based on the weighted average number of common shares
outstanding and dilutive stock options, convertible notes and restricted shares, adjusted for the
shares issued to the LifePoint Employee Stock Ownership Plan (the ESOP). As the ESOP shares are
committed to be released, the shares become outstanding for EPS calculations. In addition, the
numerator, net income, is adjusted for interest expense related to the Convertible Notes, which is
discussed further in Note 6.
Use of Estimates
The preparation of the accompanying consolidated financial statements in conformity with U.S.
generally accepted accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results
could differ from those estimates.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
These reclassifications, primarily for the Companys discontinued operations as described in Note
3, have no impact on its total assets, liabilities, stockholders equity, net income or cash
flows.
Recently Issued Accounting Pronouncements
In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets an
amendment of APB Opinion No. 29 (SFAS 153). SFAS 153 eliminates the exception to account for
nonmonetary exchanges of similar productive assets at carrying value and replaces it with a general
exception for exchanges of nonmonetary assets that do not have commercial substance; otherwise, the
exchange principal of fair value applies. A nonmonetary exchange has commercial substance if the
future cash flows of the entity are expected to change significantly as a result of the exchange.
SFAS 153 is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after
June 15, 2005. The adoption of SFAS 153 did not have a material impact on the Companys results of
operations or financial condition.
In June 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections A
Replacement of APB Opinion No. 20 and FASB Statement No. 3 (SFAS 154). This Statement requires
that a voluntary change in accounting principle be applied retroactively with all prior period
financial statements
F-19
presented on the basis of the new accounting principle, unless it is impracticable to do so. SFAS
154 also requires that a change in method of depreciating or amortizing a long-lived nonfinancial
asset be accounted for prospectively as a change in estimate, and correction of errors in
previously issued financial statements should be termed a restatement. The new standard is
effective for accounting changes and a correction of errors made in fiscal years beginning after
December 15, 2005. Early adoption of this standard is permitted for accounting changes and
correction of errors made in fiscal years beginning after June 1, 2005. The Company does not
anticipate that the adoption of this statement will have a material impact on the Companys results
of operations or financial condition.
In November 2005, the FASB issued FASB Staff Position No. 45-3, Application of FASB
Interpretation No. 45 to Minimum Revenue Guarantees Granted to a Business or Its Owners (FSP FIN
45-3). It served as an amendment to FASB Interpretation No. 45, Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others
(FIN 45) by adding minimum revenue guarantees to the list of example contracts to which FIN 45
applies. Under FSP FIN 45-3, a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee.
One example cited in FSP FIN 45-3 involves a guarantee provided by a healthcare entity to a
non-employed physician in order to recruit such physician to move to the entitys geographical area
and establish a private practice. In the example, the healthcare entity also agreed to make
payments to the relocated physician if the gross revenue or gross receipts generated by the
physicians new practice during a specified time period did not equal or exceed predetermined
monetary thresholds. Because this example and another one in FSP FIN 45-3 are similar to certain
of the Companys physician recruiting commitments, the Company believes it falls under the
accounting guidance of the interpretation.
FSP FIN 45-3 is effective for new minimum revenue guarantees issued or modified on or after
January 1, 2006. The Company adopted FSP FIN 45-3 effective January 1, 2006. For periods before
January 1, 2006, the Company expensed the advances as they were paid to the physicians, which was
typically over a period of one year. However, under FSP FIN 45-3, the Company will expense the
advances paid to physicians over the period of the physician recruiting agreement, which is
typically five years. Therefore, the Company estimates that the adoption of FSP FIN 45-3 will lower
its physician recruiting expenses that are reported in the
consolidated statement of operations by approximately
$18.8 million, or $0.20 per diluted share, for the year ended December 31, 2006. In accordance
with FSP FIN 45-3, the Company makes certain disclosures on its outstanding physician minimum
revenue guarantees issued prior to adoption, as disclosed in Note 8.
Note 2. Acquisitions
Business Combination with Province Healthcare Company
On April 15, 2005 (the Effective Date), pursuant to the Agreement and Plan of Merger, dated
as of August 15, 2004, by and among Historic LifePoint Hospitals, Inc. (formerly LifePoint
Hospitals, Inc.) (Historic LifePoint), the Company, Lakers Acquisition Corp. (LifePoint Merger
Sub), Pacers Acquisition Corp. (Province Merger Sub) and Province Healthcare Company
(Province), as amended by Amendment No. 1 to Agreement and Plan of Merger, dated as of January
25, 2005, and Amendment No. 2 to Agreement and Plan of Merger, dated as of March 15, 2005 (as
amended, the Merger Agreement), the Company acquired all of the outstanding capital stock of each
of Historic LifePoint and Province through the merger of LifePoint Merger Sub with and into
Historic LifePoint, with Historic LifePoint continuing as the surviving corporation of such merger
(the LifePoint Merger), and the merger of Province Merger Sub with and into Province, with
Province continuing as the surviving corporation of such merger, (the Province Merger, and
together with the LifePoint Merger, the Province Business Combination). As a result of the
Province Business Combination, each of Historic LifePoint and Province is now a wholly owned
subsidiary of the Company.
Pursuant to the Merger Agreement, on the Effective Date, the shares of Common Stock, par value
$0.01 per share, of Historic LifePoint (Historic LifePoint Common Stock) outstanding as of the
Effective Date were deemed to be converted into shares of common stock, par value $0.01 per share,
of the Company (Company Common Stock) on a one-for-one basis without any action required to be
taken by the holders of such shares of Historic LifePoint Common Stock. Each share of common stock,
par value $0.01 per share, of Province outstanding as of the Effective Date (other than any shares
with respect to which appraisal rights had been
F-20
perfected) was converted into the right to receive $11.375 in cash and 0.2917 of a share of
Company Common Stock. The Company issued 15.0 million shares of its common stock and $586.3 million
of cash to the existing stockholders and option holders of Province.
As a result of the Province Business Combination, the Company became the successor issuer to
Historic LifePoint under the Securities Exchange Act of 1934, as amended (the Exchange Act), and
succeeded to Historic LifePoints reporting obligations thereunder. Pursuant to Rule 12g-3(c)
promulgated under the Exchange Act, the outstanding shares of Company Common Stock, together with
the associated rights to purchase preferred stock issued pursuant to the Rights Agreement, dated as
of April 15, 2005 (as it may be amended and supplemented from time to time, the Rights
Agreement), between the Company and National City Bank, as Rights Agent, are deemed to be
registered under paragraph (g) of Section 12 of the Exchange Act. As a result of the Province
Business Combination, the Company retired the Historic LifePoint treasury stock of $28.9 million as
of April 15, 2005.
In connection with the closing of the Province Business Combination, shares of Historic
LifePoint Common Stock, which had been listed and traded on the Nasdaq National Market under the
ticker symbol LPNT, ceased to be listed and traded on the Nasdaq National Market. However, shares
of Company Common Stock are now listed and traded on the Nasdaq National Market under the ticker
symbol LPNT.
The Company believes that the Province Business Combination provides and will continue to
provide efficiencies and enhance LifePoints ability to compete effectively in complementary
markets. As a result of the Province Business Combination, the Company is more geographically and
financially diversified in its asset base. The Company believes that it has greater resources and
increased opportunities for growth and margin expansion. The results of operations of Province are
included in LifePoints results of operations beginning April 16, 2005.
Based on $42.79, the 20-day weighted average Historic LifePoint stock price as of April 12,
2005, and the number of shares of Province Common Stock outstanding on such date, LifePoint issued
an aggregate of 15.0 million shares of its Common Stock to Province stockholders and paid Province
stockholders an aggregate of $586.3 million in cash, pursuant to the terms of the Merger Agreement.
The total purchase price of the Province Business Combination was as follows (in millions):
|
|
|
|
|
Fair value of LifePoint Common Stock issued |
|
$ |
596.0 |
|
Cash |
|
|
586.3 |
|
Fair value of assumed Province debt obligations |
|
|
511.6 |
|
Severance and Province stock option costs |
|
|
73.8 |
|
Direct transaction costs |
|
|
29.9 |
|
|
|
|
|
|
|
$ |
1,797.6 |
|
|
|
|
|
Under the purchase method of accounting, the total purchase price as shown in the table above
was allocated to Provinces net tangible and intangible assets based upon their estimated fair
values as of April 15, 2005. The excess of the purchase price over the estimated fair value of the
net tangible and intangible assets is recorded as goodwill. The estimated fair value of Company
Common Stock issued was based on the $39.63 Historic LifePoint average share price as of February
22, 2005, which is in accordance with Emerging Issues Task Force Issue Number 99-12, Determination
of the Measurement Date for the Market Price of Acquirer Securities Issued in a Purchase Business
Combination (EITF No. 99-12). As stated in paragraph 7 in EITF No. 99-12, the measurement date
is the earliest date, from the date the terms of the acquisition are agreed to and announced to the
date of final application of the formula pursuant to the acquisition agreement, on which subsequent
applications of the formula do not result in a change in the number of shares or the amount of
other consideration.
The purchase price allocation for the Province Business Combination has been prepared on a
preliminary basis and is subject to changes as new facts and circumstances emerge. The Company has
engaged a third-party valuation firm to complete a valuation of all acquired assets and assumed
liabilities of the Province Business
F-21
Combination. Once the valuation study is completed, the Company will adjust the purchase price
allocation to reflect the final values.
The preliminary fair values of assets acquired and liabilities assumed at the date of
acquisition were as follows (in millions):
|
|
|
|
|
Accounts receivable, net |
|
$ |
122.1 |
|
Inventories |
|
|
20.9 |
|
Prepaid expenses |
|
|
4.6 |
|
Other current assets |
|
|
15.5 |
|
Property and equipment |
|
|
620.1 |
|
Deferred loan costs |
|
|
10.7 |
|
Other long-term assets |
|
|
0.6 |
|
Goodwill |
|
|
1,176.4 |
|
|
|
|
|
Total assets acquired, excluding cash |
|
|
1,970.9 |
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
|
35.6 |
|
Accrued salaries |
|
|
28.1 |
|
Other current liabilities |
|
|
31.6 |
|
Long-term debt |
|
|
511.6 |
|
Deferred income taxes |
|
|
47.5 |
|
Professional and general liability claims and other
liabilities |
|
|
25.6 |
|
Minority interests in equity of consolidated entities |
|
|
2.0 |
|
|
|
|
|
Total liabilities assumed |
|
|
682.0 |
|
|
|
|
|
Net assets acquired |
|
$ |
1,288.9 |
|
|
|
|
|
A significant amount of the goodwill will not be deductible for income tax purposes due to the
structure of the Province Business Combination. In connection with the Province Business
Combination, the Company recognized a pretax charge for transaction costs of $43.2 million in the
year ended December 31, 2005, which comprised of the following (in millions):
|
|
|
|
|
Adjustment to Province acquired accounts receivable |
|
$ |
26.4 |
|
Adjustment to Province assumed liabilities, primarily related to professional
and general liability claims |
|
|
7.3 |
|
Retention bonuses paid to former Province employees |
|
|
4.2 |
|
Compensation expense, primarily restricted stock vesting from change in control |
|
|
5.3 |
|
|
|
|
|
|
|
$ |
43.2 |
|
|
|
|
|
The adjustment to acquired accounts receivable reflects the impact of conforming Provinces
accounting treatment regarding the estimation of the net realizable value of accounts receivable to
the Companys accounting policy. The adjustment to assumed liabilities primarily represents the
results of the Companys third-party actuarial valuations of professional and general liability
claims assumed in the Province Business Combination. In addition, the Company expensed as
transaction costs the bonus amounts paid to retain employees from Province that are employed by the
Company and compensation expense primarily related to the change-of-control vesting of the
Companys non-vested stock grants at April 15, 2005.
Subsequent to the Province Business Combination, the Company committed to a disposal plan
related to three of the hospitals acquired from Province as further discussed in Note 3.
Other 2005 Acquisitions
On June 1, 2005, the Company completed its agreement with the Wythe County Community Hospital
(WCCH) Board of Directors to lease the 104-bed facility located in Wytheville, Virginia for a
term of 30 years. Included in the transaction were certain working capital and major moveable
equipment purchased as part
F-22
of the lease agreement. The lease was finalized with a payment of $49.8 million, including
working capital, to WCCH. Estimated goodwill totaled $17.8 million, all of which is expected to be
deductible for tax purposes.
Effective July 1, 2005, the Company acquired 350-bed Danville Regional Medical Center (DRMC)
and related assets in Danville, Virginia for $229.3 million, including working capital (the
Danville Acquisition). Estimated goodwill totaled $118.6 million, all of which is expected to be
deductible for tax purposes.
The acquisitions of WCCH and DRMC (the 2005 Acquisitions) were accounted for using the
purchase method of accounting. The purchase prices of the 2005 Acquisitions were allocated to the
assets acquired and liabilities assumed based upon their respective preliminary fair values and are
subject to change during the twelve month period subsequent to their acquisition dates. The
estimated purchase price allocations for DRMC and WCCH are pending final appraisals and are subject
to settling amounts related to purchased working capital. The operating results of the 2005
Acquisitions have been included in the accompanying consolidated statements of operations from the
date of each respective acquisition.
Acquisition 2004
Effective July 1, 2004, the Company acquired the 106-bed River Parishes Hospital in LaPlace,
Louisiana from Universal Health Services, Inc. for approximately $24.8 million in cash, including
certain working capital and direct acquisition costs. The Company borrowed from its revolving
credit facility and paid the purchase price for this acquisition on June 30, 2004. The hospital is
located approximately 30 miles west of New Orleans, Louisiana and is the only hospital located in
St. John the Baptist Parish. Goodwill totaled approximately $5.7 million, all of which is expected
to be deductible for tax purposes.
Acquisition 2003
Effective October 1, 2003, the Company acquired Spring View Hospital, a 75-bed acute care
hospital located in Lebanon, Kentucky. The acquisition also included 38-bed Spring View Nursing
Home and Spring View Pediatrics. The consideration for this acquisition was $15.9 million, which
consisted of $15.5 million in cash paid at the closing and a $0.4 million net working capital
settlement paid in 2004. The Company used its available cash to pay for this acquisition. Goodwill
totaled approximately $5.8 million, all of which is expected to be deductible for tax purposes.
Intangible assets of $0.6 million relate to the certificates of need issued by the Commonwealth of
Kentucky for Spring View Hospital and Spring View Nursing Home. See Note 4 for a discussion of
these intangible assets.
Allocations of Purchase Price
The above acquisitions were accounted for using the purchase method of accounting. The
purchase prices of these transactions were allocated to the assets acquired and liabilities assumed
based upon their respective fair values. The operating results of the above facilities have been
included in the accompanying consolidated statements of operations from the date of each respective
facilitys acquisition. The following table summarizes the allocations of the aggregate purchase
price of the Companys acquisitions, excluding the Province Business Combination, including assumed
liabilities and direct transaction costs for the years ended December 31, 2003, 2004 and 2005 (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
Fair value of assets acquired, excluding cash: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
$ |
|
|
|
$ |
0.2 |
|
|
$ |
31.9 |
|
Other current assets |
|
|
0.5 |
|
|
|
1.3 |
|
|
|
10.5 |
|
Property and equipment |
|
|
10.0 |
|
|
|
19.7 |
|
|
|
117.7 |
|
Intangible assets |
|
|
0.6 |
|
|
|
|
|
|
|
0.2 |
|
Other assets |
|
|
|
|
|
|
|
|
|
|
2.5 |
|
Goodwill |
|
|
5.8 |
|
|
|
5.8 |
|
|
|
137.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16.9 |
|
|
|
27.0 |
|
|
|
300.6 |
|
|
|
|
|
|
|
|
|
|
|
Liabilities assumed |
|
|
|
|
|
|
(0.4 |
) |
|
|
(19.1 |
) |
|
|
|
|
|
|
|
|
|
|
Net assets acquired |
|
$ |
16.9 |
|
|
$ |
26.6 |
|
|
$ |
281.5 |
|
|
|
|
|
|
|
|
|
|
|
F-23
Unaudited Pro Forma Results of Operations
The following unaudited pro forma results of operations of the Company for the years ended
December 31, 2004 and 2005, assume that the Province Business Combination occurred at the beginning
of each of the periods presented. The pro forma amounts include certain adjustments, including
interest expense and taxes. As a result of the Province Business Combination, the Company
recognized non-recurring pre-tax charge for transaction costs of $43.2 million. The Company also
recognized non-recurring pre-tax charges for debt retirement costs of $1.5 million and $12.2
million for the years ended December 31, 2004 and 2005, respectively. These non-recurring charges
are reflected in the following unaudited pro forma results operations for the years ended December
31, 2004 and 2005. In addition, the pro forma amounts include adjustments that give effect to the
pro forma operations of DRMC, WCCH, Las Cruces Medical Center and River Parishes Hospital as if
they were all acquired on January 1, 2004. Province acquired Las Cruces Medical Center effective
June 1, 2004. These unaudited pro forma results are not necessarily indicative of the actual
results of operations that would have been achieved, nor are they necessarily indicative of future
results of operations (in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
Years Ended |
|
|
|
December 31, |
|
|
|
2004 |
|
|
2005 |
|
Revenues |
|
$ |
2,105.6 |
|
|
$ |
2,241.5 |
|
Income from continuing operations |
|
|
139.8 |
|
|
|
105.5 |
|
Net income |
|
|
135.5 |
|
|
|
97.6 |
|
Earnings per share: |
|
|
|
|
|
|
|
|
Basic: |
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
2.68 |
|
|
$ |
1.94 |
|
Net income |
|
$ |
2.60 |
|
|
$ |
1.79 |
|
Diluted: |
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
2.55 |
|
|
$ |
1.89 |
|
Net income |
|
$ |
2.48 |
|
|
$ |
1.75 |
|
Pending Acquisition
On July 14, 2005, the Company announced the signing of a definitive agreement to purchase five
hospitals in Virginia and West Virginia from HCA Inc. (HCA) for approximately $285.0 million,
plus working capital and other adjustments estimated to be $45.0 million. The Company expects to
complete the transaction in the first quarter of 2006 subject to customary regulatory approvals.
The five facilities to be purchased from HCA are:
|
|
|
|
|
|
|
|
|
Facility |
|
|
|
|
|
Number of Beds |
|
Clinch Valley Medical Center, Richlands, VA |
|
|
|
|
|
|
200 |
|
St. Josephs Hospital, Parkersburg, WV |
|
|
|
|
|
|
325 |
|
Saint Francis Hospital, Charleston, WV |
|
|
|
|
|
|
155 |
|
Raleigh General Hospital, Beckley, WV |
|
|
|
|
|
|
369 |
|
Putnam General Hospital, Hurricane, WV |
|
|
|
|
|
|
68 |
|
Note 3. Discontinued Operations
During the second quarter of 2005, subsequent to the Province Business Combination, the
Companys management committed to a plan to divest three hospitals acquired in the Province
Business Combination. These three hospitals are Medical Center of Southern Indiana
located in Charlestown, Indiana, Ashland Regional Medical Center located in
Ashland, Pennsylvania, and Palo Verde Hospital located in Blythe, California. The
Company divested Palo Verde Hospital on January 1, 2006 by terminating the lease of that hospital
and returning it to the Hospital District of Palo Verde. The Company
F-24
entered into an Asset Purchase Agreement for the sale of both Medical Center of Southern
Indiana and Ashland Regional Medical Center and the Companys management expects to complete this
disposal in the first half of 2006.
The Company has designated these three hospitals acquired in the Province Business Combination
as discontinued operations, consistent with provisions of SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (SFAS No. 144). The results of operations, net of
taxes, of these three hospitals are reflected in the accompanying consolidated financial statements
as discontinued operations in accordance with SFAS No. 144. In connection with the disposal of Palo
Verde Hospital, the Company recognized an impairment charge of $5.8 million, net of taxes, or $0.11
loss per diluted share, in discontinued operations in the year ended December 31, 2005. The
impairment charge relates to the assets of Palo Verde Hospital disposed of by the Company for which
it will receive no consideration. The following table sets forth the components of the impairment
charge (in millions):
|
|
|
|
|
|
|
Impairment |
|
|
|
Charge |
|
Current assets |
|
$ |
4.2 |
|
Property and equipment |
|
|
1.7 |
|
Goodwill |
|
|
3.0 |
|
|
|
|
|
|
|
|
8.9 |
|
Income tax benefit |
|
|
(3.1 |
) |
|
|
|
|
|
|
$ |
5.8 |
|
|
|
|
|
The assets of the facilities to be sold are reported as assets held for sale in the
accompanying consolidated balance sheets and are comprised of primarily property and equipment. The
Company has allocated $0.4 million of interest expense to discontinued operations for the year
ended December 31, 2005. The Company has calculated the allocation of interest based on the ratio
of net assets to be sold to the sum of total net assets of the Company plus the Companys debt.
During the third quarter of 2004, the Company committed to a plan to divest its 56-bed Bartow
Memorial Hospital (Bartow) located in Bartow, Florida. On March 31, 2005, the Company sold Bartow
to Health Management Associates, Inc. The Company recognized a net loss on the sale of Bartow of
approximately $0.7 million in 2005, most of which relates to tax expense attributable to
non-deductible goodwill originating from the tax basis of assets received at the spin-off of
LifePoint from HCA in 1999.
The results of operations, net of taxes, and the carrying value of the assets of Bartow that
were sold have been reflected in the accompanying consolidated financial statements as discontinued
operations in accordance with SFAS No. 144. All prior periods have been reclassified to conform to
this presentation for all periods presented. These required
reclassifications to the prior period consolidated
financial statements did not impact total assets, liabilities, stockholders equity, net income or
cash flows.
The revenues and loss before income taxes of discontinued operations for the years ended
December 31, 2003, 2004 and 2005 were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
Revenues |
|
$ |
31.5 |
|
|
$ |
32.8 |
|
|
$ |
48.1 |
|
Loss before income taxes |
|
|
(2.5 |
) |
|
|
(1.8 |
) |
|
|
(0.7 |
) |
F-25
Note 4. Goodwill and Intangible Assets
The Company performed its annual impairment tests as of October 1, 2003, 2004 and 2005 and did
not incur an impairment charge. The following table presents the changes in the carrying amount of
goodwill for the years ended December 31, 2004 and 2005 (in millions):
|
|
|
|
|
Balance at December 31, 2003 |
|
$ |
138.6 |
|
Purchase price allocations for acquisitions in 2004 |
|
|
5.8 |
|
|
|
|
|
Balance at December 31, 2004 |
|
|
144.4 |
|
Purchase price allocation for Province Business Combination |
|
|
1,176.4 |
|
Purchase price allocations for other acquisitions in 2005 |
|
|
137.8 |
|
Impairment recognized in discontinued operations |
|
|
(3.0 |
) |
|
|
|
|
Balance at December 31, 2005 |
|
$ |
1,455.6 |
|
|
|
|
|
The following table provides information regarding the Companys intangible assets, which are
included in the accompanying consolidated balance sheets at December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
Carrying |
|
|
Accumulated |
|
|
Net |
|
|
|
Amount |
|
|
Amortization |
|
|
Total |
|
Certificates of need: |
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
$ |
1.4 |
|
|
$ |
|
|
|
$ |
1.4 |
|
2004 |
|
|
1.1 |
|
|
|
|
|
|
|
1.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-competition agreements: |
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
$ |
5.9 |
|
|
$ |
3.1 |
|
|
$ |
2.8 |
|
2004 |
|
|
4.0 |
|
|
|
1.8 |
|
|
|
2.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
$ |
7.3 |
|
|
$ |
3.1 |
|
|
$ |
4.2 |
|
2004 |
|
|
5.1 |
|
|
|
1.8 |
|
|
|
3.3 |
|
Certificates
of need are issued by certain state governments to the hospitals owned by the Company. An
independent appraiser valued each certificate of need when the Company acquired a hospital. In
addition, these intangible assets were determined to have indefinite lives and, accordingly, are
not amortized. The non-competition agreements are amortized on a straight-line basis over the term
of the agreements. Amortization expense for the non-competition agreements were as follows for the
years ended December 31, 2003, 2004 and 2005 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
Amortization expense |
|
$ |
0.7 |
|
|
$ |
0.8 |
|
|
$ |
1.3 |
|
|
|
|
|
|
|
|
|
|
|
Total estimated amortization expense for the Companys intangible assets for the next five
years are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount |
2006 |
|
|
|
$ |
1.5 |
|
2007 |
|
|
|
|
0.9 |
|
2008 |
|
|
|
|
0.1 |
|
2009 |
|
|
|
|
0.1 |
|
2010 |
|
|
|
|
0.1 |
|
F-26
Note 5. Income Taxes
The provision for income taxes for the years ended December 31, 2003, 2004 and 2005 consists
of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
34.2 |
|
|
$ |
48.6 |
|
|
$ |
53.2 |
|
State |
|
|
2.8 |
|
|
|
2.4 |
|
|
|
7.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37.0 |
|
|
|
51.0 |
|
|
|
60.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
9.7 |
|
|
|
3.7 |
|
|
|
(1.3 |
) |
State |
|
|
(1.3 |
) |
|
|
2.0 |
|
|
|
(2.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
8.4 |
|
|
|
5.7 |
|
|
|
(4.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in valuation allowance |
|
|
0.5 |
|
|
|
(0.7 |
) |
|
|
2.3 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
45.9 |
|
|
$ |
56.0 |
|
|
$ |
58.4 |
|
|
|
|
|
|
|
|
|
|
|
The increases in the valuation allowance in 2003 and 2005 were primarily the result of state
net operating loss carryforwards that management believes may not be fully utilized because of the
uncertainty regarding the Companys ability to generate taxable income in certain states. The
decrease in the valuation allowance in 2004 was primarily the result of utilization of previously
reserved state net operating loss carryforwards. Various subsidiaries have state net operating loss
carryforwards in the aggregate of approximately $184.2 million (primarily in the states of Alabama,
Florida, Tennessee and West Virginia) with expiration dates through the year 2025.
A reconciliation of the statutory federal income tax rate to the Companys effective income
tax rate on income from continuing operations before income taxes for the years ended December 31,
2003, 2004 and 2005 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
Federal statutory rate |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
State income taxes, net of federal income tax benefit |
|
|
2.4 |
|
|
|
2.7 |
|
|
|
3.0 |
|
ESOP expense |
|
|
1.2 |
|
|
|
1.5 |
|
|
|
2.2 |
|
Valuation allowance |
|
|
0.5 |
|
|
|
(0.3 |
) |
|
|
1.1 |
|
Other items, net |
|
|
0.5 |
|
|
|
0.3 |
|
|
|
1.0 |
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate |
|
|
39.6 |
% |
|
|
39.2 |
% |
|
|
42.3 |
% |
|
|
|
|
|
|
|
|
|
|
F-27
Deferred income taxes result from temporary differences in the recognition of assets,
liabilities, revenues and expenses for financial accounting and tax purposes. Sources of these
differences and the related tax effects are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2005 |
|
Deferred income tax liabilities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
$ |
(62.4 |
) |
|
$ |
(151.0 |
) |
Prepaid expenses |
|
|
(4.2 |
) |
|
|
(6.2 |
) |
Other |
|
|
(11.7 |
) |
|
|
(13.9 |
) |
|
|
|
|
|
|
|
Total deferred income tax liabilities |
|
|
(78.3 |
) |
|
|
(171.1 |
) |
|
|
|
|
|
|
|
|
|
Deferred income tax assets: |
|
|
|
|
|
|
|
|
Provision for doubtful accounts |
|
|
19.5 |
|
|
|
38.2 |
|
Employee compensation |
|
|
12.7 |
|
|
|
16.9 |
|
Professional liability claims |
|
|
10.9 |
|
|
|
21.5 |
|
Other |
|
|
8.6 |
|
|
|
20.4 |
|
|
|
|
|
|
|
|
Total deferred income tax assets |
|
|
51.7 |
|
|
|
97.0 |
|
|
|
|
|
|
|
|
|
|
Valuation allowance |
|
|
(3.4 |
) |
|
|
(5.7 |
) |
|
|
|
|
|
|
|
Net deferred income tax assets |
|
|
48.3 |
|
|
|
91.3 |
|
|
|
|
|
|
|
|
Net deferred income tax liabilities |
|
$ |
(30.0 |
) |
|
$ |
(79.8 |
) |
|
|
|
|
|
|
|
The balance sheet classification of deferred income tax assets (liabilities) at December 31
was as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2005 |
|
Current |
|
$ |
17.9 |
|
|
$ |
44.2 |
|
Long-term |
|
|
(47.9 |
) |
|
|
(124.0 |
) |
|
|
|
|
|
|
|
Total |
|
$ |
(30.0 |
) |
|
$ |
(79.8 |
) |
|
|
|
|
|
|
|
The Companys income taxes receivable (payable) balance was $7.5 million and $(13.7) million
at December 31, 2004 and 2005, respectively. The tax benefits associated with the Companys
employee stock plans were $2.3 million, $6.2 million and $8.9 million for the years ended December
31, 2003, 2004 and 2005, respectively. These tax benefits reduced current taxes payable, increased
capital in excess of par value, and increased deferred tax assets attributable to state net
operating loss carryforwards by $8.9 million in 2005.
During 2003, the Internal Revenue Service (IRS) notified the Company regarding its findings
related to the examination of the Companys tax returns for the years ended December 31, 1999, 2000
and 2001. The Company reached a partial settlement with the IRS on all issues except for the
Companys method of determining its bad debt deduction, for which the IRS has proposed an
additional assessment of $7.4 million. All of the adjustments proposed by the IRS are temporary
differences. The IRS has delayed final settlement of this assessment until resolution of certain
pending court proceedings related to the use of this bad debt deduction method by HCA. On October
4, 2004, HCA was denied certiorari on its appeal of this matter to the United States Supreme Court.
The Company intends to reach resolution of its IRS examination after the final settlement of HCAs
tax years preceding the spin-off of the Company from HCA. Because of the complexity of the
computations involved, neither the Company nor HCA is able to estimate when the final settlement of
these tax years will occur. The Company applied its 2002 federal income tax refund in the amount of
$6.6 million as a deposit against any potential settlement to forestall the tolling of interest on
such settlement beyond the March 15, 2003 deposit date.
On April 7, 2005, Province received notification from the IRS of its intention to examine
Provinces federal income tax return for the year ended December 31, 2003. The Companys management
has not completed its analysis of the Province tax liabilities for the periods prior to and ending
on April 15, 2005, the acquisition date. Once the Companys management completes its analysis, any
necessary adjustments will be reflected in the purchase price allocation of Province.
On April 15, 2005, the Company received notification from the IRS of its intention to examine
the Companys federal income tax return for the year ended December 31, 2003. The Companys
management believes that adequate provisions have been reflected in the consolidated financial
statements to satisfy final resolution of the remaining disputed issue on the 1999 through 2001
audits as well as any issues that may arise in the audit of the 2003 tax return based upon current
facts and circumstances.
HCA and the Company entered into a tax sharing and indemnification agreement as part of the
1999 spin-off transaction. Under the agreement, HCA maintains full control and absolute discretion
with regard to any combined or consolidated tax filings for periods prior to the 1999 spin-off
transaction. In addition, the agreement provides that HCA will generally be responsible for all
taxes that are allocable to periods prior to the 1999 spin-off transaction and HCA and the Company
will each be responsible for its own tax liabilities for periods after the 1999 spin-off
transaction.
F-28
The tax sharing and indemnification agreement does not have an impact on the realization of
deferred tax assets or the payment of deferred tax liabilities of the Company, except to the extent
that the temporary differences give rise to such deferred tax assets and liabilities after the 1999
spin-off transaction and are adjusted as a result of final tax settlements after the 1999 spin-off
transaction. In the event of such adjustments, the tax sharing and indemnification agreement
provides for certain payments between HCA and the Company, as appropriate.
Note 6. Long-Term Debt
Long-term debt consists of the following at December 31, 2004 and 2005 (in millions):
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2005 |
|
Senior Borrowings: |
|
|
|
|
|
|
|
|
Credit Agreement: |
|
|
|
|
|
|
|
|
Term B Loans |
|
$ |
|
|
|
$ |
1,281.9 |
|
Revolving Credit Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Credit Borrowings |
|
|
|
|
|
|
1,281.9 |
|
|
|
|
|
|
|
|
Subordinated Borrowings: |
|
|
|
|
|
|
|
|
Province 71/2% Senior Subordinated Notes |
|
|
|
|
|
|
6.1 |
|
Province 41/4% Convertible Subordinated Notes, due 2008 |
|
|
|
|
|
|
0.1 |
|
31/4% Convertible Senior Subordinated Debentures, due 2025 |
|
|
|
|
|
|
225.0 |
|
LifePoint 41/2% Subordinated Convertible Notes, due 2009 |
|
|
221.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
221.0 |
|
|
|
231.2 |
|
Capital leases |
|
|
|
|
|
|
3.2 |
|
|
|
|
|
|
|
|
Total long-term debt |
|
|
221.0 |
|
|
|
1,516.3 |
|
Less: Current portion |
|
|
|
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
$ |
221.0 |
|
|
$ |
1,515.8 |
|
|
|
|
|
|
|
|
Maturities of the Companys long-term debt at December 31, 2005 were as follows (in millions):
|
|
|
|
|
2006 |
|
$ |
0.5 |
|
2007 |
|
|
0.5 |
|
2008 |
|
|
0.5 |
|
2009 |
|
|
0.3 |
|
2010 |
|
|
0.3 |
|
Thereafter |
|
|
1,514.2 |
|
|
|
|
|
|
|
$ |
1,516.3 |
|
|
|
|
|
New Senior Secured Credit Facilities
On April 15, 2005, in connection with the Province Business Combination, the Company entered
into a Credit Agreement with Citicorp North America, Inc. (CITI), as administrative agent and the
lenders party thereto, Bank of America, N.A., CIBC World Markets Corp., SunTrust Bank and UBS
Securities LLC, as co-syndication agents and Citigroup Global Markets Inc., as sole lead arranger
and sole book runner (the Credit Agreement). The Credit Agreement provides for secured term B
loans up to $1,250.0 million maturing on April 15, 2012 (the Term B Loans) and revolving loans of
up to $300.0 million maturing on April 15, 2012 (the Revolving Loans). In addition, the Credit
Agreement provided that the Company may request additional tranches of Term B Loans up to $400.0
million and additional tranches of Revolving Loans up to $100.0 million. The Credit Agreement is
guaranteed on a senior secured basis by the Companys subsidiaries with certain limited exceptions.
On August 23, 2005, the Company exercised its right under the Credit Agreement in connection with
additional tranches of Term B Loans by borrowing $150.0 million in the form of the incremental Term
B loans (the Incremental Term B Loans). Under the terms of the Credit Agreement, Term B Loans
available for borrowing were $250.0 million as of December 31, 2005.
Interest on the outstanding balances of the Term B Loans is payable, at the Companys option,
at CITIs base rate (the alternate base rate or ABR) plus a margin of 0.625% and/or at Adjusted
LIBO Rate plus a margin of
F-29
1.625%. Interest on the Revolving Loans is payable at ABR or Adjusted LIBO rate plus a margin.
The margin on ABR Revolving Loans ranges from 0.25% to 1.25% based on the total leverage ratio
being less than 2.00:1.00 to greater than 4.50:1.00. The margin on the Eurodollar Revolving Loans
ranges from 1.25% to 2.25% based on the total leverage ratio being less then 2.00:1.00 to greater
than 4.50:1.00.
In connection with the Province Business Combination, the Company made two Term B Loan
borrowings under the Credit Agreement that totaled $1,250.0 million. As of December 31, 2005, the
applicable annual interest rate under the Term B Loans was approximately 6.19%. The six month
Adjusted LIBOR was 4.56% at December 31, 2005. The weighted average applicable annual interest rate
since April 15, 2005 under the Term B Loans was approximately 5.29%.
The Term B Loans outstanding principal balances were scheduled to be repaid in consecutive
quarterly installments of approximately $3.1 million each over six years beginning on June 30,
2005. However, the Company made early installment payments under the Term B Loans totaling $118.1
million during the year ended December 31, 2005. These installment payments extinguished the
Companys required repayments through March 31, 2011. The remaining balances of the Term B Loans
are scheduled to be repaid in 2011 and 2012 in four installments totaling $1,281.9 million. The
Term B Loans are subject to additional mandatory prepayments with net proceeds from asset sales,
equity issuances other than excluded equity issuances, debt issuances other than excluded debt
issuances, and insurance proceeds. In addition, the Term B Loans are subject to additional
mandatory payments with a certain percentage of excess cash flow as specifically defined in the
Credit Agreement.
The Credit Agreement requires the Company to satisfy certain financial covenants, including a
minimum interest coverage ratio and a maximum total leverage ratio, as defined in the Credit
Agreement. The minimum interest coverage ratio can be no less than 3.25:1.00 for the period ending
on December 31, 2005 and 3.50:1.00 for all periods ending after December 31, 2005. These
calculations are based on the trailing four quarters. The maximum total leverage ratios cannot
exceed 4.75:1.00 for the periods ending on September 30, 2005 through December 31, 2006; 4.50:1.00
for the periods ending on March 31, 2007 through December 31, 2007; 4.25:1.00 for the periods
ending on March 31, 2008 through December 31, 2008; 4.00:1.00 for the periods ending on March 31,
2009 through December 31, 2009; and 3.75:1.00 for the periods ending thereafter. In addition, on an
annualized basis, the Company is also limited with respect to amounts spent on capital
expenditures. Such amounts cannot exceed 12% of revenues for periods ending December 31, 2005 and
2006, and cannot exceed 10% thereafter.
The financial covenant requirements and ratios are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level at |
|
|
|
Requirement |
|
|
December 31, 2005 |
|
Minimum Interest Coverage Ratio |
|
|
³ 3.25:1.00 |
|
|
|
5.61 |
|
Maximum Total Leverage Coverage Ratio |
|
|
£ 4.75:1.00 |
|
|
|
3.43 |
|
In addition, the Credit Agreement contains customary affirmative and negative covenants, which
among other things, limit the Companys ability to incur additional debt, create liens, pay
dividends, effect transactions with the Companys affiliates, sell assets, pay subordinated debt,
merge, consolidate, enter into acquisitions, and effect sale leaseback transactions.
On June 30, 2005, in connection with the Danville Acquisition, the Company borrowed $150.0
million in the form of Revolving Loans. On August 23, 2005, the Company executed an Incremental
Facility Amendment borrowing $150.0 million under the Incremental Term Loan, the proceeds of which
were used to pay the $150.0 million borrowed under the Revolving Loans.
On October 14, 2005, the Company entered into an amendment to the Credit Agreement. The
amendment provides for the increase in the maximum amount of letters of credit from $50.0 million
to $75.0 million, the increase in the amount of the general basket for permitted asset sales from
$300.0 million to $600.0 million and certain other amendments and clarifications.
F-30
As of December 31, 2005, the Company had $23.6 million in letters of credit outstanding under
the revolving loans. Of the $23.6 million in letters of credit outstanding as of December 31, 2005,
$23.5 million was related to self-insured retention level of its general and professional liability
insurance and workers compensation programs as security for payment of claims and $0.1 million was
related to certain utility companies. Under the terms of the Credit Agreement, Revolving Loans
available for borrowing were $276.4 million as of December 31, 2005. Interest expense related to
commitments available for borrowing was $0.9 million for the year ended December 31, 2005.
The Companys Credit Agreement does not contain provisions that would accelerate the maturity
date of the loans under the Credit Agreement upon a downgrade in its credit rating. However, a
downgrade in the Companys credit rating could adversely affect its ability to obtain other capital
sources in the future and could increase its costs of borrowings.
Senior Subordinated Credit Agreement
On June 15, 2005, the Company entered into a $192.0 million Senior Subordinated Credit
Agreement with CITI. The net proceeds of the borrowings were used to pay the redemption price, plus
accrued and unpaid interest of $190.2 million for the extinguishment of LifePoints 4 1/2%
Convertible Subordinated Notes due June 1, 2009.
The Company repaid the Senior Subordinated Credit Agreement on August 4, 2005 in connection
with the issuance of 3 1/4% Convertible Senior Subordinated Debentures due August 10, 2025. The
Company cannot borrow further amounts under this credit agreement. The Company incurred a charge to
debt retirement costs of $2.1 million related to the deferred loan costs during the year ended
December 31, 2005 in connection with the repayment of borrowings under the Senior Subordinated
Credit Agreement.
Previous Credit Facilities
In connection with the Province Business Combination, the Company repaid the $27.0 million
outstanding principal balance under the Province senior credit facility. At the time of the
Province Business Combination, the Company had no amounts outstanding under its prior senior credit
facility.
Province 7 1/2% Senior Subordinated Notes
In connection with the Province Business Combination, approximately $193.9 million of the
$200.0 million outstanding principal amount of Provinces 7 1/2% Senior Subordinated Notes due 2013
(the 7 1/2 Notes) was purchased and subsequently retired. The fair value assigned to the 7 1/2%
Notes in the Province purchase price allocation included tender premiums of $19.5 million paid in
connection with the debt retirement.
The supplemental indenture incorporating the amendments to the indenture governing the 7 1/2%
Notes in connection with Provinces consent solicitation with respect to such 7 1/2% Notes became
operative on April 15, 2005 and is binding upon the holders of any 7 1/2% Notes that were not
tendered pursuant to such tender offer.
The remaining $6.1 million outstanding principal amount of 7 1/2% Notes bears interest at the
rate of 7 1/2% payable semi-annually on June 1 and December 1. The Company may redeem all or a
portion of the 7 1/2% Notes on or after June 1, 2008, at the then current redemption prices, plus
accrued and unpaid interest. The 7 1/2% Notes are unsecured and subordinated to the Companys
existing and future senior indebtedness. The supplemental indenture contains no material covenants
or restrictions.
Province 4 1/4% Convertible Subordinated Notes
In connection with the Province Business Combination, approximately $172.4 million of the
$172.5 million outstanding principal amount of Provinces 4 1/4% Convertible Subordinated Notes due
2008 was purchased and
F-31
subsequently retired. The fair value assigned to the 4 1/4% Convertible Subordinated
Notes in the Province purchase price allocation included tender premiums of $12.1 million paid in
connection with the debt retirement.
Province 4 1/2% Convertible Subordinated Notes
In connection with the Province Business Combination, Province redeemed all of the $76.0
million outstanding principal amount of its 4 1/2% Convertible Subordinated Notes due 2005, at a
redemption price of 100.9% of its principal amount, plus accrued and unpaid interest to, but
excluding, May 16, 2005, the redemption date.
Historic LifePoints 4 1/2% Convertible Subordinated Notes
Historic LifePoint called for redemption all of the $221.0 million outstanding principal
amount of its 4 1/2% Convertible Subordinated Notes due June 1, 2009, at a redemption price of
102.571% of the principal amount, plus accrued and unpaid interest to, but excluding, the
redemption date which was June 15, 2005. The 4 1/2% Convertible Subordinated Notes were convertible
at the option of the holder into shares of the Companys Common Stock at a conversion price of
$47.36. The closing market price of the Companys Common Stock on the date of redemption was
$48.74.
Prior to the redemption date, holders of approximately $35.9 million in the aggregate
principal amount of the 4 1/2% Convertible Subordinated Notes due June 1, 2009, elected to convert
their notes into an aggregate of 757,482 shares of the Companys Common Stock. Approximately $185.1
million in aggregate principal amount of the 4 1/2% Convertible Subordinated Notes due June 1,
2009, was redeemed at the redemption price of 102.571% of the principal amount or approximately
$189.9 million. Deferred finance costs of $3.1 million, bond premium of $4.8 million and legal and
other fees of $0.1 million were expensed and included in debt retirement costs for the year ended
December 31, 2005. Deferred finance costs of $0.7 million were subtracted from the $35.9 million of
principal converted and included in stockholders equity as part of the conversion to equity.
3 1/4% Convertible Senior Subordinated Debentures due August 15, 2025
On August 10, 2005, the Company sold $225.0 million of its 3 1/4% Convertible Senior
Subordinated Debentures due 2025 (3 1/4% Debentures). The net proceeds were approximately $218.4
million and were used to repay the indebtedness under the Senior Subordinated Credit Agreement,
described above, and for working capital and general corporate purposes. The 3 1/4% Debentures
bears interest at the rate of 3 1/4% per year, payable semi-annually on February 15 and August 15.
The 3 1/4% Debentures are convertible (subject to certain limitations imposed by the Credit
Agreement) under the following circumstances: (1) if the price of the Companys common stock
reaches a specified threshold during the specified periods, (2) if the trading price of the 3 1/4%
Debentures has been called for redemption, or (3) if specified corporate transactions or other
specified events occur. Subject to certain exceptions, the Company will deliver cash and shares of
its common stock, as follows: (i) an amount in cash (the principal return) equal to the lesser of
(a) the principal amount of the 3 1/4% Debentures surrendered for conversion and (b) the product of
the conversion rate and the average price of its common stock, as defined in the indenture
governing the securities (the conversion value) and (ii) if the conversion value is greater than
the principal return, an amount in shares of its common stock. The Companys ability to pay the
principal return in cash is subject to important limitations imposed by the Credit Agreement and
other indebtedness the Company may incur in the future. In certain circumstances, even if any of
the foregoing conditions to conversion have occurred, the 3 1/4% Debentures will not be convertible
because of the Credit Agreement and holders of the 3 1/4% Debentures will not be able to declare an
event of default under the 3 1/4% Debentures.
The conversion rate is initially 16.3345 shares of the Companys common stock per $1,000
principal amount of 3 1/4% Debentures (subject to adjustment in certain events). This is equivalent
to a conversion price of $61.22 per share of common stock. In addition, if certain corporate
transactions that constitute a change of control occur on or prior to February 20, 2013, the
Company will increase the conversion rate in certain circumstances, unless such transaction
constitutes a public acquirer change of control and the Company elects to modify the conversion
rate into public acquirer common stock. Since the principal portion of the 3 1/4% Debentures is
payable only in
F-32
cash and the Companys common stock price during the year ended December 31, 2005 was trading
below the conversion price of $61.22 per share of the Companys common stock, there are no
potential common shares related to the 3 1/4% Debentures included in the Companys earnings per
share calculations.
On or after February 20, 2013, the Company may redeem for cash some or all of the 3 1/4%
Debentures at any time at a price equal to 100% of the principal amount of the 3 1/4% Debentures to
be purchased, plus any accrued and unpaid interest. Holders may require the Company to purchase for
cash some or all of the 3 1/4% Debentures on February 15, 2013, February 15, 2015, and February 15,
2020 or upon the occurrence of a fundamental change, at 100% of the principal amount of the 3 1/4%
Debentures to be purchased, plus any accrued and unpaid interest.
The indenture for the 3 1/4% Debentures does not contain any financial covenants or any
restrictions on the payment of dividends, the incurrence of senior or secured debt or other
indebtedness, or the issuance or repurchase of securities by the Company. The indenture contains no
covenants or other provisions to protect holders of the 3 1/4% Debentures in the event of a highly
leveraged transaction or fundamental change.
Note 7. Stockholders Equity
Preferred Stock
The Companys certificate of incorporation provides up to 10,000,000 shares of preferred stock
may be issued, of which 90,000 shares have been designated as Series A Junior Participating
Preferred Stock, par value $.01 per share. The Board of Directors has the authority to issue
preferred stock in one or more series and to fix for each series the voting powers (full, limited
or none), and the designations, preferences and relative, participating, optional or other special
rights and qualifications, limitations or restrictions on the stock and the number of shares
constituting any series and the designations of this series, without any further vote or action by
the stockholders. Because the terms of the preferred stock may be fixed by the Board of Directors
without stockholder action, the preferred stock could be issued quickly with terms calculated to
defeat a proposed takeover or to make the removal of the Companys management more difficult.
Preferred Stock Purchase Rights
Pursuant to the Companys stockholders rights plan, each outstanding share of common stock is
accompanied by one preferred stock purchase right. Each right entitles the registered holder to
purchase one one-thousandth of a share of Series A preferred stock at a price of $35 per one
one-thousandth of a share, subject to adjustment.
Each share of Series A preferred stock will be entitled, when, as and if declared, to a
preferential quarterly dividend payment in an amount equal to the greater of $10 or 1,000 times the
aggregate of all dividends declared per share of common stock. In the event of liquidation,
dissolution or winding up, the holders of Series A preferred stock will be entitled to a minimum
preferential liquidation payment equal to $1,000 per share, plus an amount equal to accrued and
unpaid dividends and distributions on the stock, whether or not declared, to the date of such
payment, but will be entitled to an aggregate payment of 1,000 times the payment made per share of
common stock. The rights are not exercisable until the rights distribution date as defined in the
stockholders rights plan. The rights will expire on May 7, 2009, unless the expiration date is
extended or unless the rights are earlier redeemed or exchanged.
The rights have certain anti-takeover effects. The rights will cause substantial dilution to a
person or group that attempts to acquire the Company on terms not determined by the board of
directors to be in the best interests of all stockholders. The rights should not interfere with any
merger or other business combination approved by the board of directors.
Common Stock
Holders of the Companys common stock are entitled to one vote for each share held of record
on all matters on which stockholders may vote. There are no preemptive, conversion, redemption or
sinking fund provisions
F-33
applicable to our common stock. In the event of liquidation, dissolution or winding up,
holders of common stock are entitled to share ratably in the assets available for distribution,
subject to any prior rights of any holders of preferred stock then outstanding. Delaware law
prohibits the Company from paying any dividends unless it has capital surplus or net profits
available for this purpose. In addition, the Companys Credit Agreement imposes restrictions on its
ability to pay dividends.
Share Repurchase Program
In April 2003, the Companys Board of Directors authorized the repurchase of up to $100
million of outstanding shares of the Companys common stock either in the open market or through
privately negotiated transactions, subject to market conditions, regulatory constraints and other
factors, to enable it to take advantage of opportunistic market conditions. This stock repurchase
program was publicly announced on April 28, 2003. The Company was not obligated to repurchase any
specific number of shares under the program. The program expired on October 28, 2004. The Company
repurchased 2,062,400 shares for an aggregate of approximately $45.7 million. Certain of these
shares were designated by the Company as treasury stock. The Company retired 863,600 of its
2,062,400 treasury shares during 2003 at a cost of $16.8 million, leaving 1,198,800 shares in
treasury at a cost of $28.9 million as of December 31, 2004. During 2005, in connection with the
Province Business Combination, the Companys remaining treasury stock was retired.
The following table summarizes the Companys share repurchase activity, all of which occurred
during 2003, by month:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number |
|
|
|
|
|
|
|
|
|
|
of Shares |
|
|
|
|
|
|
|
|
|
|
Purchased as |
|
|
|
|
|
|
|
|
|
|
Part of a |
|
|
Total Number |
|
Average |
|
Publicly |
|
|
of Shares |
|
Price Paid |
|
Announced |
Period |
|
Purchased |
|
per Share |
|
Program |
May 2003 |
|
|
863,600 |
|
|
$ |
19.43 |
|
|
|
863,600 |
|
June 2003 |
|
|
10,200 |
|
|
|
19.70 |
|
|
|
10,200 |
|
September 2003 |
|
|
450,000 |
|
|
|
24.31 |
|
|
|
450,000 |
|
October 2003 |
|
|
738,600 |
|
|
|
23.92 |
|
|
|
738,600 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
2,062,400 |
|
|
$ |
22.10 |
|
|
|
2,062,400 |
|
|
|
|
|
|
|
|
|
|
|
ESOP Compensation
In connection with the 1999 spin-off transaction, the Company established the ESOP, a defined
contribution retirement plan, which covers substantially all employees. The ESOP purchased from the
Company approximately 8.3% of the Companys common stock at fair market value (approximately 2.8
million shares at $11.50 per share). The purchase was primarily financed by the ESOP issuing a
promissory note to the Company, which is being repaid annually in equal installments over a 10-year
period beginning December 31, 1999. The Company makes contributions to the ESOP which the ESOP uses
to repay the loan. The Companys stock acquired by the ESOP is held in a suspense account and is
being allocated to participants at book value from the suspense account as the loan is repaid over
a 10-year period.
The loan to the ESOP is recorded as unearned ESOP compensation in the accompanying
consolidated balance sheets. Reductions are made to unearned ESOP compensation as shares are
committed to be released to participants at cost. Shares are deemed to be committed to be released
ratably during each period as the employees perform services. Shares are allocated ratably to
employee accounts over a period of 10 years (1999 through 2008). As the shares are committed to be released, the shares become
outstanding for earnings per share calculations.
During
2005, the Company changed its ESOP expense calculation to 2.5% of
salaries and wages expense. Prior to 2005, ESOP expense was
recognized using the average market price of the Companys
common stock released to participants in the ESOP. Subsequent to the
Province Business Combination and the 2005 Acquisitions, the Company
determined that the fixed number of shares it historically released
to ESOP participants was not adequate to provide the appropriate
employee benefit to its increased number of employees. Therefore, the
Company increased the ESOP expense and began funding a portion of the
expense in cash during the year ended December 31, 2005. The Company
contributed approximately $3.2 million to the ESOP
during the year ended December 31, 2005.
F-34
The ESOP expense was $6.9 million,
$9.4 million and $14.8 million for the years ended December 31, 2003, 2004 and 2005, respectively.
There was an additional $0.4
million ESOP expense allocated to discontinued operations for the year ended December 31, 2005.
The ESOP expense tax deduction attributable to released shares is fixed at $3.2 million per year.
The fair value of unreleased shares was $31.5 million at December 31, 2005.
The ESOP shares as of December 31, 2005 were as follows:
|
|
|
|
|
Allocated shares |
|
|
1,861,783 |
|
Shares committed to be released |
|
|
95,921 |
|
Unreleased shares |
|
|
839,015 |
|
|
|
|
|
Total ESOP shares |
|
|
2,796,719 |
|
|
|
|
|
Management Stock Purchase Plan
The Company has a Management Stock Purchase Plan (MSPP) which provides to certain designated
employees an opportunity to purchase restricted shares of the Companys common stock at a discount
through payroll deductions over six month intervals. Shares of the Companys common stock reserved
for this plan were 250,000 at December 31, 2005. Such shares are subject to a three-year
cliff-vesting period. All of the outstanding unvested shares of MSPP restricted stock as of April
15, 2005 fully vested as a result of the Province Business Combination, as further discussed in
Note 2. The Company redeems shares from employees upon vesting of the MSPP restricted stock for
minimum statutory tax withholding purposes. The Company redeemed 17,669, 3,760 and 21,084 shares
upon vesting of the MSPP restricted stock during 2003, 2004 and 2005, respectively. There were no
redemptions during 2002 because the MSPP shares vested beginning in 2003. Presented below is a
summary of activity under the MSPP for 2003, 2004 and 2005:
|
|
|
|
|
|
|
Shares Available |
|
|
for Issuance |
December 31, 2002 |
|
|
161,700 |
|
Forfeitures |
|
|
15,051 |
|
Issuances |
|
|
(32,217 |
) |
|
|
|
|
|
December 31, 2003 |
|
|
144,534 |
|
Forfeitures |
|
|
7,704 |
|
Issuances |
|
|
(25,932 |
) |
|
|
|
|
|
December 31, 2004 |
|
|
126,306 |
|
Forfeitures |
|
|
857 |
|
Issuances |
|
|
(22,037 |
) |
|
|
|
|
|
December 31, 2005 |
|
|
105,126 |
|
|
|
|
|
|
Employee Stock Purchase Plan
The Companys Employee Stock Purchase Plan (ESPP) provides an opportunity for substantially
all employees to purchase shares of the Companys common stock at a purchase price equal to 85% of
the lower of the closing price on the first day or last day of a six month interval. The Companys
stockholders approved an amendment to the ESPP to increase the number of shares of common stock
available for issuance from 100,000 to 300,000 in May 2003. The Companys Board of Directors
approved a change in the ESPP to increase the purchase price to 95% of the closing price of the
Companys Common Stock on the last day of the six-month interval. This change is effective January
1, 2006. Presented below is a summary of activity under the ESPP for 2003, 2004 and 2005:
|
|
|
|
|
|
|
Shares Available |
|
|
for Issuance |
December 31, 2002 |
|
|
60,110 |
|
Additional allocation |
|
|
200,000 |
|
Issuances |
|
|
(70,787 |
) |
|
|
|
|
|
December 31, 2003 |
|
|
189,323 |
|
Issuances |
|
|
(27,924 |
) |
|
|
|
|
|
December 31, 2004 |
|
|
161,399 |
|
Issuances |
|
|
(53,422 |
) |
|
|
|
|
|
December 31, 2005 |
|
|
107,977 |
|
|
|
|
|
|
F-35
Stock Options
1998 Long-Term Incentive Plan
The Companys 1998 Long-Term Incentive Plan, as amended, authorizes 13,625,000 shares of the
Companys common stock for issuance as of December 31, 2005. In June 2005, the Companys
stockholders approved an amendment to the 1998 Long-Term Incentive Plan to increase the number of
shares of common stock available for issuance from 11,625,000 to 13,625,000. The 1998 Long-Term
Incentive Plan authorizes the grant of stock options, stock appreciation rights and other stock
based awards to officers and employees of the Company. Options to purchase 1,066,850, 906,300 and
785,813 shares were granted to the Companys employees during the years ended December 31, 2003,
2004 and 2005, respectively, under this plan with an exercise price equal to the fair market value
on the date of grant. These options become exercisable beginning one year from the date of grant to
three years after the date of grant. All options granted under this plan expire 10 years from the
date of grant.
The Company granted 175,000 and 880,451 shares of nonvested stock awards to certain key
employees under the Companys 1998 Long-Term Incentive Plan during the years ended December 31,
2004 and 2005, respectively. The 2004 nonvested stock awards originally had a vesting period three
years from the grant date and contained no vesting requirements other than continued employment of
the executive. Of the total nonvested stock awards granted during 2005, 303,128 will vest three
years from the date of grant, and 577,323 will vest in equal installments on the third, fourth and
fifth anniversaries of the date of grant. The weighted-average fair market values at the date of
grant of the 2004 and 2005 nonvested stock awards were $33.17 and $42.54, respectively, per share
and were recorded as unearned compensation as a component of stockholders equity. Unearned
compensation is being amortized on a straight-line basis in the statements of operations over the
vesting periods of the awards. The total cost of the amortization related to these nonvested stock
awards was approximately $1.7 million and $6.3 million for the years ended December 31, 2004 and
2005, respectively.
As of April 15, 2005, all of the outstanding options, except for those granted in December
2004, and all of the outstanding nonvested stock awards under the 1998 Long-Term Incentive Plan
were fully vested as a result of the Province Business Combination, as further discussed in Note 1.
Outside Directors Stock and Incentive Plan
The Company also has an Outside Directors Stock and Incentive Plan (ODSIP) for which 375,000
shares of the Companys common stock have been reserved for issuance. In June 2004, the Companys
stockholders approved an amendment to the ODSIP to increase the number of shares of common stock
available for issuance from 175,000 to 375,000. The Company granted 30,000 options under this plan
to non-employee directors during the years ended December 31, 2003. There were no options granted
under this plan during either 2004 or 2005. These options become exercisable beginning in part from
the date of grant to three years after the date of grant and expire 10 years after grant.
The ODSIP further provides that non-employee directors may elect to receive, in lieu of any
portion of their annual retainer (in multiples of 25%), a deferred stock unit award. A deferred
stock unit award represents the right to receive a specified number of shares of the Companys
common stock. The shares are paid, subject to the election of the non-employee director, either two
years following the date of the award or at the end of the directors service on the board of
directors. The number of shares of the Companys common stock to
be paid under a deferred stock
unit award is equal to the value of the cash retainer that the non-employee director has elected to
forego, divided by the fair market value of the Companys common stock on the date of the award.
During 2004 and 2005, the Company granted 21,000 and 31,500 shares, respectively, of nonvested
stock awards to its outside directors under the ODSIP. These nonvested stock awards vest three
years from the grant date and contain no vesting requirements other than continued service of the
director. The weighted-average fair market values at the date of grant of the 2004 and 2005
nonvested stock awards were $37.86 and $48.78, respectively, and were recorded as unearned
compensation as a component of stockholders equity. Unearned compensation is being amortized on a
straight-line basis in the statements of operations over the three-year vesting period of the
awards. The total cost of the amortization related to these nonvested stock awards was
approximately $0.2 million and $0.4 million for the years ended December 31, 2004 and 2005,
respectively.
As of April 15, 2005, all outstanding options and nonvested stock awards under the ODSIP were
fully vested as a result of the Province Business Combination, as further discussed in Note 1.
F-36
Summary
Presented below is a summary of stock benefit activity for 2003, 2004 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred |
|
|
|
|
|
|
Stock Options |
|
Nonvested Stock |
|
Stock Units |
|
|
|
|
|
|
Outstanding |
|
Outstanding |
|
Outstanding |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
|
|
Shares |
|
|
|
|
|
Average |
|
|
|
|
|
Average |
|
|
|
|
Available |
|
Number |
|
Exercise |
|
Number of |
|
Grant Date |
|
Number of |
|
|
for Grant |
|
of Shares |
|
Price |
|
Shares |
|
Price |
|
Shares |
|
|
|
|
|
|
|
December 31, 2002 |
|
|
3,338,744 |
|
|
|
4,016,419 |
|
|
$ |
23.81 |
|
|
|
|
|
|
$ |
|
|
|
|
7,876 |
|
Stock option grants |
|
|
(1,066,850 |
) |
|
|
1,066,850 |
|
|
|
21.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred stock unit
grants |
|
|
(3,076 |
) |
|
|
|
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
3,076 |
|
Deferred stock
units vested |
|
|
|
|
|
|
|
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
(1,474 |
) |
Stock option
exercises |
|
|
|
|
|
|
(333,006 |
) |
|
|
11.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option
cancellations |
|
|
356,821 |
|
|
|
(356,821 |
) |
|
|
27.75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments |
|
|
14,813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2003 |
|
|
2,640,452 |
|
|
|
4,393,442 |
|
|
|
23.91 |
|
|
|
|
|
|
|
|
|
|
|
9,478 |
|
Increases in shares
available (approved
by stockholders) |
|
|
2,200,000 |
|
|
|
|
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option grants |
|
|
(906,300 |
) |
|
|
906,300 |
|
|
|
33.49 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred stock unit
grants |
|
|
(2,376 |
) |
|
|
|
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
2,376 |
|
Deferred stock
units vested |
|
|
|
|
|
|
|
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
(1,544 |
) |
Nonvested stock
grants |
|
|
(196,000 |
) |
|
|
|
|
|
|
N/A |
|
|
|
196,000 |
|
|
|
33.67 |
|
|
|
|
|
Stock option
exercises |
|
|
|
|
|
|
(774,635 |
) |
|
|
13.23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option
cancellations |
|
|
165,526 |
|
|
|
(165,526 |
) |
|
|
33.64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested stock
cancellations |
|
|
10,000 |
|
|
|
|
|
|
|
N/A |
|
|
|
(10,000 |
) |
|
|
33.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004 |
|
|
3,911,302 |
|
|
|
4,359,581 |
|
|
|
27.43 |
|
|
|
186,000 |
|
|
|
33.70 |
|
|
|
10,310 |
|
Increases in shares
available (approved
by stockholders) |
|
|
2,000,000 |
|
|
|
|
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option grants |
|
|
(785,813 |
) |
|
|
785,813 |
|
|
|
42.65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred stock unit
grants |
|
|
(2,076 |
) |
|
|
|
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
2,076 |
|
Deferred stock
units vested |
|
|
|
|
|
|
|
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
(1,230 |
) |
Nonvested stock
grants |
|
|
(911,951 |
) |
|
|
|
|
|
|
N/A |
|
|
|
911,951 |
|
|
|
42.76 |
|
|
|
|
|
Stock option
exercises |
|
|
|
|
|
|
(1,515,080 |
) |
|
|
28.72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option
cancellations |
|
|
69,740 |
|
|
|
(69,740 |
) |
|
|
40.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Change of control
vesting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(186,000 |
) |
|
|
33.67 |
|
|
|
|
|
Nonvested stock
cancellations |
|
|
45,582 |
|
|
|
|
|
|
|
|
|
|
|
(45,582 |
) |
|
|
42.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005 |
|
|
4,326,784 |
|
|
|
3,560,574 |
|
|
$ |
33.67 |
|
|
|
866,369 |
|
|
$ |
41.28 |
|
|
|
11,156 |
|
|
|
|
|
|
|
|
|
|
The following table summarizes information regarding the Companys stock options
outstanding at December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options Outstanding |
|
Exercisable Stock Options |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
Remaining |
|
Average |
|
|
|
|
|
Weighted |
|
|
Number of |
|
Contractual |
|
Exercise |
|
Number of |
|
Average |
Range of Exercise Prices |
|
Shares |
|
Life |
|
Price |
|
Shares |
|
Exercise Price |
|
|
|
|
|
$0.07 to $10.81 |
|
|
731,023 |
|
|
|
3.99 |
|
|
$ |
10.33 |
|
|
|
731,023 |
|
|
$ |
10.33 |
|
$15.64 to $17.44 |
|
|
22,535 |
|
|
|
2.48 |
|
|
|
17.24 |
|
|
|
22,535 |
|
|
|
17.24 |
|
$18.38 to $29.56 |
|
|
553,446 |
|
|
|
7.72 |
|
|
|
22.06 |
|
|
|
553,446 |
|
|
|
22.06 |
|
$31.05 to $33.17 |
|
|
619,183 |
|
|
|
8.03 |
|
|
|
32.58 |
|
|
|
619,183 |
|
|
|
32.58 |
|
$35.35 to $50.55 |
|
|
1,634,387 |
|
|
|
8.15 |
|
|
|
40.66 |
|
|
|
958,724 |
|
|
|
38.93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
3,560,574 |
|
|
|
7.17 |
|
|
|
30.00 |
|
|
|
2,884,911 |
|
|
|
26.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-37
Note 8. Commitments and Contingencies
Americans with Disabilities Act Claim
On January 12, 2001, Access Now, Inc., a disability rights organization, filed a class action
lawsuit against each of the Companys hospitals alleging non-compliance with the accessibility
guidelines under the Americans with Disabilities Act (the ADA). The lawsuit, filed in the United
States District Court for the Eastern District of Tennessee (District Court), seeks injunctive
relief requiring facility modification, where necessary, to meet the ADA guidelines, along with
attorneys fees and costs. The Company is currently unable to estimate the costs that could be
associated with modifying these facilities because these costs are negotiated and determined on a
facility-by-facility basis and, therefore, have varied and will continue to vary significantly
among facilities. In January 2002, the District Court certified the class action and issued a
scheduling order that requires the parties to complete discovery and inspection for approximately
six facilities per year. The Company intends to vigorously defend the lawsuit, recognizing the
Companys obligation to correct any deficiencies in order to comply with the ADA. As of December
31, 2005, the plaintiffs have conducted inspections at 22 of the Companys hospitals. To date, the
District Court approved the settlement agreements between the parties relating to ten of the
Companys facilities. The Company is moving forward in implementing facility modifications in
accordance with the terms of the settlement. The Company currently anticipates that the costs
associated with modifying three of these facilities will be approximately $1.0 million. The Company
currently does not have an estimate of its anticipated costs for modifications at the remaining
seven facilities.
At
this time, studies have not been undertaken with respect to over half
of the Companys hospitals, including the hospitals it acquired
during the year ended December 31, 2005. When surveyed, the Company may be
required to expend significant capital expenditures at one or more of these facilities in order to
comply with the ADA, and its financial position and results of operations could be adversely
affected as a result. Alternatively, noncompliance with the requirements of the ADA could result in
the imposition of fines against us by the federal government, or the award of damages from us to
private litigants.
Corporate Integrity Agreement
In December 2000, the Company entered into a five-year corporate integrity agreement with the
Office of Inspector General and agreed to maintain its compliance program in accordance with the
corporate integrity agreement. This agreement, which was amended four
times since 2000,
expired on December 31, 2005. Complying with the compliance measures and reporting and auditing
requirements of the corporate integrity agreement requires additional efforts and costs. Failure to
comply with the terms of the corporate integrity agreement could subject the Company to significant
monetary penalties. The Companys final report under the corporate integrity agreement is due May
31, 2006.
Legal Proceedings and General Liability Claims
The Company is, from time to time, subject to claims and suits arising in the ordinary course
of business, including claims for damages for personal injuries, medical malpractice, breach of
management contracts, wrongful restriction of or interference with physicians staff privileges and
employment related claims. In certain of these actions, plaintiffs request punitive or other
damages against the Company which may not be covered by insurance. The Company is currently not a
party to any proceeding which, in managements opinion, would have a material adverse effect on the
Companys business, financial condition or results of operations.
Physician Commitments
The Company has committed to provide certain financial assistance pursuant to recruiting
agreements with various physicians practicing in the communities it serves. In consideration for a
physician relocating to one of its communities and agreeing to engage in private practice for the
benefit of the respective community, the Company may loan certain amounts of money to a physician,
normally over a period of one year, to assist in establishing his or her practice. The Company has
committed to advance a maximum amount of approximately
F-38
$40.0 million at December 31, 2005. The actual amount of such commitments to be subsequently
advanced to physicians is estimated at $16.0 million and often depends upon the financial results
of a physicians private practice during the guaranteed period. Generally, amounts advanced under
the recruiting agreements may be forgiven prorata over a period of 48 months contingent upon the
physician continuing to practice in the respective community.
Capital Expenditure Commitments
The Company is reconfiguring some of its facilities to accommodate more effectively patient
services and restructuring existing surgical capacity in some of its hospitals to permit additional
patient volume and a greater variety of services. The Company had incurred approximately $78.4
million in uncompleted projects as of December 31, 2005, which is included in construction in
progress in the Companys accompanying consolidated balance sheet. At December 31, 2005, the
Company had projects under construction with an estimated additional cost to complete and equip of
approximately $118.7 million.
Pursuant to the asset purchase agreement for DRMC, the Company has agreed to expend at least
$11.3 million for capital expenditures and improvements before July 1, 2008.
The Company currently leases a 45-bed hospital in Ennis, Texas. The City of Ennis has
approved the construction of a new facility to replace Ennis Regional Medical Center at an
estimated cost of $35.0 million. The City of Ennis has agreed to fund $15.0 million of this cost.
The project calls for the Company to fund the difference in exchange for a 40 year prepaid lease.
The Company anticipates that construction will begin during the first quarter of 2006 and the
replacement facility will be completed in the first quarter of 2007.
The Company agreed in connection with the lease of WCCH to make capital expenditures or
improvements to the hospital of a value not less than $10.3 million prior to June 1, 2008, and an
additional $4.2 million, for an aggregate total of $14.5 million, before June 1, 2013.
In 2004, Province began construction of a 52-bed replacement facility for its existing 72-bed
facility in Eunice, Louisiana. Construction of the Eunice replacement facility is anticipated to be
completed in the first quarter of 2006 with an estimated remaining cost to complete of $9.3 million
as of December 31, 2005.
There are required annual capital expenditure commitments in connection with several of the
former Province facilities. In accordance with the purchase agreements for the Las Cruces, New
Mexico and Los Alamos, New Mexico facilities, the Company is obligated to make on going annual
expenditures based on a percentage of net revenues. In addition, these facilities have certain one
time commitments for renovations that have begun during 2005. The one time projects are expected to
be completed during 2006 and have an estimated remaining cost to complete of approximately $7.9
million.
Pursuant to the asset purchase agreement for Logan Regional Medical Center, the Company has
agreed to expend, regardless of the results of the hospitals operations, at least $20.0 million in
the aggregate for capital expenditures and improvements during the ten-year period following the
date of acquisition of December 1, 2002. The Company had incurred approximately $15.8 million of
the required capital improvements as of December 31, 2005.
Acquisitions
The Company has acquired and will continue to acquire businesses with prior operating
histories. Acquired companies, including the former Province hospitals, may have unknown or
contingent liabilities, including liabilities for failure to comply with healthcare laws and
regulations, medical and general professional liabilities, workers compensation liabilities,
previous tax liabilities and unacceptable business practices. Although the Company institutes
policies designed to conform practices to its standards following completion of acquisitions, there
can be no assurance that the Company will not become liable for past activities that may later be
asserted to be improper by private plaintiffs or government agencies. Although the Company
generally seeks to obtain indemnification from prospective sellers covering such matters, there can
be no assurance that any such matter
F-39
will be covered by indemnification, or if covered, that such indemnification will be adequate
to cover potential losses and fines. The Company was not indemnified by Province.
Leases
The Company leases real estate properties, buildings, vehicles and equipment under cancelable
and non-cancelable leases. The leases expire at various times and have various renewal options.
Certain leases that meet the lease capitalization criteria in accordance with SFAS No. 13
Accounting for Leases have been recorded as an asset and liability at the net present value of
the minimum lease payments at the inception of the lease. Interest rates used in computing the net
present value of the lease payments are based on the Companys incremental borrowing rate at the
inception of the lease. Rental expense of operating leases for the years ended December 31, 2003,
2004 and 2005 was $8.4 million, $9.5 million and $18.1 million, respectively.
Future minimum lease payments at December 31, 2005, for those leases having an initial or
remaining non-cancelable lease term in excess of one year are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
|
Capital Lease |
|
|
|
|
Year ending December 31, |
|
Leases |
|
|
Obligations |
|
|
Total |
|
2006 |
|
$ |
13.3 |
|
|
$ |
0.7 |
|
|
$ |
14.0 |
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
10.4 |
|
|
|
0.7 |
|
|
|
11.1 |
|
2008 |
|
|
8.4 |
|
|
|
0.6 |
|
|
|
9.0 |
|
2009 |
|
|
6.9 |
|
|
|
0.5 |
|
|
|
7.4 |
|
2010 |
|
|
5.0 |
|
|
|
0.4 |
|
|
|
5.4 |
|
2011 and thereafter |
|
|
22.7 |
|
|
|
1.3 |
|
|
|
24.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
66.7 |
|
|
|
4.2 |
|
|
$ |
70.9 |
|
|
|
|
|
|
|
|
|
|
|
|
Less: interest portion |
|
|
|
|
|
|
1.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term obligations under capital leases |
|
|
|
|
|
$ |
3.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax Matters
See Note 5. Income Taxes for a discussion of contingent tax matters.
Note 9. Earnings (Loss) Per Share
The following table sets forth the computation of basic and diluted earnings (loss) per share
for the years ended December 31, 2003, 2004 and 2005 (dollars and shares in millions, except per
share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for basic earnings per share income from
continuing operations |
|
$ |
70.2 |
|
|
$ |
86.8 |
|
|
$ |
79.8 |
|
Interest on convertible notes, net of taxes |
|
|
7.8 |
|
|
|
7.3 |
|
|
|
3.3 |
|
|
|
|
|
|
|
|
|
|
|
Numerator for diluted earnings per share income
from continuing operations |
|
|
78.0 |
|
|
|
94.1 |
|
|
|
83.1 |
|
Loss from discontinued operations, net of income taxes |
|
|
(1.7 |
) |
|
|
(1.1 |
) |
|
|
(6.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
76.3 |
|
|
$ |
93.0 |
|
|
$ |
76.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings (loss) per share
weighted average shares outstanding |
|
|
37.2 |
|
|
|
37.0 |
|
|
|
50.1 |
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock benefit plans |
|
|
0.8 |
|
|
|
0.8 |
|
|
|
0.9 |
|
Convertible notes |
|
|
5.3 |
|
|
|
5.0 |
|
|
|
2.2 |
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings (loss) per share
adjusted weighted average shares |
|
|
43.3 |
|
|
|
42.8 |
|
|
|
53.2 |
|
|
|
|
|
|
|
|
|
|
|
F-40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
Basic earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
1.89 |
|
|
$ |
2.34 |
|
|
$ |
1.59 |
|
Discontinued operations |
|
|
(0.05 |
) |
|
|
(0.03 |
) |
|
|
(0.14 |
) |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1.84 |
|
|
$ |
2.31 |
|
|
$ |
1.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
1.80 |
|
|
$ |
2.20 |
|
|
$ |
1.56 |
|
Discontinued operations |
|
|
(0.04 |
) |
|
|
(0.03 |
) |
|
|
(0.13 |
) |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1.76 |
|
|
$ |
2.17 |
|
|
$ |
1.43 |
|
|
|
|
|
|
|
|
|
|
|
Note 10. Related Party Transactions
As part of an officers relocation package, the Company purchased a house for approximately
$0.5 million during 2004, which is in other assets on the
Companys accompanying consolidated balance sheets as
of December 31, 2004 and 2005.
Note 11. Other Current Liabilities
The following table provides information regarding the Companys other current liabilities,
which are included in the accompanying consolidated balance sheets at December 31 (in millions):
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
2005 |
|
Accrued interest related to long-term debt |
|
$ |
1.1 |
|
|
$ |
13.6 |
|
Workers compensation liability |
|
|
3.4 |
|
|
|
12.9 |
|
Health benefits liability |
|
|
5.9 |
|
|
|
9.4 |
|
Other |
|
|
11.2 |
|
|
|
35.6 |
|
|
|
|
|
|
|
|
|
|
$ |
21.6 |
|
|
$ |
71.5 |
|
|
|
|
|
|
|
|
F-41
Note 12. Unaudited Quarterly Financial Information
The quarterly interim financial information shown below has been prepared by the Companys
management and is unaudited. It should be read in conjunction with the audited consolidated
financial statements appearing herein (dollars in millions, except per share amounts).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
First |
|
|
Second |
|
|
Third |
|
|
Fourth |
|
Revenues |
|
$ |
247.5 |
|
|
$ |
238.2 |
|
|
$ |
253.7 |
|
|
$ |
257.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
24.2 |
|
|
$ |
19.5 |
|
|
$ |
20.1 |
|
|
$ |
23.0 |
|
Income (loss) from discontinued operations |
|
|
(0.3 |
) |
|
|
(0.8 |
) |
|
|
(0.4 |
) |
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
23.9 |
|
|
$ |
18.7 |
|
|
$ |
19.7 |
|
|
$ |
23.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.66 |
|
|
$ |
0.53 |
|
|
$ |
0.54 |
|
|
$ |
0.62 |
|
Discontinued operations |
|
|
(0.01 |
) |
|
|
(0.02 |
) |
|
|
(0.01 |
) |
|
|
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
0.65 |
|
|
$ |
0.51 |
|
|
$ |
0.53 |
|
|
$ |
0.63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.61 |
|
|
$ |
0.50 |
|
|
$ |
0.51 |
|
|
$ |
0.58 |
|
Discontinued operations |
|
|
(0.01 |
) |
|
|
(0.02 |
) |
|
|
(0.01 |
) |
|
|
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
0.60 |
|
|
$ |
0.48 |
|
|
$ |
0.50 |
|
|
$ |
0.59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
|
First |
|
|
Second |
|
|
Third |
|
|
Fourth |
|
Revenues |
|
$ |
275.9 |
|
|
$ |
467.6 |
|
|
$ |
552.4 |
|
|
$ |
559.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
26.0 |
|
|
$ |
(2.8 |
) |
|
$ |
30.6 |
|
|
$ |
26.0 |
|
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued
operations |
|
|
0.6 |
|
|
|
0.3 |
|
|
|
(0.8 |
) |
|
|
(0.5 |
) |
Impairment of assets |
|
|
|
|
|
|
(4.7 |
) |
|
|
(0.2 |
) |
|
|
(0.9 |
) |
Gain (loss) on sale of hospital |
|
|
(0.8 |
) |
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations |
|
|
(0.2 |
) |
|
|
(4.3 |
) |
|
|
(1.0 |
) |
|
|
(1.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
25.8 |
|
|
$ |
(7.1 |
) |
|
$ |
29.6 |
|
|
$ |
24.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.69 |
|
|
$ |
(0.05 |
) |
|
$ |
0.55 |
|
|
$ |
0.47 |
|
Discontinued operations |
|
|
(0.01 |
) |
|
|
(0.08 |
) |
|
|
(0.01 |
) |
|
|
(0.03 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
0.68 |
|
|
$ |
(0.13 |
) |
|
$ |
0.54 |
|
|
$ |
0.44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.64 |
|
|
$ |
(0.05 |
) |
|
$ |
0.54 |
|
|
$ |
0.46 |
|
Discontinued operations |
|
|
(0.01 |
) |
|
|
(0.08 |
) |
|
|
(0.01 |
) |
|
|
(0.02 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
0.63 |
|
|
$ |
(0.13 |
) |
|
$ |
0.53 |
|
|
$ |
0.44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 13. Subsequent Event
On February 3, 2006, the Company announced that it entered into a definitive agreement to sell
Smith County Memorial Hospital, which is located in Carthage, Tennessee to Summer
Regional Health System. The Company expects to complete this sale in the first quarter of 2006.
The revenues of Smith County Memorial Hospital during the year ended December 31, 2005 were
approximately $13.6 million.
F-42
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, in the City of Brentwood, State of Tennessee, on February 6, 2006.
|
|
|
|
|
|
|
|
|
LIFEPOINT HOSPITALS, INC. |
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ KENNETH C. DONAHEY |
|
|
|
|
|
|
|
|
|
|
|
|
|
Kenneth C. Donahey |
|
|
|
|
|
|
Chairman, Chief Executive Officer and President |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant in the capacities and on the date
indicated.
|
|
|
|
|
Name |
|
Title |
|
Date |
/s/ KENNETH C. DONAHEY
|
|
Chairman, Chief Executive
|
|
February 6, 2006 |
|
|
|
|
|
Kenneth C. Donahey
|
|
Officer and President
(Principal Executive Officer) |
|
|
|
|
|
|
|
/s/ MICHAEL J. CULOTTA
|
|
Chief Financial Officer
|
|
February 6, 2006 |
|
|
|
|
|
Michael J. Culotta
|
|
(Principal Financial Officer) |
|
|
|
|
|
|
|
/s/ GARY D. WILLIS
|
|
Chief Accounting Officer
|
|
February 6, 2006 |
|
|
|
|
|
Gary D. Willis
|
|
(Principal Accounting Officer) |
|
|
|
|
|
|
|
/s/ RICKI TIGERT HELFER
|
|
Director
|
|
February 6, 2006 |
|
|
|
|
|
Ricki Tigert Helfer |
|
|
|
|
|
|
|
|
|
/s/ JOHN E. MAUPIN, JR., D.D.S.
|
|
Director
|
|
February 6, 2006 |
|
|
|
|
|
John E. Maupin, Jr., D.D.S. |
|
|
|
|
|
|
|
|
|
/s/ DEWITT EZELL, JR.
|
|
Director
|
|
February 6, 2006 |
|
|
|
|
|
DeWitt Ezell, Jr. |
|
|
|
|
|
|
|
|
|
/s/ WILLIAM V. LAPHAM
|
|
Director
|
|
February 6, 2006 |
|
|
|
|
|
William V. Lapham |
|
|
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/s/ RICHARD H. EVANS
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Director
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February 6, 2006 |
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Richard H. Evans |
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/s/ OWEN G. SHELL, JR.
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Director
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February 6, 2006 |
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Owen G. Shell, Jr. |
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/s/ MICHAEL P. HALEY
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Director
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February 6, 2006 |
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Michael P. Haley |
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Exhibit |
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Number |
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Description of Exhibits |
2.1
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Agreement and Plan of Merger, dated as of August 15, 2004, by and among LifePoint
Hospitals, Inc., Lakers Holding Corp., Lakers Acquisition Corp., Pacers Acquisition
Corp., and Province Healthcare Company (a) |
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2.2
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Amendment No. 1 to Agreement and Plan of Merger, dated as of January 25, 2005, by
and among LifePoint Hospitals, Inc., Lakers Holding Corp., Lakers Acquisition Corp.,
Pacers Acquisition Corp. and Province Healthcare Company (b) |
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2.3
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Amendment No. 2 to Agreement
and Plan of Merger, dated as of March 15, 2005, by and among
LifePoint Hospitals, Inc., Lakers Holding Corp., Lakers Acquisition Corp., Pacers
Acquisition Corp., and Province Healthcare Company (c) |
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2.4
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Distribution Agreement dated May 11, 1999 by and among Columbia/HCA, Triad
Hospitals, Inc. and LifePoint Hospitals, Inc. (c) |
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3.1
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Amended and Restated Certificate of Incorporation (d) |
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3.2
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Amended and Restated Bylaws of LifePoint Hospitals, Inc. (d) |
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4.1
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Form of Specimen Stock Certificate (e) |
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4.2
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Rights Agreement, dated as of April 15, 2005, by and between LifePoint Hospitals,
Inc. and National City Bank, as Rights Agent (d) |
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4.3
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Subordinated Indenture, dated as of May 27, 2003, between Province Healthcare
Company and U.S. Bank Trust National Association, as Trustee (f) |
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4.4
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First Supplemental Indenture to Subordinated Indenture, dated as of May 27, 2003, by
and among Province Healthcare Company and U.S. Bank National Association, as
Trustee, relating to Province Healthcare Companys 7 1/2% Senior Subordinated Notes
due 2013 (f) |
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4.5
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Second Supplemental Indenture to Subordinated Indenture, dated as of April 1, 2005,
by and among Province Healthcare Company and U.S. Bank National Association, as
Trustee (g) |
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4.6
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Indenture, dated as of October 10, 2001, between Province Healthcare Company and
National City Bank, including the forms of Province Healthcare Companys 4 1/4%
Convertible Subordinated Notes due 2008 (h) |
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4.7
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First Supplemental Indenture, dated as of April 15, 2005, by and among Province
Healthcare Company, LifePoint Hospitals, Inc. and U.S. Bank National Association (as
successor in interest to National City Bank), as trustee to the Indenture dated as
of October 10, 2001, relating to Province Healthcare Companys 4 1/4% Convertible
Subordinated Notes due 2008 (i) |
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4.8
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Indenture, dated August 10, 2005, between LifePoint Hospitals, Inc. and Citibank,
N.A., as Trustee (j) |
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4.9
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Form of 3.25% Convertible Senior Subordinated Debenture due 2025 (included as part
of Exhibit 4.8) (j) |
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4.10
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Registration Rights Agreement, dated August 10, 2005, between LifePoint Hospitals,
Inc. and Citigroup Global Markets Inc. as Representatives of the Initial Purchasers
(j) |
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10.1
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Tax Sharing and Indemnification Agreement, dated May 11, 1999, by and among
Columbia/HCA, LifePoint Hospitals, Inc. and Triad Hospitals, Inc. (k) |
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10.2
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Benefits and Employment Matters Agreement, dated May 11, 1999 by and among
Columbia/HCA, LifePoint Hospitals, Inc. and Triad Hospitals, Inc. (k) |
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10.3
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Insurance Allocation and Administration Agreement, dated May 11, 1999, by and among
Columbia/ HCA, LifePoint Hospitals, Inc. and Triad Hospitals, Inc. (k) |
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10.4
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Computer and Data Processing Services Agreement dated May 11, 1999 by and between
Columbia Information Systems, Inc. and LifePoint Hospitals, Inc. (k) |
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10.5
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Amendment to Computer and Data Processing Services Agreement, dated April 28, 2004,
by and between HCA-Information Technology and Services, Inc. and LifePoint
Hospitals, Inc. (l) |
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10.6
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LifePoint Hospitals, Inc. Executive Stock Purchase Plan (k) |
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10.7
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LifePoint Hospitals, Inc. Management Stock Purchase Plan, as amended and restated (m) |
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10.8
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LifePoint Hospitals, Inc. Outside Directors Stock and Incentive Compensation Plan (k) |
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10.9
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Amended and Restated 1998 Long-Term Incentive Plan (n) |
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10.10
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Amendment to the LifePoint Hospitals, Inc. Outside Directors Stock and Incentive
Compensation Plan (o) |
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Exhibit |
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Number |
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Description of Exhibits |
10.11
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Credit Agreement, dated as of April 15, 2005, by and among LifePoint Hospitals,
Inc., as borrower, the lenders referred to therein, Citicorp North America, Inc. as
administrative agent, Bank of America, N.A., CIBC World Markets Corp., SunTrust
Bank, UBS Securities LLC, as co-syndication agents and Citigroup Global Markets,
Inc., as sole lead arranger and sole bookrunner (i) |
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10.12
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Incremental Facility Amendment dated August 23, 2005, among LifePoint Hospitals,
Inc., as borrower, Citicorp North America, Inc., as administrative agent and the
lenders party thereto (p) |
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10.13
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Amendment No. 2 to Credit Agreement, dated October 14, 2005, among LifePoint
Hospitals, Inc. as borrower, Citicorp North America, Inc., as administrative agent
and the lenders party thereto (q) |
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10.14
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Corporate Integrity Agreement dated as of December 21, 2000 by and between the
Office of Inspector General of the Department of Health and Human Services and
LifePoint Hospitals, Inc. (r) |
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10.15
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Amendment to the Corporate Integrity Agreement, dated April 29, 2002, between the
Office of Inspector General of the Department of Health and Human Services and
LifePoint Hospitals, Inc. (m) |
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10.16
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Letter from the Office of Inspector General of the Department of Health and Human
Services, dated October 15, 2002 (m) |
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10.17
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Letter from the Office of Inspector of the Department of Health and Human Services,
dated December 18, 2003 (s) |
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10.18
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Letter from the Office of Inspector of the Department of Health and Human Services,
dated March 3, 2004 (s) |
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10.19
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LifePoint Hospitals, Inc. Employee Stock Purchase Plan (t) |
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10.20
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First Amendment to the LifePoint Hospitals, Inc. Employee Stock Purchase Plan (u) |
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10.21
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LifePoint Hospitals, Inc. Change in Control Severance Plan (v) |
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10.22
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LifePoint Hospitals, Inc. Executive Performance Incentive Plan (w) |
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10.23
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Employment Agreement of Kenneth C. Donahey, as amended and restated (s) |
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10.24
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Consulting Agreement, dated as of August 15, 2004, by and between LifePoint
Hospitals, Inc. and Martin S. Rash (b) |
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10.25
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Comprehensive Service Agreement for Diagnostic Imaging and Biomedical Services,
executed on January 7, 2005, between LifePoint Hospital Holdings, Inc. and GE
Healthcare Technologies (s) |
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10.26
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Form of LifePoint Hospitals, Inc. Nonqualified Stock Option Agreement (x) |
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10.27
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Form of LifePoint Hospitals, Inc. Restricted Stock Award Agreement (x) |
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21.1
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List of Subsidiaries |
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23.1
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Consent of Independent Registered Public Accounting Firm |
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31.1
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Certification of the Chief Executive Officer of LifePoint Hospitals, Inc. pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002 |
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31.2
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Certification of the Chief Financial Officer of LifePoint Hospitals, Inc. pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002 |
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32.1
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Certification of the Chief Executive Officer of LifePoint Hospitals, Inc. pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 |
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32.2
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Certification of the Chief Financial Officer of LifePoint Hospitals, Inc. pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 |
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(a) |
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Incorporated by reference from exhibits to LifePoint Hospitals
Current Report on Form 8-K filed on August 16, 2004, File No.
000-29818. |
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(b) |
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Incorporated by reference from exhibits to the Registration Statement
on Form S-4 filed by Lakers Holding Corp. on February 18, 2005 under
the Securities Act of 1933, as amended, File No. 333-119929. |
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(c) |
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Incorporated by reference from exhibits to the Current Report on Form
8-K filed by LifePoint Hospitals, Inc. on March 16, 2005, File No.
000-29818. |
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(d) |
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Incorporated by reference from exhibits to the Registration Statement
on Form S-8 filed by LifePoint Hospitals, Inc. on April 15, 2005, File
No. 333-124093. |
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(e) |
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Incorporated by reference from Appendix A to the Registration
Statement on Form S-4, as amended, filed by LifePoint Hospitals, Inc.
on February 18, 2005, File No. 333-119929. |
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(f) |
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Incorporated by reference from exhibits to Province Healthcare
Companys Quarterly Report on Form 10-Q for the quarter ended June 30,
2003, File No. 001-31320. |
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(g) |
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Incorporated by reference from exhibits to the Current Report on Form
8-K dated April 5, 2005 of Province Healthcare Company File No.
001-31320. |
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(h) |
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Incorporated by reference from the exhibits filed with the Province
Healthcare Companys Registration Statement on Form S-3, dated January
24, 2001, registration No. 333-54192. |
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(i) |
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Incorporated by reference from exhibits to the Current Report on Form
8-K dated April 15, 2005 of LifePoint Hospitals, Inc., File No.
000-51251. |
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(j) |
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Incorporated by reference from exhibits to the Current Report on Form
8-K dated August 10, 2005 of LifePoint Hospitals, Inc., File No.
000-51251. |
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(k) |
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Incorporated by reference from exhibits to LifePoint Hospitals
Quarterly Report on Form 10-Q for the quarter ended March 31, 1999,
File No. 000-29818. |
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(l) |
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Incorporated by reference from exhibits to LifePoint Hospitals
Quarterly Report on Form 10-Q for the quarter ended June 30, 2004,
File No. 000-29818. |
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(m) |
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Incorporated by reference from exhibits to LifePoint Hospitals Annual
Report on Form 10-K for the year ended December 31, 2002, File No.
000-29818. |
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(n) |
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Incorporated by reference from exhibits to the Current Report on Form
8-K dated July 7, 2005 of LifePoint Hospitals, Inc., File No.
000-51251. |
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(o) |
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Incorporated by reference from Appendix B to LifePoint Hospitals
Proxy Statement dated April 28, 2004, File No. 000-29818. |
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(p) |
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Incorporated by reference from exhibits to the Current Report on Form
8-K dated August 23, 2005 of LifePoint Hospitals, Inc., File No.
000-51251. |
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(q) |
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Incorporated by reference from exhibits to the Current Report on Form
8-K dated October 18, 2005 of LifePoint Hospitals, Inc., File No.
000-51251. |
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(r) |
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Incorporated by reference from exhibits to LifePoint Hospitals Annual
Report on Form 10-K for the year ended December 31, 2000, File No.
000-29818. |
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(s) |
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Incorporated by reference from exhibits to the Annual Report on Form
10-K for the year ended December 31, 2004 filed by LifePoint
Hospitals, Inc. on March 1, 2005, File No. 000-29818. |
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(t) |
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Incorporated by reference from exhibits to LifePoint Hospitals Annual
Report on Form 10-K for the year ended December 31, 2001, File No.
000-29818. |
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(u) |
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Incorporated by reference from exhibits to LifePoint Hospitals
Registration Statement on Form S-8 under the Securities Act of 1933,
File No. 333-105775. |
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(v) |
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Incorporated by reference from exhibits to LifePoint Hospitals
Current Report on Form 8-K dated May 16, 2002, File No. 000-29818. |
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(w) |
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Incorporated by reference from Appendix C to LifePoint Hospitals
Proxy Statement dated April 28, 2004, File No. 000-29818. |
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(x) |
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Incorporated by reference from exhibits to LifePoint Hospitals
Quarterly Report on Form 10-Q for the quarter ended June 30, 2005,
File No. 000-51251. |