##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM S-4
 REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
 CAPELLA HEALTHCARE, INC.
 (Exact name of registrants as specified in their charters)
 Delaware
    
    8062
    
    20-2767829(State or other jurisdiction of
    
    (Primary Standard Industrial
    
    (I.R.S. Employerincorporation or organization)
    
    Classification Code Number)
    
    Identification No.)
 SEE TABLE OF ADDITIONAL REGISTRANTS
 501 Corporate Centre Drive, Suite 200
Franklin, Tennessee 37067
(615) 764-3000  (Address, including zip code, and telephone number, including area code, of registrants principal executive offices)
 Daniel S. Slipkovich
Chief Executive Officer
Capella Healthcare, Inc.
501 Corporate Centre Drive, Suite 200
Franklin, Tennessee 37067
(615) 764-3000  (Name, address, including zip code, and telephone number, including area code, of agent for service)
 With copies to:
J. Chase Cole, Esq.
David C. Head, Esq.
Waller Lansden Dortch & Davis, LLP
511 Union Street, Suite 2700
Nashville, Tennessee 37219  615) 244-6380
 Approximate date of commencement of proposed sale of the securities to the public:
 o
 o
 o
  Large accelerated filer o   
    Accelerated filer o
    Non-accelerated filer þ
    Smaller reporting company o(Do not check if a smaller reporting company)
  o
 o
 
 CALCULATION OF REGISTRATION FEE
 Proposed maximum
    
    
    Proposed maximumTitle of each class of
    
    
    Amount to be
    
    
    offering price
    
    
    aggregate offering price
    
    
    Amount ofsecurities to be registered
    
    
    registered
    
    
    per note
    
    
    (1)
    
    
    registration fee91/4% Senior Notes due 2017
    
    
    $500,000,000
    
    
    100%
    
    
    $500,000,000
    
    
    $58,050Guarantees of 91/4% Senior Notes due 2017(2)
    
    
    N/A
    
    
    
    
    
    
    
    
    N/A(3)
 
 (1)
    
    Estimated solely for the purpose of calculating the registration fee under Rule 457(f) of the
Securities Act of 1933, as amended (the Securities Act).(2)
    
    See inside facing page for table of registrant guarantors.(3)
    
    Pursuant to Rule 457(n) under the Securities Act, no separate filing fee is required for the
guarantees. The registrants hereby amend this registration statement on such date or dates as may be
necessary to delay its effective date until the registrants shall file a further amendment which
specifically states that this registration statement shall thereafter become effective in
accordance with Section 8(a) of the
Securities Act  or until the registration statement shall become effective on such date
as the Commission, acting pursuant to said Section 8(a), may determine.




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##### Table of Contents



TABLE OF ADDITIONAL REGISTRANTS
 PrimaryState or Other
    
    Standard
    
    I.R.S.Jurisdiction of
    
    Industrial
    
    EmployerIncorporation
    
    Classification
    
    IdentificationName, Address and Telephone Number (1)
    
    or Organization
    
    Code Number
    
    NumberCapella Holdings of Oklahoma, LLC
    
    Delaware
    
    8062
    
    20-8308250Capital Medical Center Holdings, LLC
    
    Delaware
    
    8062
    
    14-1936331Capital Medical Center Partner, LLC
    
    Delaware
    
    8062
    
    62-1805349CMCH Holdings LLC
    
    Delaware
    
    8062
    
    26-4088312Columbia Medical Group  South Pittsburg, Inc.
    
    Tennessee
    
    8062
    
    62-1639105Columbia Olympia Management, Inc.
    
    Delaware
    
    8062
    
    62-1690140Cullman County Medical Clinic, Inc.
    
    Alabama
    
    8062
    
    63-1138503Cullman Hospital Corporation
    
    Alabama
    
    8062
    
    63-1157234Cullman Surgery Venture Corp.
    
    Delaware
    
    8062
    
    74-3042199Farmington Clinic Company, LLC
    
    Missouri
    
    8062
    
    20-4795191Farmington Heart & Vascular Center, LLC
    
    Delaware
    
    8062
    
    27-0888641Farmington Hospital Corporation
    
    Missouri
    
    8062
    
    20-4795037Farmington Missouri Hospital Company, LLC
    
    Missouri
    
    8062
    
    20-4795132Grandview Physician Group, LLC
    
    Tennessee
    
    8062
    
    32-0142836Hartselle Physicians, Inc.
    
    Alabama
    
    8062
    
    63-1173620Jacksonville Medical Professional Services, LLC
    
    Delaware
    
    8062
    
    20-5957808Jacksonville Surgical and Medical Affiliates, LLC
    
    Delaware
    
    8062
    
    26-3311350Lawton Holdings, LLC
    
    Delaware
    
    8062
    
    26-4088357Mineral Area Pharmacy and Durable Medical
Equipment, LLC
    
    Missouri
    
    8062
    
    20-4890756Muskogee Holdings, LLC
    
    Delaware
    
    8062
    
    20-4088158Muskogee Medical and Surgical Associates, LLC
    
    Delaware
    
    8062
    
    26-4445694Muskogee Physician Group, LLC
    
    Delaware
    
    8062
    
    20-8493666Muskogee Regional Medical Center, LLC
    
    Delaware
    
    8062
    
    20-8308340National Healthcare of Decatur Inc.
    
    Delaware
    
    8062
    
    63-0928790National Healthcare of Hartselle, Inc.
    
    Delaware
    
    8062
    
    63-0928787National Park Cardiology Services, LLC
    
    Delaware
    
    8062
    
    26-4446655National Park Family Care, LLC
    
    Delaware
    
    8062
    
    27-4035448National Park Physician Services, LLC
    
    Delaware
    
    8062
    
    62-1762445NPMC Holdings, LLC
    
    Delaware
    
    8062
    
    26-4088237NPMC, Home Health, LLC
    
    Delaware
    
    8062
    
    20-8449844NPMC, LLC
    
    Delaware
    
    8062
    
    20-4599508




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##### Table of Contents



PrimaryState or Other
    
    Standard
    
    I.R.S.Jurisdiction of
    
    Industrial
    
    EmployerIncorporation
    
    Classification
    
    IdentificationName, Address and Telephone Number (1)
    
    or Organization
    
    Code Number
    
    NumberOregon Healthcorp, LLC
    
    Delaware
    
    8062
    
    62-1769632Parkway Medical Clinic, Inc.
    
    Alabama
    
    8062
    
    63-1138502QHG of Jacksonville, Inc.
    
    Alabama
    
    8062
    
    62-1637909River Park Hospital, Inc.
    
    Tennessee
    
    8062
    
    62-0811451River Park Hospitalists, LLC
    
    Tennessee
    
    8062
    
    03-0557520River Park Physician Group, LLC
    
    Delaware
    
    8062
    
    26-3798779Russellville Holdings, LLC
    
    Delaware
    
    8062
    
    62-1771866Sequatchie Valley Urology, LLC
    
    Tennessee
    
    8062
    
    32-0142834Southwestern Emergency Department Physician
Services, LLC
    
    Oklahoma
    
    8062
    
    13-4229397Southwestern Medical Center, LLC
    
    Delaware
    
    8062
    
    62-1757662Southwestern Neurosurgery Physicians, LLC
    
    Oklahoma
    
    8062
    
    20-1084297Southwestern Physician Services, LLC
    
    Oklahoma
    
    8062
    
    57-1141094Southwestern Radiology Affiliates, LLC
    
    Delaware
    
    8062
    
    27-3256164Southwestern Surgical Affiliates LLC
    
    Delaware
    
    8062
    
    26-3311227SP Acquisition Corp.
    
    Tennessee
    
    8062
    
    62-1321262Sparta Hospital Corporation
    
    Tennessee
    
    8062
    
    62-1587742St. Marys Holdings, LLC
    
    Delaware
    
    8062
    
    26-4088270St. Marys Physician Services, LLC
    
    Delaware
    
    8062
    
    62-1769626St. Marys Real Property, LLC
    
    Delaware
    
    8062
    
    62-1762460Western Washington Healthcare, LLC
    
    Washington
    
    8062
    
    20-1275656Willamette Valley Clinics, LLC
    
    Delaware
    
    8062
    
    62-1766695Willamette Valley Medical Center, LLC
    
    Delaware
    
    8062
    
    62-1762552WPC Holdco, LLC
    
    Delaware
    
    8062
    
    62-1839545
 
 (1)
    
    The address of each additional registrants principal executive office is c/o Capella
Healthcare, Inc., 501 Corporate Centre Drive, Suite 200, Franklin, Tennessee 37067. The
telephone number of each additional registrant is (615) 764-3000.




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##### Table of Contents



The information in this prospectus is not complete and may be changed. We may not sell these
securities until the registration statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell securities and it is not soliciting an offer to
buy these securities in any state where the offer or sale is not permitted. Subject
to completion, dated June 28, 2011
 PROSPECTUS
 Capella Healthcare, Inc.
 Offer to Exchange
up to $500,000,000 91/4% Senior Notes due 2017
for up to $500,000,000 91/4% Senior Notes due 2017
that have been registered under the Securities Act of 1933
 1 4 1 4
 Terms of the exchange notes offered in the exchange offer:
 
    
    The terms of the exchange notes are substantially identical to the terms of
the outstanding notes, except that the exchange notes have been registered under the
Securities Act and will not contain restrictions on transfer or any registration rights.
    
    The exchange notes will represent the same debt as the outstanding notes,
and we will issue the exchange notes under the same indenture.
 Terms of the exchange offer:
 
    
    All outstanding notes that you validly tender and do not validly withdraw
before the exchange offer expires will be exchanged for an equal principal amount of the
exchange notes.
    
    The exchange offer expires at 5:00 p.m., New York City time, on      ,
2011, unless extended.
    
    You may withdraw tenders of outstanding notes at any time prior to the
expiration date of the exchange offer.
    
    The exchange of exchange notes for outstanding notes will not be a taxable
event for U.S. federal income tax purposes. Please read the discussion under the caption
Certain Material U.S. Federal Income Tax Considerations for more information.
    
    We will not receive any proceeds from the exchange offer.
    
    We issued the outstanding notes in a transaction not requiring registration
under the Securities Act, and as a result, their transfer is restricted. We are making
the exchange offer to satisfy the registration rights of holders of the outstanding
notes.
   You should carefully consider the Risk Factors beginning on page 20 of this prospectus before
participating in the exchange offer.
 Neither the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal offense.




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##### 



You should rely only on the information contained in this prospectus and the accompanying
letter of transmittal. We have not authorized any person to provide you with any information or
represent anything about us or this exchange offer that is not contained or specifically referred
to in this prospectus. If given or made, any such other information or representation should not
be relied upon as having been authorized by us. We are not making an offer to sell these exchange
notes in any jurisdiction where an offer or sale is not permitted. You should not assume that the
information contained in this prospectus is accurate as of any date other than the date on the
front of this prospectus.
 TABLE OF CONTENTS
 PROSPECTUS SUMMARY
    
    
    1RISK FACTORS
    
    
    20SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
    
    
    36USE OF PROCEEDS
    
    
    38RATIO OF EARNINGS TO FIXED CHARGES
    
    
    39CAPITALIZATION
    
    
    40SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
    
    
    41MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
    
    
    45BUSINESS
    
    
    70MANAGEMENT
    
    
    96COMPENSATION DISCUSSION AND ANALYSIS
    
    
    100EXECUTIVE COMPENSATION
    
    
    103CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
    
    
    109SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
    
    
    112DESCRIPTION OF OTHER INDEBTEDNESS
    
    
    113THE EXCHANGE OFFER
    
    
    115DESCRIPTION OF EXCHANGE NOTES
    
    
    125CERTAIN MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
    
    
    169CERTAIN ERISA CONSIDERATIONS
    
    
    170PLAN OF DISTRIBUTION
    
    
    172LEGAL MATTERS
    
    
    173EXPERTS
    
    
    173WHERE YOU CAN FIND ADDITIONAL INFORMATION
    
    
    173INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
    
    
    F-1EX-3.1EX-3.2EX-3.3EX-3.4EX-3.5EX-3.6EX-3.7EX-3.8EX-3.9EX-3.10EX-3.11EX-3.12EX-3.13EX-3.14EX-3.15EX-3.16EX-3.17EX-3.18EX-3.19EX-3.20EX-3.21EX-3.22EX-3.23EX-3.24EX-3.25EX-3.26EX-3.27EX-3.28EX-3.29EX-3.30EX-3.31EX-3.32EX-3.33EX-3.34EX-3.35EX-3.36EX-3.37EX-3.38EX-3.39EX-3.40EX-3.41EX-3.42EX-3.43EX-3.44EX-3.45EX-3.46EX-3.47EX-3.48EX-3.49EX-3.50EX-3.51EX-3.52EX-3.53EX-3.53EX-3.55EX-3.56EX-3.57EX-3.58EX-3.59EX-3.60EX-3.61EX-3.62EX-3.63EX-3.64EX-3.65EX-3.66EX-3.67EX-3.68EX-3.69EX-3.70EX-3.71EX-3.72EX-3.73EX-3.74EX-3.75EX-3.76EX-3.77EX-3.78EX-3.79EX-3.80EX-3.81EX-3.82EX-3.83EX-3.84EX-3.85EX-3.86EX-3.87EX-3.88EX-3.89EX-3.90EX-3.91EX-3.92EX-3.93EX-3.94EX-3.95EX-3.96EX-3.97EX-3.98EX-3.99EX-3.100EX-3.101EX-3.102EX-3.103EX-3.104EX-3.105EX-3.106EX-3.107EX-3.108EX-3.109EX-3.110EX-4.1EX-4.3EX-4.4EX-4.5EX-10.1EX-10.2EX-10.3EX-10.4EX-10.5EX-10.6EX-10.7EX-10.8EX-10.9EX-10.10EX-10.11EX-10.12EX-10.13EX-10.14EX-10.15EX-10.16EX-10.17EX-10.18EX-10.19EX-10.20EX-10.22EX-10.23EX-10.24EX-10.25EX-10.26EX-10.27EX-10.28EX-10.29EX-10.30EX-12EX-21EX-23.2EX-25.1EX-99.1EX-99.2
  INDUSTRY AND MARKET DATA




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PROSPECTUS SUMMARY
 This prospectus summary highlights significant aspects of our business and this exchange
offer, but it is not complete and does not contain all of the information that you should consider
before deciding whether to exchange your outstanding notes for exchange notes. You should carefully
read the entire prospectus, including the information presented under the sections entitled Risk
Factors, Managements Discussion and Analysis of Financial Condition and Results of Operations
and our consolidated financial statements and related notes included elsewhere in this prospectus,
before making a decision to participate in this exchange offer. This summary contains
forward-looking statements that involve risks and uncertainties. Our actual results may differ
significantly from the results discussed in the forward-looking statements as a result of certain
factors, including those set forth in Risk Factors and Special Note Regarding Forward-Looking
Statements.
 Unless otherwise noted, the term Capella refers to Capella Healthcare, Inc. and the terms
the Company, we, us and our refer to Capella and its consolidated subsidiaries.
 Our Company
     Our Industry




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Demographics and Disease Trends
 Quality-Driven Reimbursement
 Specialized Services.
 Consolidation
 Healthcare Reform
 2




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Our Competitive Strengths
  
    
    Commitment to Delivery of Patient Care Excellence. We believe providing
patient care excellence is critical to attracting patients, physicians, medical staff and
employees to our facilities. In addition, providing high quality patient care is
increasingly vital to achieving our operating and financial success, including receiving
full reimbursement from governmental and commercial insurance payors. As a result, we have
implemented several management and operating initiatives aimed at continuously monitoring
and improving our quality of care. We believe several factors contribute to providing
patient care excellence, including leadership and accountability at all levels of our
organization, aligning ourselves with quality physicians and clinical staff, as well as
providing a clinical environment that is satisfactory to our patients, physicians and
employees. To support these initiatives, each of our hospitals has a Chief Quality Officer
(CQO) who is responsible for implementing and monitoring our quality training and
operating programs. In addition, we have Boards of Trustees and Local Physician Leadership
Groups (LPLGs) at each of our facilities, a Physician Advisory Group (PAG), a National
Physician Leadership Group (NPLG) and several on-line training tools, which are focused
on delivering patient care excellence, clinical best practices and results in our
hospitals. In January 2011, we added a Chief Medical Officer (CMO) to our senior
management team to assume leadership responsibility for facilitating the work of our NPLG,
ensuring that physician leaders across the Company are continuously involved in shaping our
vision and future strategies. The CMO is also responsible for providing leadership for our
affiliated hospitals quality and service excellence initiatives as well as for on-going
communication with medical staff members. Furthermore, we strive continually to improve
physician and employee satisfaction, which we believe is critical to delivering quality
patient care. Our satisfaction review program is instrumental in identifying ways to
improve quality of care in each of our facilities. Some of the results of our efforts
include:
 
    
    accreditation of all of our hospitals, including 12 by The Joint Commission
and one by the American Osteopathic Association;
    
    in spring of 2011, The Joint Commission recognized eight of our hospitals
for significant improvement and/or consistent high performance in various elements of
the core measures and invited them to participate in the pilot-testing of Solutions
Exchange, a program to help other hospitals throughout the nation;
    
    Parkway Medical Center was ranked in the top 1% of all U.S. hospitals by
Data Advantage Hospital Value Index (HVI) and was recognized as a center of
excellence in bariatric surgery in 2010;
    
    Capital Medical Center received a #1 ranking in the state of Washington by
HealthGrades for its orthopedic program in 2010 and a Best in Country, Top 10 in the
state of Washington by HealthGrades for general surgery in 2011;
    
    Southwestern Medical Center was the first hospital in southwest Oklahoma to
receive certification from The Joint Commission for its stroke program and, in 2011,
earned its fifth consecutive accreditation from the Commission on Accreditation of
Rehabilitation Facilities;
    
    Muskogee Regional Medical Center earned accreditation from the Oklahoma
State Medical Association as a sponsor of Continuing Medical Education in 2010 and
earned Quality Respiratory Care Recognition from the American Association for
Respiratory Care in 2010 and 2011;
    
    Willamette Valley Medical Center was named a Best Value in the State of
Oregon for 2009 and 2010 by the Press Ganey Hospital Value Index;
 3




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
    
    River Park Hospital earned its third consecutive national Chest Pain Center
accreditation in 2010 from the Society of Chest Pain Centers;
    
    Mineral Area Regional Medical Center was named a 2011 Excellence through
Insight award recipient in the category of Overall Physician Satisfaction by
HealthStream Research;
    
    National Park Medical Center was named to HomeCare Elite in 2010, which is
the top 5% of high performance home health agencies in the U.S.; and
    
    improved physician and employee satisfaction scores in 2010, as measured by
an independent, third-party, nationally-recognized survey administrator.
 
    
    Diversified Portfolio of Assets with Strong Market Positions in Attractive
Communities.We maintain the top market position in six, the second position in six and
the third position in one of our markets based on inpatient admissions in our PSAs. We
diversified our asset base by entering new geographic markets through successful
acquisitions. Our top three states, Arkansas, Oklahoma and Oregon, which contain five of
our hospitals, accounted for 25.6%, 21.7% and 12.7% of our 2010 net revenue, respectively,
and 25.6%, 20.9% and 12.8% of our net revenue, respectively, for the three month period
ended March 31, 2011.
    
    Strategic Physician Recruitment and Retention.We have been successful in
implementing our strategic physician recruitment and retention plan. In the summer of 2008,
we commissioned an independent consulting group to perform a market needs analysis with a
focus on the unserved medical needs of the community. From that analysis, we developed a
strategic recruitment plan to meet each of our markets healthcare needs. Executing that
plan, we recruited 61 physicians in 2008; 72 in 2009; and 68 in 2010. During 2010, 42.6%
were specialists in areas such as general surgery, cardiology, womens services and,
orthopedics. The remainder were primary care physicians, including hospitalists and
physicians practicing in areas such as family medicine, internal medicine and pediatrics.
    
    Proven Ability to Instill Operational Excellence in Acquired Facilities.We
have acquired and integrated 14 hospitals successfully since our inception in 2005. Once we
acquire a facility, we implement a customized strategic plan focused on leadership,
quality, physician engagement and recruitment, capital investment, cost initiatives and
enhancing key services. We believe our ability to increase revenue, operating margins and
cash flow at acquired facilities is the direct result of our disciplined approach to
expanding and improving key services, recruiting physicians to provide these services,
streamlining costs, enhancing relationships with our physicians and employees and
implementing a targeted capital investment program. In addition, our senior management team
has an average of more than 28 years of experience in hospital operations, with three
members of our senior management team having been either a hospital CEO or Chief Financial
Officer (CFO).
    
    Strategic Capital Investments Resulting in Well Capitalized Facilities.We
have not been required to make significant capital investments renovating or repairing our
facilities because the hospitals we acquired typically have been capitalized and maintained
well by their previous owners. For example, Willamette Valley Medical Center completed an
approximately $37 million renovation and expansion project in November 2007 (we acquired it
in March 2008) and Muskogee Regional Medical Center was in the process of completing an
approximately $31 million renovation and expansion project in April 2007 when we entered
into a long-term lease for that facility. Although we monitored the projects completion,
the lessor bore the cost of renovation and expansion. We have invested in targeted growth
initiatives, primarily focused on new and enhanced services. We have invested a total of
approximately $68.0 million in our facilities over the three-year period ended December 31,
2010. Major projects funded by us include (i) approximately $9 million in renovations and
expansions to operating rooms, the intensive care unit and the cancer center at
Southwestern Medical Center that were completed in 2008; (ii) aggregate of approximately
$5.2 million for the purchase of a linear accelerator and medical oncology and radiation
therapy renovations at Capital Medical Center that were also completed in 2008; and (iii)
approximately $3.4
 4




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##### Table of Contents



million for Novalis Tx radiation oncology equipment at Muskogee Regional Medical Center in
2010. We believe that our continued commitment to invest in our communities and facilities
will further strengthen our quality of care and our ability to recruit and retain leading
physicians and healthcare professionals.
    
    Experienced Senior Management and Leadership Teams. Our senior management team
has an average of more than 28 years of experience in the healthcare industry with a proven
record of achieving strong operating results while operating with significant leverage. The
senior management team is highly respected in the hospital industry, has significant
experience in acquiring, improving and managing hospitals and has demonstrated its ability
to integrate hospitals effectively without reducing its focus on existing operations. In
addition, the average experience of our current hospital CEOs is approximately 25 years.
 Our Business Strategy
  
    
    Enhancing Quality of Care and Service Excellence.We place significant
emphasis on consistently providing high quality patient care and service excellence. We
seek to achieve this by continuously enhancing our programs and protocols through targeted
investments in our employees, physicians, systems and strategic growth initiatives. We
believe value based purchasing initiatives of both governmental and private payors, such as
linking payment for healthcare services to performance on objective quality measures, will
increasingly become key drivers of financial performance. Examples of these initiatives
include denying payment for avoidable hospital re-admissions and bundling payments for
acute care services with physician or post-acute services. We believe our continued
strategic investments to improve patient care excellence will prepare us to face the
challenges and capitalize on the opportunities relating to the ever-changing,
pay-for-performance environment. Some of our strategic initiatives in quality and service
excellence include:
 
    
    Emergency Rooms. Recently, we embarked on a multi-year strategy to enhance
quality and improve operating efficiencies in our emergency rooms. This strategy
involves implementing process improvement initiatives such as Lean for Healthcare
techniques, which are designed to improve patient experiences through more efficient
utilization of resources. As a result of this initiative, several members of our
corporate and hospital staff have received Lean for Healthcare certifications. We also
are making a significant investment in a leading emergency department information
system, which is comprised of several modules that offer comprehensive patient
management tools. The program provides appropriate and consistent guidelines for
patient care excellence helping to ensure that proper screening, evaluation and
treatment is performed.
    
    Local Physician Leadership Groups, or LPLGs. Our LPLGs are comprised of
four to five physician leaders and our hospital CEO in each of our markets. The groups
(i) provide ongoing dialogue with hospital administration; (ii) help develop key
strategic initiatives for the hospital; and (iii) promote patient care excellence.
    
    Physician Advisory Group, or PAG. Our PAG is comprised of physician
leaders across the Company. The group (i) provides clinical review and guidance
related to information system design, build-out and workflow; (ii) advises us on
physician communication and education; and (iii) identify opportunities where
technology can be used to improve clinical processes and outcomes.
    
    National Physician Leadership Group, or NPLG. Our NPLG is comprised of one
member of each LPLG and Capella senior management. The group (i) receives updates on
Capella corporate strategy and vision; (ii) discusses quality of care issues and goals;
(iii) promotes networking among Capella-affiliated physicians; (iv) offers advice on
special projects where front line physician input is critical; and (v) allows members
of the medical staff to have direct communication with members of Capella senior
management.
    
    Chief Medical Officer. Our CMO is responsible for facilitating the work of
our NPLG, ensuring that physician leaders from across the Company are continuously
involved in shaping our vision and future strategies. The CMO is also responsible for
providing leadership for our affiliated hospitals quality and service excellence
initiatives as well as for on-going communication with medical staff members.
 
 5




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##### Table of Contents




    
    Training and Education. We provide the Capella Learning Center, a
customized on-line learning center comprised of approximately 3,000 clinically based
courses to all our staff. Our corporate CQO develops and implements a work plan for
each of the hospitals based upon their specific needs. The hospital CQO and Chief
Nursing Officer (CNO), in turn, develop individual educational work plans for each
staff member at their facility. Usage of the Capella Learning Center is monitored by
the corporate CQO and is reported to Capella senior management. We work with an
independent consulting group to provide training in the areas of improving patient care
processes as well as employee, physician and patient satisfaction. We believe this is a
critical element in emphasizing our philosophy that, if our employees and physicians
enjoy where they work and are intellectually stimulated, they will improve the quality
care our patients receive. We will continue to survey our physicians and our employees
on an annual basis to identify objectives for quality and satisfaction improvement.
    
    Compensation. We base the incentive compensation for our hospital
administrative teams in significant part on achieving key individual and facility
quality and service metrics such as performance on patient satisfaction surveys and
other core measurements.
 
    
    Continued Physician Engagement and Alignment Initiatives. Our ability to meet
the medical care needs of our communities and enhance and expand our services is highly
dependent on our physician engagement strategies. We have a comprehensive recruiting
program that is directed at the local level by our hospital CEOs and Boards of Trustees. We
supplement our local teams with several third-party recruiting firms to assist us in
identifying candidates that match the profile of our physician needs. We maintain a
flexible approach to aligning our goals with our physician partners, including our
willingness to recruit physicians through multi-year employment and/or income guarantee
arrangements and to enter into joint venture and other collaborative arrangements. We
added a CMO to our senior management team to assume leadership responsibility for
facilitating the work of our NPLG, ensuring that physician leaders across the Company are
continuously involved in shaping the Companys vision and future strategies. In addition,
we believe physicians are attracted to our hospitals because of several factors, including:
 
    
    our commitment to patient care excellence;
    
    our willingness to deploy strategic capital to improve the delivery of
care;
    
    our focus on employing and developing high quality nursing and support
staff; and
    
    our integration into, and support of, the communities we serve.
 
    
    Identifying and Establishing Strong Local Market Leadership.We empower our
individual hospital management teams to develop comprehensive strategic plans and position
their hospitals to meet the healthcare needs of the communities they serve. In addition to
strong corporate oversight and resources, each of our local leadership teams is supported
by a local Board of Trustees and a LPLG. The Board of Trustees is comprised of physicians
and community leaders as well as the hospital CEO. We believe local community leaders are
an important resource for our hospital CEOs to insure that we are being responsive to the
needs of the communities we serve. Our LPLGs are typically comprised of local physician
leaders as well as members of our hospitals administration. These groups insure that we
are providing patient care excellence, offering the appropriate medical services,
maintaining high quality employees and recruiting the best physicians to our medical staff.
Capella corporate provides continuous operational, financial and human resources support to
our local teams and has designed programs that allow us to share best practices across our
entire portfolio of facilities.
    
    Expanding the Services We Provide.Each year, we conduct in-depth strategic
reviews of the major service lines offered at each of our facilities as well as market
demand for additional services. We leverage our local market knowledge and information
together with input and guidance from our local physician and community leaders to
prioritize the healthcare services our communities are seeking. We then initiate a
financial assessment and develop an investment plan that supports the expansion of the
appropriate services. Focus areas include:
 
    
    expanding specialty medical services such as medical and radiation
oncology, orthopedic, cardiovascular, neurology, behavioral health and womens
services;
 
    
    initiating and expanding outpatient services;
 6




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##### Table of Contents




    
    investing in medical equipment and technology to support our service lines;
 
    
    improving our efficiency to deliver better quality care in our emergency
rooms; and
 
    
    enhancing patient, physician and employee satisfaction.
 We have engaged consultants and are working with our hospital CEOs to identify trends in
service lines and areas for future expansion of services. We remain motivated to invest in
our facilities in order to increase the quality and scope of services we provide, meet the
needs of our communities and establish a strong reputation so that we may continue to
recruit leading physicians, become the healthcare provider of choice in our communities and
increase the revenue and profitability of our facilities. For example, we re-introduced
medical and radiation oncology to Capital Medical Center to meet the needs of that
community. In coordination with this effort, we were able to recruit several medical and
radiation oncologists to that facility. More recently, we were able to develop a total joint
replacement program at Willamette Valley Medical Center. As part of this program, we were
able to recruit three orthopedic surgeons to the market. The hospitals reputation for
quality and our local physicians participation helped this program come to fruition.
    
    Pursuing Acquisitions and Strategic Relationships.We believe we will continue
to have opportunities to pursue acquisitions of hospitals and other healthcare facilities
both in existing and new markets. We will pursue a disciplined acquisition strategy in
markets where we believe we can have the greatest impact on the financial and operational
performance of the acquired facility. We will continue to target acute care hospitals and
ancillary facilities in attractive, primarily non-urban markets with populations generally
greater than 35,000. We have a focused criteria that cover multiple aspects of a new
facility and include demographics, operational improvement, financial improvement and
cultural alignment. We perform a significant amount of due diligence on each facility we
intend to acquire to ensure that our criteria are met.As a result of the recent economic downturn, we believe many public and not-for-profit
hospitals are facing significant financial challenges and could seek to partner with strong
operators who are well capitalized and who demonstrate a willingness to invest in the
communities they serve. We believe we meet these criteria. From time to time, we also may
consider entering into joint ventures or strategic alliances with other hospitals and
healthcare providers.
    
    Investing in Technology to Improve Patient Care.The Health Information
Technology for Economic and Clinical Health Act (HITECH Act) was enacted into law on
February 17, 2009 as part of the American Recovery and Reinvestment Act of 2009 (ARRA).
The HITECH Act includes provisions designed to increase the use of computerized physician
order entry at hospitals and the use of electronic health records (EHR) by both
physicians and hospitals. We believe that these systems improve quality, safety,
efficiency and clinical outcomes. We intend to comply with the EHR meaningful use
requirements of the HITECH Act to qualify for the maximum available Medicare and Medicaid
incentive payments. We continue to refine our budgeted costs and the expected
reimbursement improvements associated with our EHR initiatives. Consequently, we believe
we may qualify for Medicare reimbursement at three of our hospitals in the fourth quarter
of 2011 and already qualify for Medicaid reimbursement in three states. Implementing a
standard emergency room management system across all hospitals is another example of our
investing in information technology to improve patient care. This system, in conjunction
with our other process improvement initiatives, helps to ensure that appropriate and
consistent quality patient care is administered quickly and reliably to our emergency room
patients. Additionally, the creation of our PAG is designed to foster collaboration with
our physicians to assist us in providing patient care excellence through technological
improvements.
    
    Delivering Strong Financial Performance.We pride ourselves on maintaining
disciplined financial policies aimed at growing revenue, improving margins and generating
free cash flow. We will continue to focus on ways in which we can increase revenue from our
existing facilities, including continued investments to expand services, physician
recruitment to meet our communities needs and favorable managed care contracts. We are
also focused on capitalizing on several operational efficiencies to improve our margins and
free cash flow, including:
 
    
    continued focus on revenue cycle management and collections;
 
    
    disciplined deployment of capital across our portfolio;
 7




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
    
    encouragement and motivation of our physicians and medical staff to adhere
to our established protocols related to medical supplies utilization;
 
    
    infrastructure build-out to support our growing physician clinic
operations;
 
    
    implementation of appropriate staffing tools and continued reduction of
contract labor; and
 
    
    leveraged technical expertise through use of our corporate resources.
 The Refinancing
  Recent Developments
  Additional Information
  Our Principal Investor
 8




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##### Table of Contents



(1)
    
    As of March 31, 2011. Comprised of shares of common stock.(2)
    
    Captive insurance company.(3)
    
    Joint ventures currently own and operate (i) Capital Medical Center, White County Community
Hospital and National Park Medical Center in which physicians hold interests representing
approximately 9.75%, 16.20% and 4.96%, respectively, of the equity ownership of these
facilities; and (ii) outpatient centers in which Capella holds a minority interest. Following
the closing of the CCH Transaction, physicians will hold interests representing approximately
12.275% of the equity ownership in White County Community Hospital, and a joint venture will
own and operate DeKalb Community Hospital and Stones River Hospital, each of which are owned
by Cannon County Hospital, LLC, in which physicians will hold interests representing
approximately 40% of the equity ownership of Cannon County Hospital, LLC. Risk Factors
 9




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##### Table of Contents



The Exchange Offer
 On June 28, 2010, we completed a private offering of the outstanding notes. We entered into a
registration rights agreement with the initial purchasers of the outstanding notes in which we
agreed to deliver to you this prospectus and to complete an exchange offer for the outstanding
notes. Below is a summary of the exchange offer.
 Outstanding Notes
    
    $500,000,000 aggregate principal amount of 91/4%
Senior Notes due 2017.Exchange Notes
    
    Up to $500,000,000 aggregate principal amount of
91/4% Senior Notes due 2017, which have been
registered under the Securities Act. The form and
terms of the exchange notes are identical in all
material respects to those of the outstanding
notes, except that the transfer restrictions and
registration rights relating to the outstanding
notes do not apply to the exchange notes.Exchange Offer
    
    We are offering to issue up to $500,000,000
aggregate principal amount of the exchange notes in
exchange for a like principal amount of the
outstanding notes to satisfy our obligations under
the registration rights agreement that was executed
when the outstanding notes were issued in a
transaction in reliance upon the safe harbors from
registration provided by Rule 144A and Regulation S
of the Securities Act. Outstanding notes may be
tendered in minimum denominations of $2,000 and
integral multiples of $1,000. We will issue the
exchange notes promptly after expiration of the
exchange offer. See The Exchange Offer  Terms of
the Exchange Offer.Resale
    
    Based on an interpretation by the staff of the
Securities and Exchange Commission (the SEC) set
forth in no-action letters issued to third parties,
we believe that the exchange notes issued under the
exchange offer for the outstanding notes may be
offered for resale, resold and otherwise
transferred by you (unless you are our affiliate
within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and
prospectus delivery provisions of the Securities
Act, if:
 
    
    you are not our affiliate;
    
    you have not engaged in, do not
intend to engage in, and have no arrangement or
understanding with any person to participate in, a
distribution of the exchange notes;
    
    you are acquiring the exchange
notes in the ordinary course of your business; and
    
    you are not acting on behalf of
any person who could not truthfully make the
foregoing representations.
 If you are a broker-dealer and receive exchange
notes for your own account in exchange for
outstanding notes that you acquired as a result of
market-making activities or other trading
activities (other than outstanding notes acquired
directly from us), you must acknowledge that you
will deliver this prospectus in connection with any
resale of the exchange notes. See Plan of
Distribution.Any holder of outstanding notes who:
 
    
    is our affiliate;
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##### Table of Contents




    
    does not acquire exchange notes in
the ordinary course of its business; or
    
    tenders its outstanding notes in
the exchange offer with the intention to
participate, or the purpose of participating, or
has any arrangement or understanding with any
person to participate, in a distribution of
exchange notes
 cannot rely on the position of the staff of the SEC
enunciated in Morgan Stanley & Co. Incorporated
(available June 5, 1991) and Exxon Capital Holdings
Corporation(available May 13, 1988), as
interpreted in Shearman & Sterling(available July
2, 1993), and similar no-action letters and, in the
absence of an exemption therefrom, must comply with
the registration and prospectus delivery
requirements of the Securities Act in connection
with any resale of the exchange notes.Expiration Date
    
    The exchange offer will expire at 5:00 p.m., New
York City time, on      , 2011, unless we decide to
extend it.Conditions to the Exchange Offer
    
    The exchange offer is subject to customary
conditions, which we may waive. See the discussion
below under the caption The Exchange Offer 
Certain Conditions to the Exchange Offer for more
information regarding the conditions to the
exchange offer.Procedures for Tendering Outstanding
Notes
    
    To participate in the exchange offer, you must
complete, sign and date the letter of transmittal
and send it, together with all other documents
required by the letter of transmittal, including
the outstanding notes that you wish to exchange, to
U.S. Bank National Association, as exchange agent,
at the address indicated on the cover page of the
letter of transmittal. In the alternative, you can
tender your outstanding notes by following the
procedures for book-entry transfer described in
this prospectus.If your outstanding notes are held through The
Depository Trust Company (DTC) and you wish to
participate in the exchange offer, you may do so
through the Automated Tender Offer Program of DTC.
If you tender under this program, you will agree to
be bound by the letter of transmittal that we are
providing with this prospectus as though you had
signed the letter of transmittal. By signing the
letter of transmittal or authorizing the
transmission of the agents message, you will
represent to us that, among other things:
 
    
    you are not an affiliate of
Capella;
    
    you are not engaged in, and do not
intend to engage in, and have no arrangement or
understanding with any person to participate in, a
distribution of the exchange notes;
    
    you are acquiring the exchange
notes in the ordinary course of business; and
    
    you are not acting on behalf of
any person who could not truthfully make the
foregoing representations.
 If you are a broker-dealer who holds outstanding
notes that were acquired for your own account as a
result of market marking activities or other
trading activities (other than outstanding notes
acquired directly from us), that you will deliver a
prospectus in connection with any resale of such
exchange notes.
 11




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##### Table of Contents



Special Procedures for Beneficial
Owners
    
    If you are a beneficial owner of outstanding notes
that are registered in the name of a broker,
dealer, commercial bank, trust company or other
nominee, and you wish to tender those outstanding
notes in the exchange offer, you should contact the
registered holder promptly and instruct the
registered holder to tender those outstanding notes
on your behalf. If you wish to tender on your own
behalf, you must, prior to completing and executing
the letter of transmittal and delivering your
outstanding notes, either make appropriate
arrangements to register ownership of the
outstanding notes in your name or obtain a properly
completed bond power from the registered holder.
The transfer of registered ownership may take
considerable time and may not be able to be
completed prior to the expiration date.Guaranteed Delivery Procedures
    
    If you wish to tender your outstanding notes and
your outstanding notes are not immediately
available, or you cannot deliver your outstanding
notes, the letter of transmittal or any other
required documents to the exchange agent, or you
cannot comply with the procedures under DTCs
Automated Tender Offer Program prior to the
expiration date, you must tender your outstanding
notes according to the guaranteed delivery
procedures set forth in this prospectus under The
Exchange Offer  Guaranteed Delivery Procedures.Withdrawal
    
    You may withdraw your tender of outstanding notes
at any time prior to the expiration date of the
exchange offer. To withdraw, the exchange agent
must receive notice of withdrawal, which may be by
facsimile, at its address indicated on the cover
page of the letter of transmittal before 5:00 p.m.,
New York City time, on the expiration date of the
exchange offer, or you must comply with the
appropriate procedures of DTCs Automated Tender
Offer Program system.Acceptance of Outstanding Notes
    
    If you fulfill all conditions required for proper
acceptance of outstanding notes, we will accept any
and all outstanding notes that you properly tender
in the exchange offer on or before 5:00 p.m., New
York City time, on the expiration date. We will
return any outstanding notes that we do not accept
for exchange to you as promptly as practicable
after the expiration date and acceptance of the
outstanding notes for exchange. See The Exchange
Offer  Terms of the Exchange Offer.Effect on Holders of Outstanding Notes
    
    Upon acceptance for exchange of all validly
tendered outstanding notes pursuant to the terms of
the exchange offer, we will have fulfilled a
covenant under the registration rights agreement.
Accordingly, there will be no increase in the
applicable interest rate on the outstanding notes
under the circumstances described in the
registration rights agreement. If you do not tender
your outstanding notes in the exchange offer, you
will continue to be entitled to all the rights and
limitations applicable to the outstanding notes as
set forth in the indenture, except we will not have
any further obligation to you to provide for the
exchange and registration of untendered outstanding
notes under the registration rights agreement. To
the extent that outstanding notes are tendered and
accepted in the exchange offer, any trading market
that may develop for outstanding notes that are not
so tendered and accepted could be adversely
affected.
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##### Table of Contents



Certain U.S. Federal Income Tax
Consequences
    
    The exchange of outstanding notes for exchange
notes in the exchange offer will not be a taxable
event for U.S. federal income tax purposes. See
Certain Material U.S. Federal Income Tax
Considerations.Regulatory Approvals
    
    Other than compliance with the Securities Act and
qualification of the indentures governing the notes
under the Trust Indenture Act of 1939 (the Trust
Indenture Act), there are no federal or state
regulatory requirements that must be complied with
or approvals that must be obtained in connection
with the exchange offer.Use of Proceeds
    
    We will not receive any cash proceeds from the
issuance of the exchange notes in the exchange
offer. See Use of Proceeds.Fees and Expenses
    
    We will bear all expenses related to soliciting
tenders. See The Exchange Offer  Fees and
Expenses.Consequences of Failure to Exchange
    
    All untendered outstanding notes will continue to
be subject to the restrictions on transfer set
forth in the outstanding notes and in the
indenture. In general, the outstanding notes may
not be offered or sold, unless registered under the
Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the
Securities Act and applicable state securities
laws. Other than in connection with the exchange
offer, we do not currently anticipate that we will
register the outstanding notes under the Securities
Act.Exchange Agent
    
    We have appointed U.S. Bank National Association as
exchange agent for the exchange offer. You should
direct questions and requests for assistance,
requests for additional copies of this prospectus
or the letter of transmittal and requests for the
notice of guaranteed delivery to the exchange agent
addressed as follows: U.S. Bank National
Association, 60 Livingston Avenue, St. Paul, MN
55107, Attn: Specialized Finance Dept. Eligible
institutions may make requests by facsimile at
(651) 495-8158.
 13




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##### Table of Contents



The Exchange Notes
 The summary below describes the principal terms of the exchange notes. Certain of the terms
and conditions described below are subject to important limitations and exceptions. The
Description of Exchange Notes, section of this prospectus contains more detailed descriptions
of the terms and conditions of the outstanding notes and exchange notes. The exchange notes will
have terms identical in all material respects to the outstanding notes, except that the exchange
notes will not contain terms with respect to transfer restrictions, registration rights and
additional interest for failure to observe certain obligations in the registration rights
agreement.
 Issuer
    
    Capella Healthcare, Inc.Notes Offered
    
    $500,000,000 aggregate principal amount of 91/4% Senior Notes due
2017.Maturity
    
    The exchange notes will mature on July 1, 2017.Interest Payments
    
    January 1 and July 1 of each year after the date of issuance of the
exchange notes, beginning on January 1, 2011.Guarantees
    
    The exchange notes will be guaranteed, jointly and severally, on a
senior unsecured basis by all of our current and future Restricted
Subsidiaries (as defined herein) that guarantee indebtedness, or are
named borrowers, under our credit facility. See Description of
Exchange Notes  Subsidiary Guarantees. The guarantee of each
guarantor is a general unsecured obligations of the respective
guarantors and will be:
 
    
    pari passuin right of payment to all existing and
future senior unsecured debt of the respective guarantors; and
    
    senior in right of payment to all existing and future
subordinated obligations of the respective guarantors.
 Ranking
    
    The exchange notes will be our general senior unsecured obligations and
will be:
 
    
    effectively subordinated to all our existing and
future secured debt to the extent of the value of the assets securing
that debt;
    
    pari passuin right of payment with all existing and
future senior unsecured debt of Capella;
    
    senior in right of payment to all existing and future
subordinated obligations of Capella; and
    
    fully and unconditionally guaranteed on a senior,
unsecured basis by the guarantors.
 Optional Redemption
    
    At any time, we may redeem all or any portion of the exchange notes at
our option on the redemption dates and at the redemption prices
specified under Description of Exchange Notes  Optional Redemption.On or prior to July 1, 2013, we may on one or more occasions, at our
option, apply funds equal to the proceeds from one or more equity
offerings to redeem up to 35% of the notes at a redemption price of
109.250% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the redemption date.
 14




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##### Table of Contents



Offer to Repurchase
    
    If we experience a change of control, we must offer to repurchase all
of the exchange notes (unless otherwise redeemed) at a price equal to
101% of the aggregate principal amount of the notes, plus accrued and
unpaid interest to the repurchase date. See Description of Exchange
Notes  Repurchase at the Option of Holders  Change of Control.If we sell assets under certain circumstances, we must use the proceeds
to make an offer to purchase exchange notes at a price equal to 100% of
their principal amount, plus accrued and unpaid interest to the date of
purchase. See Description of Exchange Notes  Repurchase at the
Option of Holders  Asset Sales.Covenants
    
    The indenture contains covenants that, among other things, will limit
our ability and the ability of our Restricted Subsidiaries to:
 
    
    incur more indebtedness and issue preferred stock;
    
    pay dividends, redeem stock or make other
distributions;
    
    make investments;
    
    create liens;
    
    transfer or sell assets;
    
    merge or consolidate;
    
    enter into certain transactions with our affiliates;
and
    
    enter into sale and lease back transactions.
 No Prior Market
    
    The exchange notes will be freely transferable but will be new
securities for which there will not initially be a market. We do not
intend to list the exchange notes on any securities exchange.
Accordingly, we cannot assure you whether a market for the exchange
notes will develop or as to the liquidity of any such market that may
develop.
 15




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##### Table of Contents



Summary Historical Consolidated Financial and Operating Data
  Three MonthsYear Ended December 31,
    
    
    Ended March 31,2008(12)
    
    
    2009
    
    
    2010
    
    
    2010(13)
    
    
    2011(13)(Dollars in millions, except for operating data)Statement of Operations Data:Net revenue
    
    $
    702.4
    
    
    $
    813.9
    
    
    $
    869.5
    
    
    $
    210.3
    
    
    $
    208.5Costs and expenses:Salaries and benefits (includes stock compensation
of $, $0.1, $0.3, $0.1 and $0.1, respectively)
    
    
    304.7
    
    
    
    346.9
    
    
    
    359.7
    
    
    
    89.4
    
    
    
    93.9Supplies
    
    
    96.8
    
    
    
    109.7
    
    
    
    119.6
    
    
    
    29.2
    
    
    
    30.5Provision for bad debts
    
    
    81.1
    
    
    
    111.3
    
    
    
    136.2
    
    
    
    30.2
    
    
    
    18.0Other operating expenses
    
    
    137.8
    
    
    
    150.3
    
    
    
    158.3
    
    
    
    37.6
    
    
    
    42.0Depreciation and amortization
    
    
    33.7
    
    
    
    37.8
    
    
    
    37.1
    
    
    
    8.9
    
    
    
    9.6Interest, net
    
    
    50.4
    
    
    
    48.5
    
    
    
    48.4
    
    
    
    11.6
    
    
    
    12.7Management fee to related party
    
    
    0.2
    
    
    
    0.2
    
    
    
    0.2
    
    
    
    
    
    
    
    Loss on refinancing
    
    
    22.4
    
    
    
    
    
    
    
    20.8
    
    
    
    
    
    
    
    Total costs and expense
    
    
    727.1
    
    
    
    804.7
    
    
    
    880.3
    
    
    
    206.9
    
    
    
    206.7Income (loss) from continuing operations before
income taxes
    
    
    (24.7
    )
    
    
    9.2
    
    
    
    (10.8
    )
    
    
    3.4
    
    
    
    1.8Income taxes
    
    
    5.5
    
    
    
    2.2
    
    
    
    3.2
    
    
    
    0.8
    
    
    
    0.9Income (loss) from continuing operations
    
    
    (30.2
    )
    
    
    7.0
    
    
    
    (14.0
    )
    
    
    2.6
    
    
    
    0.9Income (loss) from discontinued operations, net of
taxes
    
    
    (1.9
    )
    
    
    (4.5
    )
    
    
    (0.2
    )
    
    
    (0.1
    )
    
    
    0.1Net income (loss)
    
    $
    (32.1
    )
    
    $
    2.5
    
    
    $
    (14.2
    )
    
    $
    2.5
    
    
    $
    1.0Less: Net income attributable to noncontrolling
interests
    
    
    0.5
    
    
    
    0.9
    
    
    
    1.5
    
    
    
    0.4
    
    
    
    0.6Net income (loss) attributable to Capella
Healthcare, Inc.
    
    $
    (32.6
    )
    
    $
    1.6
    
    
    $
    (15.7
    )
    
    $
    2.1
    
    
    $
    0.4Other Financial Data:Purchases of property and equipment, net
    
    $
    (19.9
    )
    
    $
    (22.1
    )
    
    $
    (26.1
    )
    
    $
    (3.9
    )
    
    $
    (4.0
    )Net cash provided by operating activities
    
    
    35.8
    
    
    
    35.5
    
    
    
    65.9
    
    
    
    9.2
    
    
    
    0.6Net cash used in investing activities
    
    
    (337.1
    )
    
    
    (16.3
    )
    
    
    (23.8
    )
    
    
    (3.8
    )
    
    
    (2.5
    )Net cash provided by (used in) financing activities
    
    
    307.8
    
    
    
    (6.1
    )
    
    
    (13.4
    )
    
    
    (0.2
    )
    
    
    (0.7
    )Adjusted EBITDA(1)
    
    
    82.0
    
    
    
    95.7
    
    
    
    95.7
    
    
    
    23.9
    
    
    
    24.1Operating Data(2):Number of hospitals at end of each period(3)
    
    
    13
    
    
    
    13
    
    
    
    13
    
    
    
    13
    
    
    
    13Licensed beds(4)
    
    
    1,799
    
    
    
    1,745
    
    
    
    1,745
    
    
    
    1,745
    
    
    
    1,745Admissions(5)
    
    
    47,815
    
    
    
    50,728
    
    
    
    50,682
    
    
    
    12,951
    
    
    
    12,898
 16




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Adjusted admissions(6)
    
    
    93,468
    
    
    
    101,405
    
    
    
    104,023
    
    
    
    25,388
    
    
    
    26,020Net revenue per adjusted admission
    
    $
    7,515
    
    
    $
    8,026
    
    
    $
    8,359
    
    
    $
    8,283
    
    
    $
    8,014Patient days(7)
    
    
    219,281
    
    
    
    232,359
    
    
    
    231,568
    
    
    
    58,945
    
    
    
    60,111Average length of stay (days)(8)
    
    
    4.6
    
    
    
    4.6
    
    
    
    4.6
    
    
    
    4.6
    
    
    
    4.7Occupancy rate (licensed beds)(9)
    
    
    33.3
    %
    
    
    36.5
    %
    
    
    36.4
    %
    
    
    37.5
    %
    
    
    38.6
    %
 As ofAs of December 31,
    
    
    March 31,2008(12)
    
    
    2009
    
    
    2010
    
    
    2011(Dollars in millions)Balance Sheet Data:Cash and cash equivalents
    
    $
    6.4
    
    
    $
    19.6
    
    
    $
    48.3
    
    
    $
    45.7Property, plant and equipment, net
    
    
    475.9
    
    
    
    461.7
    
    
    
    450.7
    
    
    
    445.1Total assets
    
    
    745.5
    
    
    
    756.3
    
    
    
    767.8
    
    
    
    765.5Long-term debt, including current portion
    
    
    487.7
    
    
    
    484.5
    
    
    
    494.1
    
    
    
    494.4Working capital(10)
    
    
    90.1
    
    
    
    106.6
    
    
    
    119.2
    
    
    
    127.3
 Three MonthsYear Ended December 31,
    
    
    Ended March 31,2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2010
    
    
    2011Ratio of earnings to fixed charges(11)
    
    
    1.1x
    
    
    
    1.1x
    
    
    
    N/A
    
    
    
    1.2x
    
    
    
    N/A
    
    
    
    1.3x
    
    
    
    1.1x
 
 (1)
    
    EBITDA, a measure used by management to evaluate operating performance, is defined as net
income plus (i) provision for income taxes, (ii) interest expense and (iii) depreciation and
amortization. EBITDA is not a recognized term under generally accepted accounting principles
in the United States and does not purport to be an alternative to net income as a measure of
operating performance or to cash flows from operating activities as a measure of liquidity.
Additionally, EBITDA is not intended to be a measure of free cash flow available for
managements discretionary use, as it does not consider certain cash requirements such as
interest payments, tax payments and other debt service requirements. Management believes
EBITDA is helpful in highlighting trends because EBITDA excludes the results of decisions that
are outside the control of operating management and that can differ significantly from company
to company depending on long-term strategic decisions regarding capital structure, the tax
jurisdictions in which companies operate and capital investments. Management compensates for
the limitations of using non-GAAP financial measures by using them to supplement GAAP results
to provide a more complete understanding of the factors and trends affecting the business than
GAAP results alone. Because not all companies use identical calculations, our presentation of
EBITDA may not be comparable to similarly titled measures of other companies.Adjusted EBITDA is defined as EBITDA plus (i) net income attributable to noncontrolling
interests, (ii) loss on refinancing, (iii) loss from discontinued operations and (iv)
management fee to related party, if any, for the applicable period. We believe that the
inclusion of supplementary adjustments to EBITDA applied in presenting adjusted EBITDA are
appropriate to provide additional information to investors about the impact of certain
noncash items, unusual items that we do not expect to continue at the same level in the
future and other items.The following table presents a reconciliation to provide a more detailed analysis of these
non-GAAP performance measures:
 17




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Three MonthsYear Ended December 31,
    
    
    Ended March 31,2008
    
    
    2009
    
    
    2010
    
    
    2010
    
    
    2011(Dollars in millions)Net income (loss)
    
    $
    (32.6
    )
    
    $
    1.6
    
    
    $
    (15.7
    )
    
    $
    2.1
    
    
    $
    0.4Plus income taxes
    
    
    5.5
    
    
    
    2.2
    
    
    
    3.2
    
    
    
    0.8
    
    
    
    0.9Plus net interest expense and amortization of
deferred financing costs
    
    
    50.4
    
    
    
    48.5
    
    
    
    48.4
    
    
    
    11.6
    
    
    
    12.7Plus depreciation and amortization
    
    
    33.7
    
    
    
    37.8
    
    
    
    37.1
    
    
    
    8.9
    
    
    
    9.6EBITDA
    
    $
    57.0
    
    
    $
    90.1
    
    
    $
    73.0
    
    
    $
    23.4
    
    
    $
    23.6Plus net income attributable to noncontrolling
interests
    
    $
    0.5
    
    
    $
    0.9
    
    
    $
    1.5
    
    
    $
    0.4
    
    
    $
    0.6Plus loss from refinancing
    
    
    22.4
    
    
    
    
    
    
    
    20.8
    
    
    
    
    
    
    
    Plus (income) loss from discontinued operations
    
    
    1.9
    
    
    
    4.5
    
    
    
    0.2
    
    
    
    0.1
    
    
    
    (0.1
    )Plus management fee to related party
    
    
    0.2
    
    
    
    0.2
    
    
    
    0.2
    
    
    
    
    
    
    
    Adjusted EBITDA
    
    $
    82.0
    
    
    $
    95.7
    
    
    $
    95.7
    
    
    $
    23.9
    
    
    $
    24.1
 
 (2)
    
    The operating data set forth in this table includes all facilities that are consolidated for
financial reporting purposes as of the end of each period presented.(3)
    
    For the year ended December 31, 2008, Woodland Medical Center is included through June 30,
2008, when it was moved to discontinued operations.(4)
    
    Licensed beds are those beds for which a facility has been granted approval to operate from
the applicable state licensing agency regardless of actual use.(5)
    
    Represents the number of patients admitted for inpatient treatment.(6)
    
    General measure of combined inpatient and outpatient volume. We computed adjusted admissions
by multiplying admissions by gross patient revenue and then dividing that number by gross
inpatient revenue.(7)
    
    Represents the total number of days of care provided to inpatients.(8)
    
    Represents the average number of days admitted patients stay in our hospitals.(9)
    
    Represents the percentage of hospital licensed beds occupied by patients. We calculated
occupancy rate percentages by dividing the average daily number of inpatients by the weighted
average licensed beds.(10)
    
    We define working capital as current assets minus current liabilities.(11)
    
    See Ratio of Earnings to Fixed Charges for an explanation of the calculation of these
ratios.(12)
    
    Effective March 1, 2008, we acquired nine hospitals and their affiliated businesses from
Community Health Systems, Inc. (CHS).(13)
    
    The comparability of our results of operations for the three months ended March 31, 2011
compared to the three months ended March 31, 2010 is impacted by the change in our uninsured
discount policy, effective January 1, 2011, as more thoroughly explained under Managements
Discussion and Analysis of Financial Condition and Results of Operations  Critical
Accounting Policies. The change in the uninsured discount policy effectively shifts a
portion of our expenses previously classified as provision for bad debts to revenue
deductions, thereby resulting in lower net revenue and lower bad debt expense for the three
months ended March 31, 2011 as compared to the three months ended March 31, 2010. Had our new
uninsured discount policy been in place effective January 1, 2010, our net revenue for the
three months ended March 31, 2010 would have been approximately $196.5 million and the
provision for bad debts would have been approximately $16.4 million, as follows: Provision forNet Revenue
    
    
    Bad Debts(In millions)Historical results of operations for
the three months ended March 31, 2010
as presented
    
    $
    210.3
    
    
    $
    30.2Uninsured discount impact of pro forma
change in policy for the three months
ended March 31, 2010
    
    
    (13.8
    )
    
    
    (13.8
    )Pro forma results of operations for the
three months ended March 2010
    
    $
    196.5
    
    
    $
    16.4
 18




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The following table reflects the results of operations for the three months ended
March 31, 2010 on a pro forma basis for the change in our uninsured discounts policy:
 Three Months EndedMarch 31, 2010(Dollars in millions)Amount
    
    
    %Net revenue
    
    $
    196.5
    
    
    
    100.0
    %Costs and expenses:Salaries and benefits
    
    
    89.4
    
    
    
    45.5Supplies
    
    
    29.2
    
    
    
    14.9Provision for bad debts
    
    
    16.4
    
    
    
    8.4Other operating expenses
    
    
    37.6
    
    
    
    19.1Depreciation and amortization
    
    
    8.9
    
    
    
    4.5Interest, net
    
    
    11.6
    
    
    
    5.9Total costs and expenses
    
    
    193.1
    
    
    
    98.3Income from continuing operations before income taxes
    
    
    3.4
    
    
    
    1.7Income taxes
    
    
    0.8
    
    
    
    0.4Income from continuing operations
    
    
    2.6
    
    
    
    1.3Loss from discontinued operations, net of taxes
    
    
    (0.1
    )
    
    
    Net income
    
    $
    2.5
    
    
    
    1.3
    %Less: Net income attributable to noncontrolling interests
    
    
    0.4
    
    
    
    0.2Net income attributable to Capella Healthcare, Inc.
    
    $
    2.1
    
    
    
    1.1
    %
 19




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RISK FACTORS
 You should carefully consider the risk factors set forth below as well as the other
information contained in this prospectus before deciding to tender your outstanding notes in the
exchange offer. Any of the following risks could materially and adversely affect our business,
financial condition or results of operations. In such a case, the trading price of the exchange notes could decline or we
may not be able to make payments of interest and principal on the exchange notes, and you may lose
all or part of your original investment.
 Risks Relating to the Exchange Offer
 You must carefully follow the required procedures in order to exchange your outstanding
notes.
  If you do not properly tender your outstanding notes, you will continue to hold
unregistered outstanding notes and your ability to transfer outstanding notes will remain
restricted and may be adversely affected.
  You may not be able to resell exchange notes you receive in the exchange offer without
registering those notes or delivering a prospectus.
  
    
    holders who are not affiliates of the Company within the meaning of Rule
405 of the Securities Act;
    
    holders who acquire their exchange notes in the ordinary course of
business; and
    
    holders who do not engage in, intend to engage in, or have an arrangement
or understanding with any person to participate in a distribution (within the meaning
of the Securities Act) of the exchange notes; and holders that are not acting on behalf
of any person who could not truthfully make the foregoing representations,
   20




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Risks Related to Our Business
 We cannot predict the effect that healthcare reform and other changes in government
programs may have on our financial condition or results of operations.
  Our overall business results may suffer from the current economic downturn.
  The growth of uninsured and patient due accounts and a deterioration in the
collectability of these accounts could affect our results of operations adversely.
  21




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Our revenue may decline if federal or state programs reduce our Medicare or Medicaid
payments.
     22




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##### Table of Contents



Our revenue may decline if payments from our third-party payors are reduced or
eliminated, or if we are unable to negotiate contracts or maintain satisfactory
relationships with third-party payors.
  Controls designed to reduce inpatient services may reduce our revenue .
   We may experience a shortage of qualified professional and staff personnel.
  23




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##### Table of Contents



Our performance depends on our ability to recruit and retain quality physicians.
  
    
    the number and quality of the physicians on the medical staffs of our
hospitals;
    
    the admitting practices of those physicians; and
    
    the development and maintenance of constructive relationships with those
physicians, including physicians with whom we have joint ventures.
   We are dependent on our senior management team and the loss of the services of one or
more of our senior management team could have a material adverse effect on our business.
  If we fail to comply with extensive laws and government regulations, including fraud and
abuse laws, we could suffer penalties or be required to make significant changes to our
operations.
  24




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##### Table of Contents



We are subject to competition from other hospitals or healthcare providers, including
physicians, which could affect our results of operations adversely.
   25




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##### Table of Contents



Our net revenue is especially concentrated in a small number of states which makes us
particularly sensitive to regulatory and economic changes in those states.
  If our access to licensed information systems is interrupted or restricted, or if we are
not able to integrate changes to our existing information systems or information systems
of acquired hospitals, our operations could suffer.
    26




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##### Table of Contents



We may be subject to liabilities for professional liability and other claims brought
against our facilities.
  Future capital commitments, acquisitions or joint ventures may require significant resources,
may be unsuccessful or could expose us to unforeseen liabilities.
  
    
    difficulty and expense of integrating acquired operations into our
business;
    
    diversion of managements time from existing operations;
    
    potential loss of key employees or physicians of acquired facilities; and
    
    assumption of the liabilities and exposure to unforeseen liabilities of
acquired companies, including liabilities for failure to comply with healthcare
regulations.
   27




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If we fail to enhance our hospitals with the most recent technological advances in
diagnostic and surgical equipment, our ability to maintain and expand our markets will be
affected adversely.
  Difficulties with major expansion projects may involve significant capital expenditures that
could have an adverse impact on our liquidity.
  
    
    our ability to control construction costs;
    
    adverse weather conditions;
    
    shortages of labor or materials;
    
    our ability to obtain necessary licensing and other required governmental
authorizations; and
    
    other unforeseen problems and delays.
  State efforts to regulate the construction or expansion of healthcare facilities could
impair our ability to operate and expand our operations.
  28




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The industry trend toward value-based purchasing may negatively impact our revenue.
  A majority of the employees of Capital Medical Center and its related clinics are union
members and subject to the terms of collective bargaining agreements.
  Our interest in Muskogee Regional Medical Center will expire at the end of the lease
term.
  GTCR indirectly controls us and may have conflicts of interest with us or you in the
future.
  
    
    our direction and policies;
    
    the acquisition and disposition of assets;
    
    future issuances of common stock, preferred stock or other securities;
    
    our future incurrence of debt; and
    
    any dividends on our common stock or preferred stock.
 29




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Our hospitals are subject to potential responsibilities and costs under environmental
laws that could lead to material expenditures or liability.
   Risks Related to the Notes
 Our substantial indebtedness could affect our financial condition adversely and our
ability to fulfill our obligations under the notes.
  
    
    making it more difficult for us to satisfy our obligations with respect to
the notes;
    
    increasing our vulnerability to general adverse economic and industry
conditions;
    
    requiring that a portion of our cash flow from operations be used for the
payment of interest on our debt, thereby reducing our ability to use our cash flow to
fund working capital, capital expenditures, acquisitions and general corporate
requirements;
    
    limiting our ability to obtain additional financing to fund future working
capital, capital expenditures, acquisitions and general corporate requirements;
    
    limiting our flexibility in planning for, or reacting to, changes in our
business and the healthcare industry; and
    
    placing us at a competitive disadvantage to our competitors that have less
indebtedness.
  30




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Our business and financial results depend on our ability to generate sufficient cash flow
to service our debt or refinance our indebtedness on commercially reasonable terms.
  
    
    pay interest at a higher rate;
    
    be subject to additional or more restrictive covenants than currently
provided in our debt agreements; and
    
    grant additional security interests in our assets.
  Operating and financial restrictions in our debt agreements limit our operational and financial
flexibility.
  
    
    incur additional indebtedness or issue preferred stock;
    
    pay dividends on or make other distributions or repurchase our capital
stock or make other restricted payments;
    
    make investments;
    
    enter into certain transactions with affiliates;
    
    issue dividends or other payments from restricted subsidiaries to Holdings
or other restricted subsidiaries;
    
    create liens;
    
    designate our subsidiaries as unrestricted subsidiaries; and
    
    sell certain assets or merge with or into other companies or otherwise
dispose of all or substantially all of our assets.
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As a holding company, we rely on payments from our subsidiaries in order for us to make
payments on the notes.
  A subsidiary guarantee could be voided or subordinated because of federal bankruptcy
law or comparable state law provisions.
  
    
    incurred the guarantee with the intent of hindering, delaying or defrauding
current or future creditors; or
    
    received less than reasonably equivalent value or fair consideration for
the incurrence of the subsidiary guarantee and:
    
    was insolvent or rendered insolvent by reason of such incurrence;
    
    was engaged in a business or transaction for which the subsidiary
guarantors remaining assets constituted unreasonably small capital; or
    
    intended to incur, or believed that it would incur, debts beyond its
ability to pay its debts as they mature.
  32




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##### Table of Contents




    
    the sum of its debts, including contingent liabilities, was greater than
the fair saleable value of all of its assets;
    
    the present fair saleable value of its assets was less than the amount that
would be required to pay its probable liability on its existing debts, including
contingent liabilities, as they become absolute and mature; or
    
    it could not pay its debts as they become due.
   We may be unable to repurchase the notes if we experience a change of control.
  We cannot assure you that an active trading market will develop for the exchange notes,
which may reduce their market price.
   
    
    our operating performance and financial condition;
 33




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##### Table of Contents




    
    our ability to complete the exchange offer to exchange the outstanding
notes for the exchange notes;
    
    the interest of securities dealers in making a market in the exchange
notes; and
    
    the market for similar securities.
 Volatile trading prices may require you to hold the notes for an indefinite period of time.
  Not all of our subsidiaries guarantee our obligations under the notes, and the assets of
the non-guarantor subsidiaries may not be available to make payments on the notes.
    If we default on our obligations to pay our other indebtedness, we may not be able to
make payments on the notes.
   34




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The notes are not secured and, therefore, effectively are subordinated to all of our
existing and future secured indebtedness.
  If a bankruptcy petition were filed by or against us, holders of notes may receive a
lesser amount for their claim than they would have been entitled to receive under the
indenture governing the notes.
  
    
    the original issue price for the notes; and
    
    that portion of the original discount that does not constitute unmatured
interest for purposes of the U.S. Bankruptcy Code.
  35




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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
    
    
    the effects of the Affordable Care Act on our financial position and
results of operations;
    
    our substantial indebtedness and adverse changes in credit markets
impacting our ability to receive timely additional financing on terms acceptable to us
to fund our acquisition strategy and capital expenditure needs;
    
    risks inherent to the healthcare industry, including the impact of
unforeseen changes in regulation and the potential adverse impact of government
investigations, liabilities and other claims asserted against us;
    
    economic downturn resulting in efforts by federal and state healthcare
programs and managed care companies to reduce reimbursement rates for our services;
    
    potential competition that alters or impedes our acquisition strategy by
decreasing our ability to acquire additional inpatient facilities on favorable terms;
    
    our ability to comply with applicable licensure and accreditation
requirements;
    
    our ability to comply with extensive laws and government regulations
related to billing, physician relationships, adequacy of medical care and licensure;
    
    our ability to retain key employees who are instrumental to our successful
operations;
    
    our ability to integrate and improve successfully the operations of
acquired inpatient facilities;
    
    our ability to maintain favorable and continuing relationships with
physicians and other healthcare professionals who use our inpatient facilities;
    
    our ability to ensure confidential information is not inappropriately
disclosed and that we are in compliance with federal and state health information
privacy standards;
    
    our ability to comply with federal and state governmental regulation
covering healthcare-related products and services on-line, including the regulation of
medical devices and the practice of medicine and pharmacology;
    
    our ability to obtain adequate levels of general and professional liability
insurance;
    
    future trends for pricing, margins, revenue and profitability remain
difficult to predict in the industries that we serve; and
    
    negative press coverage of us or our industry that may affect public
opinion.
 36




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37




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USE OF PROCEEDS
  38




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RATIO OF EARNINGS TO FIXED CHARGES
  Year Ended December 31,
    
    Three Months Ended March 31,2006
    
    2007
    
    2008
    
    2009
    
    2010
    
    2010
    
    2011Ratio of earnings
to fixed charges
    
    1.1x
    
    1.1x
    
    N/A
    
    1.2x
    
    N/A
    
    1.3x
    
    1.1x
 39




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CAPITALIZATION
  As of March 31, 2011(Unaudited)(In millions)Cash and cash equivalents
    
    $
    45.7Debt:Revolving Loans
    
    $
    ABL
    
    
    91/4% Senior Notes due 2017(1)
    
    
    500.0Total debt
    
    $
    500.0Stockholders deficit
    
    $
    (47.6
    )Total capitalization
    
    $
    452.4
 
 (1)
    
    Excludes effect of $6.3 million discount upon original issuance. 40




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SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
   Three MonthsYear Ended December 31,
    
    
    Ended March 31,2006
    
    
    2007
    
    
    2008(11)
    
    
    2009
    
    
    2010
    
    
    2010(12)
    
    
    2011(12)(Dollars in millions, except for operating data)Statement of Operations Data:Net revenue
    
    $
    211.8
    
    
    $
    305.6
    
    
    $
    702.4
    
    
    $
    813.9
    
    
    $
    869.5
    
    
    $
    210.3
    
    
    $
    208.5Costs and expenses:Salaries and benefits (includes stock compensation of
$, $0.1, $0.3, $0.1 and $0.1, respectively)
    
    
    92.7
    
    
    
    134.8
    
    
    
    304.7
    
    
    
    346.9
    
    
    
    359.7
    
    
    
    89.4
    
    
    
    93.9Supplies
    
    
    30.2
    
    
    
    42.7
    
    
    
    96.8
    
    
    
    109.7
    
    
    
    119.6
    
    
    
    29.2
    
    
    
    30.5Provision for bad debts
    
    
    16.1
    
    
    
    28.4
    
    
    
    81.1
    
    
    
    111.3
    
    
    
    136.2
    
    
    
    30.2
    
    
    
    18.0Other operating expenses
    
    
    44.5
    
    
    
    55.3
    
    
    
    137.8
    
    
    
    150.3
    
    
    
    158.3
    
    
    
    37.6
    
    
    
    42.0Depreciation and amortization
    
    
    13.2
    
    
    
    17.8
    
    
    
    33.7
    
    
    
    37.8
    
    
    
    37.1
    
    
    
    8.9
    
    
    
    9.6Interest, net
    
    
    14.2
    
    
    
    23.9
    
    
    
    50.4
    
    
    
    48.5
    
    
    
    48.4
    
    
    
    11.6
    
    
    
    12.7Management fee to related party
    
    
    0.1
    
    
    
    0.2
    
    
    
    0.2
    
    
    
    0.2
    
    
    
    0.2
    
    
    
    
    
    
    
    Loss on refinancing
    
    
    
    
    
    
    
    
    
    
    22.4
    
    
    
    
    
    
    
    20.8
    
    
    
    
    
    
    
    Total costs and expense
    
    
    211.0
    
    
    
    303.1
    
    
    
    727.1
    
    
    
    804.7
    
    
    
    880.3
    
    
    
    206.9
    
    
    
    206.7Income (loss) from continuing operations before income
taxes
    
    
    0.8
    
    
    
    2.5
    
    
    
    (24.7
    )
    
    
    9.2
    
    
    
    (10.8
    )
    
    
    3.4
    
    
    
    1.8Income taxes
    
    
    
    
    
    
    0.9
    
    
    
    5.5
    
    
    
    2.2
    
    
    
    3.2
    
    
    
    0.8
    
    
    
    0.9Income (loss) from continuing operations
    
    
    0.8
    
    
    
    1.6
    
    
    
    (30.2
    )
    
    
    7.0
    
    
    
    (14.0
    )
    
    
    2.6
    
    
    
    0.9Income (loss) from discontinued operations, net of income
taxes
    
    
    
    
    
    
    
    
    
    
    (1.9
    )
    
    
    (4.5
    )
    
    
    (0.2
    )
    
    
    (0.1
    )
    
    
    0.1Net income (loss)
    
    $
    0.8
    
    
    $
    1.6
    
    
    $
    (32.1
    )
    
    $
    2.5
    
    
    $
    (14.2
    )
    
    $
    2.5
    
    
    $
    1.0Less: Net income attributable to noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    0.5
    
    
    
    0.9
    
    
    
    1.5
    
    
    
    0.4
    
    
    
    0.6Net income (loss) attributable to Capella Healthcare, Inc.
    
    $
    0.8
    
    
    $
    1.6
    
    
    $
    (32.6
    )
    
    $
    1.6
    
    
    $
    (15.7
    )
    
    $
    2.1
    
    
    $
    0.4Other Financial Data:Purchases of property and equipment, net
    
    $
    (8.7
    )
    
    $
    (9.6
    )
    
    $
    (19.9
    )
    
    $
    (22.1
    )
    
    $
    (26.1
    )
    
    $
    (3.9
    )
    
    $
    (4.0
    )Net cash provided by operating activities
    
    
    13.7
    
    
    
    21.9
    
    
    
    35.8
    
    
    
    35.5
    
    
    
    65.9
    
    
    
    9.2
    
    
    
    0.6Net cash used in investing activities
    
    
    (19.7
    )
    
    
    (147.7
    )
    
    
    (337.1
    )
    
    
    (16.3
    )
    
    
    (23.8
    )
    
    
    (3.8
    )
    
    
    (2.5
    )Net cash provided by (used in) financing activities
    
    
    (0.3
    )
    
    
    125.2
    
    
    
    307.8
    
    
    
    (6.1
    )
    
    
    (13.4
    )
    
    
    (0.2
    )
    
    
    (0.7
    )Adjusted EBITDA(1)
    
    
    28.4
    
    
    
    44.4
    
    
    
    82.0
    
    
    
    95.7
    
    
    
    95.7
    
    
    
    23.9
    
    
    
    24.1
 41




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##### Table of Contents



Operating Data(2):Number of hospitals at end of
each period(3)
    
    
    4
    
    
    
    5
    
    
    
    13
    
    
    
    13
    
    
    
    13
    
    
    
    13
    
    
    
    13Licensed beds(4)
    
    
    513
    
    
    
    842
    
    
    
    1,799
    
    
    
    1,745
    
    
    
    1,745
    
    
    
    1,745
    
    
    
    1,745Admissions(5)
    
    
    15,064
    
    
    
    22,508
    
    
    
    47,815
    
    
    
    50,728
    
    
    
    50,682
    
    
    
    12,951
    
    
    
    12,898Adjusted admissions(6)
    
    
    26,999
    
    
    
    40,816
    
    
    
    93,468
    
    
    
    101,405
    
    
    
    104,023
    
    
    
    25,388
    
    
    
    26,020Net revenue per adjusted
admission
    
    $
    7,847
    
    
    $
    7,488
    
    
    $
    7,515
    
    
    $
    8,026
    
    
    $
    8,354
    
    
    $
    8,283
    
    
    $
    8,014Patient days(7)
    
    
    76,398
    
    
    
    110,431
    
    
    
    219,281
    
    
    
    232,359
    
    
    
    231,568
    
    
    
    58,945
    
    
    
    60,111Average length of stay (days)(8)
    
    
    5.1
    
    
    
    4.9
    
    
    
    4.6
    
    
    
    4.6
    
    
    
    4.6
    
    
    
    4.6
    
    
    
    4.7Occupancy rate (licensed beds)(9)
    
    
    40.8
    %
    
    
    35.9
    %
    
    
    33.3
    %
    
    
    36.5
    %
    
    
    36.4
    %
    
    
    37.5
    %
    
    
    38.6
    %
 As of December 31,
    
    As of March 31,2006
    
    2007
    
    2008(11)
    
    2009
    
    2010
    
    2011(Dollars in millions, except for operating data)Balance Sheet Data:Cash and cash equivalents
    
    $
    0.6
    
    
    $
    
    
    
    $
    6.4
    
    
    $
    19.6
    
    
    $
    48.3
    
    
    $
    45.7Property, plant and equipment
    
    
    163.6
    
    
    
    245.0
    
    
    
    475.9
    
    
    
    461.7
    
    
    
    450.7
    
    
    
    445.1Total assets
    
    
    247.0
    
    
    
    395.8
    
    
    
    745.5
    
    
    
    756.3
    
    
    
    767.8
    
    
    
    765.5Long-term debt, including current portion
    
    
    154.9
    
    
    
    242.3
    
    
    
    487.7
    
    
    
    484.5
    
    
    
    494.1
    
    
    
    494.4Working capital(10)
    
    
    22.0
    
    
    
    32.2
    
    
    
    90.1
    
    
    
    106.6
    
    
    
    119.2
    
    
    
    127.3
 
 (1)
    
    EBITDA, a measure used by management to evaluate operating performance, is defined as net
income plus (i) provision for income taxes, (ii) interest expense and (iii) depreciation and
amortization. EBITDA is not a recognized term under GAAP and does not purport to be an
alternative to net income as a measure of operating performance or to cash flows from
operating activities as a measure of liquidity. Additionally, EBITDA is not intended to be a
measure of free cash flow available for managements discretionary use, as it does not
consider certain cash requirements such as interest payments, tax payments and other debt
service requirements. Management believes EBITDA is helpful in highlighting trends because
EBITDA excludes the results of decisions that are outside the control of operating management
and that can differ significantly from company to company depending on long-term strategic
decisions regarding capital structure, the tax jurisdictions in which companies operate and
capital investments. Management compensates for the limitations of using non-GAAP financial
measures by using them to supplement GAAP results to provide a more complete understanding of
the factors and trends affecting the business than GAAP results alone. Because not all
companies use identical calculations, our presentation of EBITDA may not be comparable to
similarly titled measures of other companies.Adjusted EBITDA is defined as EBITDA plus (i) net income attributable to noncontrolling
interests, (ii) loss on refinancing, (iii) loss from discontinued operations and (iv)
management fee to related party, if any, for the applicable period. We believe that the
inclusion of supplementary adjustments to EBITDA applied in presenting adjusted EBITDA are
appropriate to provide additional information to investors about the impact of certain noncash
items, unusual items that we do not expect to continue at the same level in the future and
other items.The following table presents a reconciliation to provide a more detailed analysis of these
non-GAAP performance measures: Three Months EndedYear Ended December 31,
    
    
    March 31,2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2010
    
    
    2011(Dollars in millions)Net income (loss)
    
    $
    0.8
    
    
    $
    1.6
    
    
    $
    (32.6
    )
    
    $
    1.6
    
    
    $
    (15.7
    )
    
    $
    2.1
    
    
    $
    0.4Plus taxes
    
    
    
    
    
    
    0.9
    
    
    
    5.5
    
    
    
    2.2
    
    
    
    3.2
    
    
    
    0.8
    
    
    
    0.9Plus net interest expense and deferred
financing costs
    
    
    14.2
    
    
    
    23.9
    
    
    
    50.4
    
    
    
    48.5
    
    
    
    48.4
    
    
    
    11.6
    
    
    
    12.7
 42




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##### Table of Contents



Plus depreciation and amortization
    
    
    13.2
    
    
    
    17.8
    
    
    
    33.7
    
    
    
    37.8
    
    
    
    37.1
    
    
    
    8.9
    
    
    
    9.6EBITDA
    
    $
    28.2
    
    
    $
    44.2
    
    
    $
    57.0
    
    
    $
    90.1
    
    
    $
    73.0
    
    
    $
    23.4
    
    
    $
    23.6Plus net income attributable to noncontrolling
interests
    
    $
    
    
    
    $
    
    
    
    $
    0.5
    
    
    $
    0.9
    
    
    $
    1.5
    
    
    $
    0.4
    
    
    $
    0.6Plus loss on refinancing
    
    
    
    
    
    
    
    
    
    
    22.4
    
    
    
    
    
    
    
    20.8
    
    
    
    
    
    
    
    Plus (income) loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    1.9
    
    
    
    4.5
    
    
    
    0.2
    
    
    
    0.1
    
    
    
    (0.1
    )Plus management fee to related party
    
    
    0.1
    
    
    
    0.2
    
    
    
    0.2
    
    
    
    0.2
    
    
    
    0.2
    
    
    
    
    
    
    
    Adjusted EBITDA
    
    $
    28.3
    
    
    $
    44.4
    
    
    $
    82.0
    
    
    $
    95.7
    
    
    $
    95.7
    
    
    $
    23.9
    
    
    $
    24.1
 
 (2)
    
    The operating data set forth in this table includes all facilities that are consolidated for
financial reporting purposes as of the end of each period presented.(3)
    
    For the year ended December 31, 2008, Woodland Medical Center is included through June 30,
2008, when it was moved to discontinued operations.(4)
    
    Licensed beds are those beds for which a facility has been granted approval to operate from
the applicable state licensing agency regardless of actual use.(5)
    
    Represents the number of patients admitted for inpatient treatment.(6)
    
    General measure of combined inpatient and outpatient volume. We computed adjusted admissions
by multiplying admissions by gross patient revenue and then dividing that number by gross
inpatient revenue.(7)
    
    Represents the total number of days of care provided to inpatients.(8)
    
    Represents the average number of days admitted patients stay in our hospitals.(9)
    
    Represents the percentage of hospital licensed beds occupied by patients. We calculated
occupancy rate percentages by dividing the average daily number of inpatients by the weighted
average licensed beds.(10)
    
    We define working capital as current assets minus current liabilities.(11)
    
    Effective March 1, 2008, we acquired nine hospitals and their affiliated businesses from CHS.(12)
    
    The comparability of our results of operations for the three months ended March 31, 2011
compared to the three months ended March 31, 2010 is impacted by the change in our uninsured
discount policy, effective January 1, 2011, as more thoroughly explained under Managements
Discussion and Analysis of Financial Condition and Results of Operations  Critical
Accounting Policies. The change in the uninsured discount policy effectively shifts a
portion of our expenses previously classified as provision for bad debts to revenue
deductions, thereby resulting in lower net revenue and lower bad debt expense for the three
months ended March 31, 2011 as compared to the three months ended March 31, 2010. Had our new
uninsured discount policy been in place effective January 1, 2010, our net revenue for the
three months ended March 31, 2010 would have been approximately $196.5 million and the
provision for bad debts would have been approximately $16.4 million, as follows: Provision forNet Revenue
    
    
    Bad Debts(In millions)Historical results of operations for
the three months ended March 31, 2010
as presented
    
    $
    210.3
    
    
    $
    30.2Uninsured discount impact of pro forma
change in policy for the three months
ended March 31, 2010
    
    
    (13.8
    )
    
    
    (13.8
    )Pro forma results of operations for the
three months ended March 31, 2010
    
    $
    196.5
    
    
    $
    16.4
 43




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##### Table of Contents



The following table reflects the results of operations for the three months ended March
31, 2010 on a pro forma basis for the change in our uninsured discounts policy: Three Months EndedMarch 31, 2010(Dollars in millions)Amount
    
    
    %Net revenue
    
    $
    196.5
    
    
    
    100.0
    %Costs and expenses:Salaries and benefits
    
    
    89.4
    
    
    
    45.5Supplies
    
    
    29.2
    
    
    
    14.9Provision for bad debts
    
    
    16.4
    
    
    
    8.4Other operating expenses
    
    
    37.6
    
    
    
    19.1Depreciation and amortization
    
    
    8.9
    
    
    
    4.5Interest, net
    
    
    11.6
    
    
    
    5.9Total costs and expenses
    
    
    193.1
    
    
    
    98.3Income from continuing operations before income taxes
    
    
    3.4
    
    
    
    1.7Income taxes
    
    
    0.8
    
    
    
    0.4Income from continuing operations
    
    
    2.6
    
    
    
    1.3Loss from discontinued operations, net of taxes
    
    
    (0.1
    )
    
    
    Net income
    
    $
    2.5
    
    
    
    1.3
    %Less: Net income attributable to noncontrolling interests
    
    
    0.4
    
    
    
    0.2Net income attributable to Capella Healthcare, Inc.
    
    $
    2.1
    
    
    
    1.1
    %
 44




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##### Table of Contents



MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 The following discussion and analysis of our financial condition and results of operations
includes periods through March 31, 2011. You should read the following discussion of our financial
condition and results of operations with Selected Historical Consolidated Financial and Operating
Data and the audited and unaudited historical consolidated financial statements and accompanying
notes included elsewhere in this prospectus. This discussion contains forward-looking statements
and involves numerous risks and uncertainties, including, but not limited to, those described in
the Risk Factors section of this prospectus. Actual results may differ materially from those
contained in any forward-looking statements.
 Executive Overview
   Operating Environment
  Impact of Healthcare Reform
  45




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Medicare and Medicaid Reimbursement
  46




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##### Table of Contents



47




---



##### Table of Contents



Pay for Performance Reimbursement
  Implementation of our Clinical Quality Initiatives
  
    
    review of the current CMS quality indicators;
    
    mock Joint Commission surveys conducted by a third-party;
    
    implementation of hourly nursing rounds;
    
    alignment of hospital management incentive compensation with quality and satisfaction indicators;
    
    feedback from our LPLGs, NPLG and PAG;
    
    hospital board and medical staff oversight of patient safety and quality of care; and
    
    investment in clinical technology.
 48




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##### Table of Contents



Physician Alignment
  Cost Pressures
  Adoption of Electronic Health Records
  Revenue/Volume Trends
  Sources of Revenue
  49




---



##### Table of Contents



Three MonthsYear Ended December 31,
    
    Ended March 31,2008
    
    2009
    
    2010
    
    2010
    
    2011Medicare(1)
    
    
    36.1
    %
    
    
    39.1
    %
    
    
    36.0
    %
    
    
    37.7
    %
    
    
    39.9
    %Medicaid(1)
    
    
    8.3
    
    
    
    9.6
    
    
    
    12.0
    
    
    
    11.6
    
    
    
    12.7Managed Care and Other
    
    
    43.4
    
    
    
    38.3
    
    
    
    36.1
    
    
    
    39.0
    
    
    
    37.1Self-pay
    
    
    12.2
    
    
    
    13.0
    
    
    
    15.9
    
    
    
    11.7
    
    
    
    10.3Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 
 (1)
    
    Includes net patient revenue received under managed Medicare or managed Medicaid programs.  Impact of Current Economic Environment
  Payor Reimbursement Trends
   50




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Accounts Receivable Collection Risks Leading to Increased Bad Debts
  December 31, 2008
    
    0-90 Days
    
    91-180 Days
    
    Over 180 Days
    
    TotalMedicare(1)
    
    
    21.3
    %
    
    
    0.7
    %
    
    
    0.6
    %
    
    
    22.6
    %Medicaid(1)
    
    
    6.8
    
    
    
    0.6
    
    
    
    0.7
    
    
    
    8.1Managed Care and Other
    
    
    21.3
    
    
    
    2.3
    
    
    
    1.4
    
    
    
    25.0Self-Pay(2)
    
    
    12.4
    
    
    
    11.5
    
    
    
    20.4
    
    
    
    44.3Total
    
    
    61.8
    %
    
    
    15.1
    %
    
    
    23.1
    %
    
    
    100.0
    %
 December 31, 2009
    
    0-90 Days
    
    91-180 Days
    
    Over 180 Days
    
    TotalMedicare(1)
    
    
    21.5
    %
    
    
    0.5
    %
    
    
    0.3
    %
    
    
    22.3
    %Medicaid(1)
    
    
    5.8
    
    
    
    0.4
    
    
    
    0.4
    
    
    
    6.6Managed Care and Other
    
    
    20.3
    
    
    
    1.6
    
    
    
    1.1
    
    
    
    23.0Self-Pay(2)
    
    
    14.2
    
    
    
    11.7
    
    
    
    22.2
    
    
    
    48.1Total
    
    
    61.8
    %
    
    
    14.2
    %
    
    
    24.0
    %
    
    
    100.0
    %
 December 31, 2010
    
    0-90 Days
    
    91-180 Days
    
    Over 180 Days
    
    TotalMedicare(1)
    
    
    22.0
    %
    
    
    0.4
    %
    
    
    0.3
    %
    
    
    22.7
    %Medicaid(1)
    
    
    6.2
    
    
    
    0.7
    
    
    
    0.5
    
    
    
    7.4Managed Care and Other
    
    
    18.7
    
    
    
    1.6
    
    
    
    1.0
    
    
    
    21.3Self-Pay(2)
    
    
    13.6
    
    
    
    12.4
    
    
    
    22.6
    
    
    
    48.6Total
    
    
    60.5
    %
    
    
    15.1
    %
    
    
    24.4
    %
    
    
    100.0
    %
 March 31, 2011
    
    0-90 Days
    
    91-180 Days
    
    Over 180 Days
    
    TotalMedicare(1)
    
    
    25.6
    %
    
    
    0.5
    %
    
    
    0.4
    %
    
    
    26.5
    %Medicaid(1)
    
    
    6.1
    
    
    
    0.7
    
    
    
    0.4
    
    
    
    7.2Managed Care and Other
    
    
    17.1
    
    
    
    1.7
    
    
    
    0.9
    
    
    
    19.7Self-Pay(2)
    
    
    10.2
    
    
    
    11.8
    
    
    
    24.6
    
    
    
    46.6Total
    
    
    59.0
    %
    
    
    14.7
    %
    
    
    26.3
    %
    
    
    100.0
    %
 
 (1)
    
    Includes net patient revenue received under managed Medicare or managed Medicaid programs.(2)
    
    Includes both uninsured as well as estimated co-payment and deductible amounts from insured
patients.  51




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Critical Accounting Policies
  
    
    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.
 Revenue and Revenue Deductions
      52




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Allowance for Doubtful Accounts and Provision for Doubtful Accounts
  Insurance Reserves
    53




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##### Table of Contents



Year EndedDecember 31,2008
    
    
    2009
    
    
    2010(In millions)Accrual for general and professional liability claims at January 1
    
    $
    2.1
    
    
    $
    5.4
    
    
    $
    9.7Expense (income) related to(1):Current accident year
    
    
    3.7
    
    
    
    4.4
    
    
    
    4.9Prior accident years
    
    
    
    
    
    
    0.9
    
    
    
    (0.4
    )Total incurred loss and loss expense
    
    
    3.7
    
    
    
    5.3
    
    
    
    4.5Paid claims and expenses related to:Current accident year
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.2Prior accident years
    
    
    0.3
    
    
    
    0.9
    
    
    
    1.6Total paid claims and expense
    
    
    0.4
    
    
    
    1.0
    
    
    
    1.8Accrual for general and professional liability claims at December 31
    
    $
    5.4
    
    
    $
    9.7
    
    
    $
    12.4
 
 (1)
    
    Total expense, including premiums for insured coverage, was $10.7 million, $10.9 million and
$11.8 million for the years ended December 31, 2008, 2009 and 2010, respectively.  Professional and
    
    WorkersGeneral Liability
    
    Compensation(In millions)December 31, 2008 reserve:As Reported
    
    $
    5.4
    
    
    $
    2.4With 75% Confidence Level
    
    
    6.5
    
    
    
    2.6With 90% Confidence Level
    
    
    8.2
    
    
    
    3.0December 31, 2009 reserve:As Reported
    
    $
    9.7
    
    
    $
    2.0With 75% Confidence Level
    
    
    11.4
    
    
    
    2.4With 90% Confidence Level
    
    
    14.1
    
    
    
    2.8December 31, 2010 reserve:As Reported
    
    $
    12.4
    
    
    $
    2.7With 75% Confidence Level
    
    
    13.8
    
    
    
    2.8With 90% Confidence Level
    
    
    17.1
    
    
    
    3.3
  54




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Income Taxes
   
    
    cumulative losses in recent years;
    
    income/losses expected in future years;
    
    unsettled circumstances that, if favorably resolved, would adversely affect
future operations;
    
    availability, or lack thereof, of taxable income in prior carryback periods
that would limit realization of tax benefits;
    
    carryforward period associated with the deferred tax assets and
liabilities; and
    
    prudent and feasible tax planning strategies.
  Long-Lived Assets and Goodwill
   55




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Allowance for Doubtful Accounts, Provision for Doubtful Account, and Uninsured Discounts
   Results of Operations
 Same-Hospital Operating Results and Data
  56




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##### Table of Contents



Selected Operating Statistics
  Three MonthsYear Ended December 31,
    
    
    Ended March 31,2008
    
    
    2009
    
    
    2010
    
    
    2010
    
    
    2011(In millions)Net revenue
    
    $
    702.4
    
    
    $
    813.9
    
    
    $
    869.5
    
    
    $
    210.3
    
    
    $
    208.5Costs and expenses:Salaries and benefits (includes stock compensation of $
, $0.1, $0.3, $0.1 and $0.1, respectively)
    
    
    304.7
    
    
    
    346.9
    
    
    
    359.7
    
    
    
    89.4
    
    
    
    93.9Supplies
    
    
    96.8
    
    
    
    109.7
    
    
    
    119.6
    
    
    
    29.2
    
    
    
    30.5Provision for bad debts
    
    
    81.1
    
    
    
    111.3
    
    
    
    136.2
    
    
    
    30.2
    
    
    
    18.0Other operating expenses
    
    
    137.8
    
    
    
    150.3
    
    
    
    158.3
    
    
    
    37.6
    
    
    
    42.0Depreciation and amortization
    
    
    33.7
    
    
    
    37.8
    
    
    
    37.1
    
    
    
    8.9
    
    
    
    9.6Interest, net
    
    
    50.4
    
    
    
    48.5
    
    
    
    48.4
    
    
    
    11.6
    
    
    
    12.7Management fee to related party
    
    
    0.2
    
    
    
    0.2
    
    
    
    0.2
    
    
    
    
    
    
    
    Loss on refinancing
    
    
    22.4
    
    
    
    
    
    
    
    20.8
    
    
    
    
    
    
    
    Total costs and expense
    
    
    727.1
    
    
    
    804.7
    
    
    
    880.3
    
    
    
    206.9
    
    
    
    206.7Income (loss) from continuing operations before income
taxes
    
    
    (24.7
    )
    
    
    9.2
    
    
    
    (10.8
    )
    
    
    3.4
    
    
    
    1.8Income taxes
    
    
    5.5
    
    
    
    2.2
    
    
    
    3.2
    
    
    
    0.8
    
    
    
    0.9Income (loss) from continuing operations
    
    
    (30.2
    )
    
    
    7.0
    
    
    
    (14.0
    )
    
    
    2.6
    
    
    
    0.9Loss from discontinued operations, net of taxes
    
    
    (1.9
    )
    
    
    (4.5
    )
    
    
    (0.2
    )
    
    
    (0.1
    )
    
    
    0.1Net income (loss)
    
    $
    (32.1
    )
    
    $
    2.5
    
    
    $
    (14.2
    )
    
    $
    2.5
    
    
    $
    1.0Less: Net income attributable to noncontrolling interests
    
    
    0.5
    
    
    
    0.9
    
    
    
    1.5
    
    
    
    0.4
    
    
    
    0.6Net income (loss) attributable to Capella Healthcare,
Inc.
    
    $
    (32.6
    )
    
    $
    1.6
    
    
    $
    (15.7
    )
    
    $
    2.1
    
    
    $
    0.4
  57




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Net
    
    
    Provision forRevenue
    
    
    Bad Debts(In millions)Historical results of
operations for the three
months ended March 31, 2010
as presented
    
    $
    210.3
    
    
    $
    30.2Uninsured discount impact of
pro forma change in policy
for the three months ended
March 31, 2010
    
    
    (13.8
    )
    
    
    (13.8
    )Pro forma results of
operations for the three
months ended March 2010
    
    $
    196.5
    
    
    $
    16.4
  Three Months EndedMarch 31, 2010(Dollars in millions)Amount
    
    
    %Net revenue
    
    $
    196.5
    
    
    
    100.0
    %Costs and expenses:Salaries and benefits
    
    
    89.4
    
    
    
    45.5Supplies
    
    
    29.2
    
    
    
    14.9Provision for bad debts
    
    
    16.4
    
    
    
    8.4Other operating expenses
    
    
    37.6
    
    
    
    19.1Depreciation and amortization
    
    
    8.9
    
    
    
    4.5Interest, net
    
    
    11.6
    
    
    
    5.9Total costs and expenses
    
    
    193.1
    
    
    
    98.3Income from continuing operations before income taxes
    
    
    3.4
    
    
    
    1.7Income taxes
    
    
    0.8
    
    
    
    0.4Income from continuing operations
    
    
    2.6
    
    
    
    1.3Loss from discontinued operations, net of taxes
    
    
    (0.1
    )
    
    
    Net income
    
    $
    2.5
    
    
    
    1.3
    %Less: Net income attributable to noncontrolling interests
    
    
    0.4
    
    
    
    0.2Net income attributable to Capella Healthcare, Inc.
    
    $
    2.1
    
    
    
    1.1
    %
 Three Months Ended March 31, 2011 Compared to Three Months Ended March 31, 2010
  Three Months Ended March 31,2010
    
    2011
    
    % Change(Unaudited)(Dollars in millions)Statement of Operations Data:Net revenue
    
    $
    210.3
    
    
    $
    208.5
    
    
    
    (0.8
    )%Salaries and benefits
    
    
    89.4
    
    
    
    93.9
    
    
    
    5.0Supplies
    
    
    29.2
    
    
    
    30.5
    
    
    
    4.5Provisions for bad debts
    
    
    30.2
    
    
    
    18.0
    
    
    
    (40.4
    )Other operating expenses
    
    
    37.6
    
    
    
    42.0
    
    
    
    11.7Depreciation and amortization
    
    
    8.9
    
    
    
    9.6
    
    
    
    7.9Operating Data:Number of hospitals at end of each period
    
    
    13
    
    
    
    13
    
    
    
    Admissions
    
    
    12,951
    
    
    
    12,898
    
    
    
    (0.4
    )Adjusted admissions
    
    
    25,388
    
    
    
    26,020
    
    
    
    2.5Net revenue per adjusted admission
    
    $
    8,283
    
    
    $
    8,014
    
    
    
    (3.3
    )Average length of stay
    
    
    4.6
    
    
    
    4.7
    
    
    
    2.2
 58




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Net revenue.
   Costs and expenses.
 Salaries and benefits.
 Supplies.
 Provision for bad debts.
 59




---



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Other operating expenses.
  Other.
 Income taxes.
 Year Ended December 31, 2010 Compared to Year Ended December 31, 2009
  Year Ended December 31,2009
    
    2010
    
    % Change(Dollars in millions)Statement of Operations Data:Net revenue
    
    $
    813.9
    
    
    $
    869.5
    
    
    
    6.8
    %Salaries and benefits
    
    
    346.9
    
    
    
    359.7
    
    
    
    3.7Supplies
    
    
    109.7
    
    
    
    119.6
    
    
    
    9.0Provisions for bad debts
    
    
    111.3
    
    
    
    136.2
    
    
    
    22.3Other operating expenses
    
    
    150.3
    
    
    
    158.3
    
    
    
    5.3Loss on refinancing
    
    
    
    
    
    
    20.8
    
    
    
    100.0Depreciation and amortization
    
    
    37.8
    
    
    
    37.1
    
    
    
    (1.9
    )Operating Data:Number of hospitals at end of each period
    
    
    13
    
    
    
    13
    
    
    
    Admissions
    
    
    50,728
    
    
    
    50,862
    
    
    
    0.3Adjusted admissions
    
    
    101,405
    
    
    
    104,023
    
    
    
    2.6Net revenue per adjusted admission
    
    $
    8,026
    
    
    $
    8,359
    
    
    
    4.1Average length of stay (days)
    
    
    4.6
    
    
    
    4.6
    
    
    
    
 60




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Net revenue.
  Costs and expenses.
 Salaries and benefits.
 Supplies.
 Provision for bad debts.
 Other operating expenses.
 Other.
 61




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Loss on refinancing.
 Income taxes.
 Year Ended December 31, 2009 Compared to Year Ended December 31, 2008
   Year Ended December 31,2008
    
    2009
    
    % Change(Dollars in millions)Statement of Operations Data:Net revenue
    
    $
    702.4
    
    
    $
    813.9
    
    
    
    15.9
    %Salaries and benefits
    
    
    304.7
    
    
    
    346.9
    
    
    
    13.8Supplies
    
    
    96.8
    
    
    
    109.7
    
    
    
    13.4Provisions for bad debts
    
    
    81.1
    
    
    
    111.3
    
    
    
    37.2Other operating expenses
    
    
    137.8
    
    
    
    150.3
    
    
    
    9.1Depreciation and amortization
    
    
    33.7
    
    
    
    37.8
    
    
    
    12.2Operating Data:Number of hospitals at end of each period
    
    
    13
    
    
    
    13
    
    
    
    Admissions
    
    
    47,815
    
    
    
    50,728
    
    
    
    6.1Adjusted admissions
    
    
    93,468
    
    
    
    101,405
    
    
    
    8.5Net revenue per adjusted admission
    
    $
    7,515
    
    
    $
    8,026
    
    
    
    6.8Average length of stay
    
    
    4.6
    
    
    
    4.6
    
    
    
    Same hospital results(1)Statement of Operations Data:Net revenue
    
    $
    341.2
    
    
    $
    349.5
    
    
    
    2.4
    %Salaries and benefits
    
    
    149.8
    
    
    
    155.9
    
    
    
    4.1Supplies
    
    
    48.3
    
    
    
    50.4
    
    
    
    4.3Provision for bad debts
    
    
    32.5
    
    
    
    37.7
    
    
    
    16.0Other operating expenses
    
    
    71.7
    
    
    
    73.6
    
    
    
    2.6Depreciation and amortization
    
    
    19.3
    
    
    
    20.1
    
    
    
    4.1
 62




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Operating Data:Number of hospitals at end of each period
    
    
    5
    
    
    
    5
    
    
    
    Admissions
    
    
    23,795
    
    
    
    22,533
    
    
    
    (5.3
    )Adjusted admissions
    
    
    43,759
    
    
    
    42,137
    
    
    
    (3.7
    )Net revenue per adjusted admission
    
    $
    7,797
    
    
    $
    8,294
    
    
    
    6.4Average length of stay
    
    
    5.1
    
    
    
    5.1
    
    
    
    
 
 (1)
    
    Same hospital information includes the results of our operations and statistical data for
those hospitals owned for the entire 12-month period for both periods presented. Net revenue
  Costs and expenses
 Salaries and benefits
 63




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Supplies
  Provision for bad debts
   Other operating expenses
 64




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##### Table of Contents



Other
 Loss on refinancing
 Income taxes
 Liquidity and Capital Resources
 Operating Activities
   65




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##### Table of Contents



Investing Activities
   Financing Activities
  The Refinancing
 1 4
  Debt Covenants
  66




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Capital Resources
      Obligations and Commitments
  67




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Payments Due by PeriodWithin
    
    
    During
    
    
    During
    
    
    After1 Year
    
    
    Years 2-3
    
    
    Years 4- 5
    
    
    5 Years
    
    
    Total(In millions)Contractual Cash Obligations:Long-term debt (1)
    
    $
    46.9
    
    
    $
    93.8
    
    
    $
    93.8
    
    
    $
    593.8
    
    
    $
    828.3Operating leases (2)
    
    
    7.9
    
    
    
    12.4
    
    
    
    7.4
    
    
    
    4.2
    
    
    
    31.9Estimated self-insurance liabilities (3)
    
    
    6.8
    
    
    
    6.7
    
    
    
    2.9
    
    
    
    2.3
    
    
    
    18.7Subtotal
    
    $
    61.6
    
    
    $
    112.9
    
    
    $
    104.1
    
    
    $
    600.3
    
    
    $
    878.9Other Commitments:Construction and capital improvements (4)
    
    $
    4.2
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    4.2Letters of credit (5)
    
    
    4.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.9Physician commitments (6)
    
    
    0.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.9Information technology commitments (7)
    
    
    5.6
    
    
    
    12.9
    
    
    
    14.7
    
    
    
    16.6
    
    
    
    49.8Subtotal
    
    $
    15.6
    
    
    $
    12.9
    
    
    $
    14.7
    
    
    $
    16.6
    
    
    $
    59.8Total obligations and commitments
    
    $
    77.2
    
    
    $
    125.8
    
    
    $
    118.8
    
    
    $
    616.9
    
    
    $
    938.7
 
 (1)
    
    Includes both principal and interest portions of outstanding debt.(2)
    
    These obligations are not reflected in our consolidated balance sheets.(3)
    
    Includes the current and long-term portions of our professional and general liability,
workers compensation and employee health reserves.(4)
    
    Represents our estimate of amounts we are committed to fund in future periods through
executed agreements to complete projects included as construction in progress on our
consolidated balance sheets.(5)
    
    Amounts relate to instances in which we have letters of credit outstanding with the third
party administrators of our self-insured workers compensation program.(6)
    
    Includes physician guarantee liabilities recognized on our consolidated balance sheets under
FASB provisions regarding minimum revenue guarantees and liabilities for other fixed expenses
under physician relocation agreements not yet paid.(7)
    
    An affiliate of HCA and another third-party vendor provide various information systems
services, including but not limited to, financial, clinical, revenue cycle management, patient
accounting and network information services, under contracts that expire beginning 2018. The
amounts are based on estimated fees that will be charged to our hospitals with an annual fee
increase to our hospitals that is capped by the consumer price index increase. Guarantees and Off-Balance Sheet Arrangements
    Effects of Inflation and Changing Prices
  68




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Quantitative and Qualitative Disclosures About Market Risk
    69




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BUSINESS
 Company Overview
       Our Competitive Strengths
  70




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Commitment to Delivery of Patient Care Excellence
  
    
    accreditation of all of our hospitals, including 12 by The Joint Commission and
one by the American Osteopathic Association;
    
    in the spring of 2011, The Joint Commission recognized eight of our hospitals for
significant improvement and/or consistent high performance in various elements of the core
measures and invited them to participate in the pilot-testing of Solutions Exchange, a
program to help other hospitals throughout the nation;
    
    Parkway Medical Center was ranked in the top 1% of all U.S. hospitals by Data
Advantage Hospital Value Index (HVI) and was recognized as a center of excellence in
bariatric surgery in 2010;
    
    Capital Medical Center received a #1 ranking in the state of Washington by
HealthGrades for its orthopedic program in 2010 and a Best in Country, Top 10 in the state
of Washington by HealthGrades for general surgery in 2011;
    
    Southwestern Medical Center was the first hospital in southwest Oklahoma to
receive certification from The Joint Commission for its stroke program and, in 2011, earned
its fifth consecutive accreditation from the Commission on Accreditation of Rehabilitation
Facilities;
    
    Muskogee Regional Medical Center earned accreditation from the Oklahoma State
Medical Association as a sponsor of Continuing Medical Education in 2010 and Quality
Respiratory Care Recognition from the American Association for Respiratory Care in 2010 and
2011;
    
    Willamette Valley Medical Center was named a Best Value in the State of
Oregon for 2009 and 2010 by the Press Ganey Hospital Value Index;
    
    River Park Hospital earned its third consecutive national Chest Pain Center
accreditation in 2010 from the Society of Chest Pain Centers;
    
    Mineral Area Regional Medical Center was named a 2011 Excellence through
Insight award recipient in the category of Overall Physician Satisfaction by
HealthStream Research;
    
    National Park Medical Center was named to HomeCare Elite 2010, which is the top
5% of high performance home health agencies in the U.S.; and
    
    improved physician and employee satisfaction scores in 2010, as measured by an
independent, third-party, nationally-recognized survey administrator.
 71




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Diversified Portfolio of Assets with Strong Market Positions in Attractive Communities
  Strategic Physician Recruitment and Retention
  Proven Ability to Instill Operational Excellence in Acquired Facilities
  Strategic Capital Investments Resulting in Well Capitalized Facilities.
  72




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Experienced Senior Management and Leadership Teams
    Our Business Strategy
  Enhancing Quality of Care and Service Excellence
  
    
    Emergency Rooms.Recently, we embarked on a multi-year strategy to enhance
quality and improve operating efficiencies in our emergency rooms. This strategy
involves implementing process improvement initiatives such as Lean for Healthcare
techniques, which are designed to improve patient experiences through more efficient
utilization of resources. As a result of this initiative, several members of our
corporate and hospital staff have received Lean for Healthcare certifications. We also
are making a significant investment in a leading emergency department information
system, which is comprised of several modules that offer comprehensive patient
management system tools. The program provides appropriate and consistent guidelines for
patient care excellence helping to ensure that proper screening, evaluation and
treatment is performed.
    
    Local Physician Leadership Groups, or LPLGs.Our LPLGs are comprised of
four to five physician leaders and our hospital CEO in each of our markets. The groups
(i) provide ongoing dialogue with hospital administration; (ii) help develop key
strategic initiatives for the hospital; and (iii) promote patient care excellence.
    
    Physician Advisory Group, or PAG. Our PAG is comprised of physician
leaders across the Company. The group (i) provides clinical review and guidance
related to information system design, build-out and workflow; (ii) advises us on
physician communication and education; and (iii) identifies opportunities where
technology can be used to improve clinical processes and outcomes.
 73




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
    
    National Physician Leadership Group, or NPLG.Our NPLG is comprised of one
member of each LPLG and Capella senior management. The group (i) receives updates on
Capella corporate strategy and vision; (ii) discusses quality of care issues and goals;
(iii) promotes networking among Capella-affiliated physicians; (iv) offers advice on
special projects where front line physician input is critical; and (v) allows members
of the medical staff to have direct communication with members of Capella senior
management.
    
    Chief Medical Officer. Our CMO is responsible for facilitating the work of
our NPLG, ensuring that physician leaders from across the Company are continuously
involved in shaping our vision and future strategies. The CMO is also responsible for
providing leadership for our affiliated hospitals quality and service excellence
initiatives as well as for on-going communication with medical staff members.
    
    Training and Education.We provide a customized on-line learning center
comprised of approximately 3,000 clinically based courses to all our staff. Our
corporate CQO develops and implements a work plan for each of the hospitals based upon
their specific needs. The hospital CQO and CNO, in turn, develop individual educational
work plans for each staff member at their facility. Usage of the Capella Learning
Center is monitored by the corporate CQO and is reported to Capella senior management.
We work with an independent consulting group to provide training in the areas of
improving patient care processes as well as employee, physician and patient
satisfaction. We believe this is a critical element in emphasizing our philosophy that,
if our employees and physicians enjoy where they work and if they are intellectually
stimulated, they will improve the quality care our patients receive. We survey our
physicians and our employees on an annual basis to identify objectives for quality and
satisfaction improvement.
    
    Compensation.We base the incentive compensation for our hospital
administrative teams in significant part on achieving key individual and facility
quality and service metrics such as performance on patient satisfaction surveys and
other core measurements.
 Continued Physician Engagement and Alignment Initiatives
  
    
    our commitment to patient care excellence;
    
    our willingness to deploy strategic capital to improve the delivery of
care;
    
    our focus on employing and developing high quality nursing and support
staff; and
    
    our integration into, and support of, the communities we serve.
 Identifying and Establishing Strong Local Market Leadership
  74




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Expanding the Services We Provide
  
    
    expanding specialty medical services such as medical and radiation
oncology, cardiovascular, orthopedic, neurology, behavioral health and womens
services;
    
    initiating and expanding outpatient services;
    
    investing in medical equipment and technology to support our service lines;
    
    improving our efficiency to deliver better quality care in our emergency
rooms; and
    
    enhancing patient, physician and employee satisfaction.
  Pursuing Acquisitions and Strategic Relationships
    75




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Investing in Technology to Improve Patient Care
  Delivering Strong Financial Performance
  
    
    continued focus on revenue cycle management and collections;
    
    disciplined deployment of capital across our portfolio;
    
    encouragement and motivation our physicians and medical staff to adhere to
our established protocols related to medical supplies utilization;
    
    infrastructure build-out to support our growing physician clinic
operations;
    
    implementation of appropriate staffing tools and continued reduction of
contract labor; and
    
    leveraged technical expertise through use of our corporate resources.
 Industry and Industry Trends
    Demographics and Disease Trends
 76




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##### Table of Contents



Quality-Driven Reimbursement
 Specialized Services
 Consolidation
 Healthcare Reform
 The Markets We Serve
  Alabama
  77




---



##### Table of Contents



Arkansas
  Missouri
  Oklahoma
  Oregon
  Tennessee
  78




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##### Table of Contents



Washington
  Our Facilities
  Hospital
    
    Location
    
    Licensed Beds
    
    Date AcquiredCapital Medical Center(1)
    
    Olympia, WA
    
    
    110
    
    
    December 1, 2005Grandview Medical Center
    
    Jasper, TN
    
    
    70
    
    
    December 1, 2005Hartselle Medical Center
    
    Hartselle, AL
    
    
    150
    
    
    March 1, 2008Jacksonville Medical Center
    
    Jacksonville, AL
    
    
    89
    
    
    March 1, 2008Mineral Area Regional Medical Center
    
    Farmington, MO
    
    
    135
    
    
    March 1, 2008Muskogee Regional Medical Center
    
    Muskogee, OK
    
    
    275
    
    
    April 3, 2007National Park Medical Center(2)
    
    Hot Springs, AR
    
    
    166
    
    
    March 1, 2008Parkway Medical Center
    
    Decatur, AL
    
    
    108
    
    
    March 1, 2008River Park Hospital
    
    McMinnville, TN
    
    
    125
    
    
    December 1, 2005Southwestern Medical Center
    
    Lawton, OK
    
    
    199
    
    
    December 1, 2005St. Marys Regional Medical Center
    
    Russellville, AR
    
    
    170
    
    
    March 1, 2008White County Community Hospital(3)
    
    Sparta, TN
    
    
    60
    
    
    March 1, 2008Willamette Valley Medical Center
    
    McMinnville, OR
    
    
    88
    
    
    March 1, 2008Total Licensed Beds
    
    
    
    
    1,745
 
 (1)
    
    This hospital is operated by us in a joint venture with physicians in which we own 90.25% and
physicians or physician entities own the remaining 9.75%.(2)
    
    This hospital is operated by us in a joint venture with physicians in which we own 95.04% and
physicians or physician entities own the remaining 4.96%.(3)
    
    This hospital is operated by us in a joint venture with physicians in which we own 83.8% and
physicians or physician entities own the remaining 16.2%.   79




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Our Hospital Operations
 Acute Care Services
  Management and Oversight
     Attracting Patients
  80




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##### Table of Contents



Outpatient Services
  Competition
  Employees and Medical Staff
    81




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Compliance Program
   Our Information Systems
  
    
    patient accounting, including billing and collection of revenue;
    
    accounting, financial reporting and payroll;
    
    coding and compliance;
    
    laboratory, radiology and pharmacy systems;
    
    medical records and document storage;
    
    physician access to patient data;
    
    quality indicators;
    
    materials and asset management; and
    
    negotiating, pricing and administering our managed care contracts
 82




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Professional and General Liability Insurance
   Legal Proceedings
  Payment for Services
 General
   Three monthsEndedYear Ended December 31,
    
    March 31,2008
    
    2009
    
    2010
    
    2010
    
    2011Medicare
    
    
    36.1
    %
    
    
    39.1
    %
    
    
    36.0
    %
    
    
    37.7
    %
    
    
    39.9
    %Medicaid
    
    
    8.3
    
    
    
    9.6
    
    
    
    12.0
    
    
    
    11.6
    
    
    
    12.7Managed Care and other
    
    
    43.4
    
    
    
    38.3
    
    
    
    36.1
    
    
    
    39.0
    
    
    
    37.1Self-Pay
    
    
    12.2
    
    
    
    13.0
    
    
    
    15.9
    
    
    
    11.7
    
    
    
    10.3Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 83




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Medicare Inpatient Services
      84




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Medicare Outpatient Payment
   Healthcare Reform
  85




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Impact of Affordable Care Act on the Company
   
    
    how many previously uninsured individuals will obtain coverage as a result
of the Affordable Care Act (while the CBO estimates 32 million, CMS estimates almost 34
million; both agencies made a number of assumptions to derive that figure, including
how many individuals will ignore substantial subsidies and decide to pay the penalty
rather than obtain health insurance and what percentage of people in the future will
meet the new Medicaid income eligibility requirements);
    
    what percentage of the newly insured patients will be covered under the
Medicaid program and what percentage will be covered by private health insurers;
    
    the extent to which states will enroll new Medicaid participants in managed
care programs;
    
    the pace at which insurance coverage expands, including the pace of
different types of coverage expansion;
    
    the change, if any, in the volume of inpatient and outpatient hospital
services that are sought by and provided to previously uninsured individuals;
 86




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##### Table of Contents




    
    the rate paid to hospitals by private payers for newly covered individuals,
including those covered through the newly created Exchanges and those who might be
covered under the Medicaid program under contracts with the state;
    
    the rate paid by state governments under the Medicaid program for newly
covered individuals;
    
    how the value-based purchasing and other quality programs will be
implemented;
    
    the percentage of individuals in the Exchanges who select the high
deductible plans, since health insurers offering those kinds of products have
traditionally sought to pay lower rates to hospitals;
    
    whether the net effect of the Affordable Care Act, including the
prohibition on excluding individuals based on pre-existing conditions, the requirement
to keep medical costs lower than a specified percentage of premium revenue, other
health insurance reforms and the annual fee applied to all health insurers, will be to
put pressure on the bottom line of health insurers, which in turn might cause them to
seek to reduce payments to hospitals with respect to both newly insured individuals and
their existing business; and
    
    the possibility that implementation of provisions expanding health
insurance coverage will be delayed or even blocked because of court challenges or
revised or eliminated as a result of court challenges and efforts to repeal or amend
the new law.
  
    
    the amount of overall revenues we will generate from Medicare and Medicaid
business when the reductions are implemented;
    
    whether reductions required by the Affordable Care Act will be changed by
statute prior to becoming effective;
    
    the size of the Affordable Care Acts annual productivity adjustment to the
market basket beginning in 2012 payment years;
    
    the amount of the Medicare DSH reductions that will be made, commencing in
FFY 2014;
    
    the allocation to our hospitals of the Medicaid DSH reductions, commencing
in FFY 2014;
    
    what the losses in revenues will be, if any, from the Affordable Care Acts
quality initiatives;
    
    how successful ACOs, in which we participate, will be at coordinating care
and reducing costs;
    
    the scope and nature of potential changes to Medicare reimbursement
methods, such as an emphasis on bundling payments or coordination of care programs; and
    
    reductions to Medicare payments CMS may impose for excessive
readmissions.
  87




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CMS Disclosure Obligations
  Recovery Audit Contractors
    Medicaid
   88




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##### Table of Contents



Third-Party Payors
  Government Regulation and Other Factors
 General
  Licensing, Certification and Accreditation
   Medicare Participation
  89




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##### Table of Contents



Anti-Kickback Laws
  U.S. v. Greber Greber
    90




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##### Table of Contents



The Stark Law
     91




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##### Table of Contents



Corporate Practice of Medicine and Fee Splitting
  HIPAA Privacy, Transaction and Security Standards
       92




---



##### Table of Contents



Federal Trade Commission Red Flags Rule
   93




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##### Table of Contents



False and Other Improper Claims
    The Emergency Medical Treatment and Active Labor Act
  94




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##### Table of Contents



Environmental Matters
  
    
    the proper handling and disposal of hazardous and low level medical
radioactive waste;
    
    ownership or historical use of underground and above-ground storage tanks;
    
    management of impacts from leaks of hydraulic fluid or oil associated with
elevators, chiller units or incinerators;
    
    appropriate management of asbestos-containing materials present or likely
to be present at some locations; and
    
    the potential acquisition of, or maintenance of air emission permits for,
boilers or other equipment.
  95




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##### Table of Contents



MANAGEMENT
 Executive Officers and Directors
  Name
    
    Age
    
    PositionDaniel S. Slipkovich
    
    
    53
    
    
    Chief Executive Officer and DirectorD. Andrew Slusser
    
    
    51
    
    
    Senior Vice President of Acquisitions and DevelopmentDenise W. Warren
    
    
    49
    
    
    Senior Vice President, Chief Financial Officer and TreasurerMichael A. Wiechart
    
    
    45
    
    
    Senior Vice President and Chief Operating OfficerErik Swensson, MD
    
    
    57
    
    
    Senior Vice President and Chief Medical OfficerSteven R. Brumfield
    
    
    47
    
    
    Vice President and ControllerJ. Thomas Anderson
    
    
    57
    
    
    Vice-Chair and Co-Founder and DirectorJoseph P. Nolan
    
    
    46
    
    
    DirectorDavid S. Katz
    
    
    45
    
    
    DirectorRobert Z. Hensley
    
    
    53
    
    
    Director
 Daniel S. Slipkovich
 D. Andrew Slusser
 Denise W. Warren
 96




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##### Table of Contents



summa cum laude
 Michael A. Wiechart
 Erik Swensson, M.D.
 Steven R. Brumfield
 J. Thomas Anderson
 97




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##### Table of Contents



Joseph P. Nolan
 David S. Katz cum laude
 Robert Z. Hensley
 Board of Directors and Board Committees
  Audit
    
    CompensationName of Director
    
    Committee
    
    CommitteeJ. Thomas Anderson
    
    
    
    
    
    
    Robert Z. Hensley
    
    
    X
    
    
    
    XDavid S. Katz
    
    
    X
    
    
    
    XJoseph P. Nolan
    
    
    X
    
    
    
    XDaniel S. Slipkovich(1)
    
    
    
    
    
    
    
 98




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##### Table of Contents



(1)
    
    Indicates management director. Director Independence
  Risk Oversight
  Code of Ethics
  99




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##### Table of Contents



COMPENSATION DISCUSSION AND ANALYSIS
   
    
    attract, retain, motivate and reward individuals of the highest quality in the
industry with the experience, skills and integrity necessary to promote our success;
    
    be competitive within our industry and community and responsive to the needs of our
NEOs;
    
    provide incentive opportunities that will motivate NEOs to achieve our long-term
objectives;
    
    link compensation paid to NEOs to corporate and individual performance; and
    
    comply with all applicable laws, and be appropriate in light of reasonable and
sensible standards of good corporate governance.
 Compensation Process
  Components of Executive Compensation
  
    
    Base salaries;
    
    Non-equity incentive compensation; and
    
    Benefits and perquisites.
   100




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Base Salaries
   Non-Equity Incentive Compensation
  
    
    evaluations of each of the NEOs, as well as feedback from the Board of Directors,
regarding each NEOs performance;
    
    the Chief Executive Officers review and evaluation of each of the other NEOs,
addressing individual performance and the results of operations of the business areas
and departments for which such executive had responsibility;
    
    the financial performance of the Company, including achieving EBITDA goals
established by the Chief Executive Officer and presented to and approved by the Board
of Directors; and
    
    total proposed compensation, as well as each element of proposed compensation,
taking into account the recommendations of the Chief Executive Officer.
  101




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Benefits and Perquisites
   Impact of Tax and Accounting Rules
  102




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EXECUTIVE COMPENSATION
 Summary Compensation Table
  Non-EquityIncentive Plan
    
    All OtherName and Principal
    
    
    
    
    
    
    
    
    
    
    
    
    
    Compensation
    
    CompensationPosition
    
    Year
    
    Salary
    
    Bonus (4)
    
    (5)
    
    (6)
    
    TotalDaniel S. Slipkovich
    
    
    2010
    
    
    $
    450,000
    
    
    $
    
    
    
    $
    
    
    
    $
    3,333
    
    
    $
    453,333Chief Executive Officer
    
    
    2009
    
    
    
    450,000
    
    
    
    
    
    
    
    450,000
    
    
    
    3,822
    
    
    
    903,8222008
    
    
    
    433,335
    
    
    
    
    
    
    
    
    
    
    
    1,622
    
    
    
    434,957Denise W. Warren
    
    
    2010
    
    
    $
    358,750
    
    
    $
    
    
    
    $
    
    
    
    $
    2,901
    
    
    $
    361,651Senior Vice President,
    
    
    2009
    
    
    
    350,000
    
    
    
    
    
    
    
    262,500
    
    
    
    3,390
    
    
    
    615,890Chief Financial
Officer and Treasurer
    
    
    2008
    
    
    
    344,167
    
    
    
    
    
    
    
    
    
    
    
    1,622
    
    
    
    345,789D. Andrew Slusser
    
    
    2010
    
    
    $
    292,125
    
    
    $
    
    
    
    $
    
    
    
    $
    3,333
    
    
    $
    295,458Senior Vice President of
    
    
    2009
    
    
    
    285,000
    
    
    
    
    
    
    
    285,000
    
    
    
    3,822
    
    
    
    573,822Acquisitions and
Development
    
    
    2008
    
    
    
    281,250
    
    
    
    
    
    
    
    
    
    
    
    1,622
    
    
    
    282,872Howard T. Wall (1)
    
    
    2010
    
    
    $
    312,625
    
    
    $
    
    
    
    $
    
    
    
    $
    3,333
    
    
    $
    315,958Former Senior Vice
    
    
    2009
    
    
    
    285,000
    
    
    
    
    
    
    
    228,750
    
    
    
    3,822
    
    
    
    517,572President, General
Counsel and Secretary
    
    
    2008
    
    
    
    281,250
    
    
    
    
    
    
    
    
    
    
    
    1,622
    
    
    
    282,872Michael A. Wiechart (2)
    
    
    2010
    
    
    $
    384,375
    
    
    $
    
    
    
    $
    
    
    
    $
    2,901
    
    
    $
    387,276Senior Vice President
    
    
    2009
    
    
    
    226,190
    
    
    
    
    
    
    
    169,643
    
    
    
    1,560
    
    
    
    397,393and Chief Operating
Officer
    
    
    2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    J. Thomas Anderson (3)
    
    
    2010
    
    
    $
    399,996
    
    
    $
    
    
    
    $
    
    
    
    $
    4,413
    
    
    $
    404,409Vice Chairman
    
    
    2009
    
    
    
    399,996
    
    
    
    
    
    
    
    399,996
    
    
    
    4,902
    
    
    
    804,8942008
    
    
    
    391,665
    
    
    
    
    
    
    
    
    
    
    
    1,622
    
    
    
    393,287
 
 (1)
    
    Mr. Wall resigned as our Senior Vice President, General Counsel and Secretary effective June
10, 2011.(2)
    
    Mr. Wiechart joined the Company in 2009 as our Senior Vice President and Chief Operating
Officer.(3)
    
    Reflects compensation paid to Mr. Anderson in his capacity as our President. In September
2010, Mr. Anderson resigned as President and currently serves as Vice Chairman of the Board of
Directors.(4)
    
    Reflects discretionary bonuses awarded by the Compensation Committee and the Board of
Directors. No such bonuses were awarded for 2008, 2009 or 2010.(5)
    
    Reflects cash awards earned under our non-equity incentive compensation plan.(6)
    
    Details of the amounts included in All Other Compensation for 2010 are as follows: Long-TermGroup Term Life
    
    Disability
    
    TotalDaniel S. Slipkovich
    
    $
    1,242
    
    
    $
    2,091
    
    
    $
    3,333Denise W. Warren
    
    
    810
    
    
    
    2,091
    
    
    
    2,901D. Andrew Slusser
    
    
    1,242
    
    
    
    2,091
    
    
    
    3,333Howard T. Wall
    
    
    1,242
    
    
    
    2,091
    
    
    
    3,333Michael A. Wiechart
    
    
    810
    
    
    
    2,091
    
    
    
    2,901J. Thomas Anderson
    
    
    2,322
    
    
    
    2,091
    
    
    
    4,413
 103




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##### Table of Contents



Employment Agreements with the NEOs
    Grant of Plan Based Awards at December 31, 2010
  Estimated Future Payouts Under Non-Equity IncentivePlan Awards (1)Name
    
    Threshold
    
    Target
    
    MaximumDaniel S. Slipkovich
    
    
    
    
    
    $
    450,000
    
    
    $
    450,000Denise W. Warren
    
    
    
    
    
    
    269,063
    
    
    
    269,063D. Andrew Slusser
    
    
    
    
    
    
    292,125
    
    
    
    292,125Howard T. Wall
    
    
    
    
    
    
    234,469
    
    
    
    234,469Michael A. Wiechart
    
    
    
    
    
    
    288,281
    
    
    
    288,281J. Thomas Anderson
    
    
    
    
    
    
    399,996
    
    
    
    399,996
 104




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##### Table of Contents



(1)
    
    Reflects cash bonus awards granted under our non-equity incentive compensation plan
where receipt is contingent upon the achievement of a performance goal. The applicable
performance goal was not achieved for 2010; therefore, no payments were made to the NEOs
under the non-equity incentive compensation plan. For more information about our
non-equity incentive compensation plan, please refer to the section above entitled
Compensation Discussion and Analysis  Components of Executive Compensation  Non-Equity
Incentive Compensation. Potential Termination and Change-in-Control Payments
   
    
    Messrs. Slipkovich, Slusser or Anderson are terminated without Cause or as a result
of a Disability or death or they resign for Good Reason, then they are entitled to
receive their annual base salary for one year, and, with respect to Messrs. Slipkovich
and Slusser, are entitled to cause Holdings to purchase of portion of their shares of
Holdings common stock at fair market value as of the date such right is exercised;
    
    Ms. Warren is terminated without Cause or as a result of Disability or death, she is
entitled to receive her annual base salary for one year; and
    
    Mr. Wiechart is terminated without Cause or as a result of Disability or death or he
resigns for Good Reason, he is entitled to receive his annual base salary for two
years.
    105




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Daniel S. Slipkovich
 InvoluntaryExecutive Benefits and
    
    Termination
    
    Resignation for
    
    Change in
    
    Death orPayments upon Termination
    
    without Cause
    
    Good Reason
    
    Control
    
    DisabilityCash Payments
    
    $
    450,000
    
    
    $
    450,000
    
    
    
    
    
    
    $
    450,000Accelerated Vesting of
Unvested Restricted Stock
    
    
    
    
    
    
    
    
    
    $
    3,051,574
    (2)
    
    
    Put Right
    
    
    2,703,784
    (1)
    
    
    2,703,784
    (1)
    
    
    
    
    
    
    
 
 (1)
    
    Reflects the right to require Holdings to purchase (i) 299,171 shares of Holdings common stock
based on a per share price of $3.80 per share, which was determined to be the fair market value of
Holdings common stock as of December 31, 2011 by an third-party appraiser, and (ii) 1,566.934
shares of Holdings preferred stock at $1,000 per share. In May 2005, Mr. Slipkovich originally
purchased the shares of common stock for fair market value and 1,172.749 share of preferred stock
for $1,000 per share.(2)
    
    Reflects the accelerated vesting of 789,888 shares of Holdings common stock that remain
unvested until certain terms are met upon a Sale of the Company or an initial Public Offering. The
amount of compensation reflected in this column is based on a per share price of $3.80, which was
determined to be the fair market value of Holdings common stock as of December 31, 2011 by an
third-party appraiser. Mr. Slipkovich originally purchased these shares for fair market value in
May 2005. Denise W. Warren
 InvoluntaryExecutive Benefits and
    
    Termination
    
    Resignation for
    
    Change in
    
    Death orPayments upon Termination
    
    without Cause
    
    Good Reason
    
    Control
    
    DisabilityCash Payments
    
    $
    358,750
    
    
    
    
    
    
    
    
    
    
    $
    358,750Accelerated Vesting of
Unvested Restricted Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 106




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##### Table of Contents



D. Andrew Slusser
 InvoluntaryExecutive Benefits and
    
    Termination
    
    Resignation for
    
    Change in
    
    Death orPayments upon Termination
    
    without Cause
    
    Good Reason
    
    Control
    
    DisabilityCash Payments
    
    $
    292,125
    
    
    $
    292,125
    
    
    
    
    
    
    $
    292,125Accelerated Vesting of
Unvested Restricted Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Put Right
    
    
    26,058
    (1)
    
    
    26,058
    (1)
    
    
    
    
    
    
    
 
 (1)
    
    Reflects the right to require Holdings to purchase (i) 2,883 shares of Holdings common stock
based on a per share price of $3.80, which was determined to be the fair market value of Holdings
common stock as of December 31, 2010 by an third-party appraiser, and (ii) 15.102 shares of
Holdings preferred stock at $1,000 per share. In May 2005, Mr. Slusser originally purchased the
shares of common stock for fair market value and 11.302 shares of preferred stock for $1,000 per
share. Michael A. Wiechart
 InvoluntaryExecutive Benefits and
    
    Termination
    
    Resignation for
    
    Change in
    
    Death orPayments upon Termination
    
    without Cause
    
    Good Reason
    
    Control
    
    DisabilityCash Payments
    
    $
    768,750
    
    
    $
    768,750
    
    
    
    
    
    
    $
    768,750Accelerated Vesting of
Unvested Restricted Stock
    
    
    
    
    
    
    
    
    
    $
    1,824,000
    (1)
    
    
    
 
 (1)
    
    Reflects the accelerated vesting of 480,000 shares of Holdings common stock that remain unvested
until certain terms are met upon a Sale of the Company, except in the case of an initial Public
Offering. The amount of compensation reflected in this column is based on a per share price of
$3.80, which was determined to be the fair market value of Holdings common stock as of December 31,
2010 by an third-party appraiser. Mr. Wiechart originally purchased these shares for fair market
value in May 2009. J. Thomas Anderson
 InvoluntaryExecutive Benefits and
    
    Termination
    
    Resignation for
    
    Change in
    
    Death orPayments upon Termination
    
    without Cause
    
    Good Reason
    
    Control
    
    DisabilityCash Payments
    
    $
    399,996
    
    
    $
    399,996
    
    
    
    
    
    
    $
    399,996Accelerated Vesting of
Unvested Restricted Stock
    
    
    
    
    
    
    
    
    
    $
    1,800,964
    (1)
    
    
    
 
 (1)
    
    Reflects the accelerated vesting of 473,938 shares of Holdings common stock that remain unvested
until certain terms are met upon a Sale of the Company or an initial Public Offering. The amount
of compensation reflected in this column is based on a per share price of $3.80, which was
determined to be the fair market value of Holdings common stock as of December 31, 2010 by an
third-party appraiser. Mr. Anderson originally purchased these shares for fair market value in May
2005.  Director Compensation
  Compensation Committee Interlocks and Insider Participation
  107




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108




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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  Stock Purchase Agreement
  Stockholders Agreement
  Registration Rights Agreement
  109




---



##### Table of Contents



Professional Services Agreement
  Redemption of Preferred Stock
  Repayment of Indebtedness to Holdings
  Mr. Anderson
  Mr. Brumfield
  110




---



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Mr. Wall
  Ms. Warren
  Departure Terms
  111




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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
  Percentage of
    
    
    
    
    
    Percentage ofShares of Common
    
    Common Stock
    
    Shares of Preferred
    
    Preferred StockStock Beneficially
    
    Beneficially
    
    Stock Beneficially
    
    BeneficiallyName of Beneficial Holder(1)
    
    Owned(5)
    
    Owned
    
    Owned(5)
    
    OwnedGTCR(2)
    
    
    50,000,000
    (6)
    
    
    80.1
    %
    
    
    278,616.794
    (11)
    
    
    99.4
    %Daniel S. Slipkovich
    
    
    4,880,522
    (7)
    
    
    7.8
    
    
    
    1,596.059
    
    
    
    *Denise W. Warren
    
    
    947,846
    (8)
    
    
    1.5
    
    
    
    
    
    
    
    D. Andrew Slusser
    
    
    1,108,721
    
    
    
    1.8
    
    
    
    15.382
    
    
    
    *Howard T. Wall(3)
    
    
    631,880
    (9)
    
    
    1.0
    
    
    
    
    
    
    
    Michael A. Wiechart
    
    
    600,000
    
    
    
    *
    
    
    
    
    
    
    
    J. Thomas Anderson
    
    
    3,820,297
    (10)
    
    
    6.1
    
    
    
    
    
    
    
    Joseph P. Nolan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    David S. Katz
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Robert Z. Hensley
    
    
    12,500
    
    
    
    *
    
    
    
    
    
    
    
    All directors and
executive officers
as a group (11
persons)(4)
    
    
    12,310,216
    
    
    
    19.7
    
    
    
    1,611.441
    
    
    
    *
 
 *
    
    Less than one percent.(1)
    
    Each owner has agreed to vote their shares in accordance with the Stockholders Agreement.
See Certain Relationships and Related Transactions  Stockholders Agreement.(2)
    
    The address of GTCR and Messrs. Nolan and Katz is 300 N. LaSalle Street, Suite 5600, Chicago,
Illinois 60654.(3)
    
    Mr. Wall resigned as Capellas Senior Vice President, General Counsel and Secretary effective
June 10, 2011.(4)
    
    Includes 64,737 shares that were subsequently redeemed by Holdings effective May 31, 2011.
See Certain Relationships and Related Transactions  Repayment of Indebtedness to Holdings
 Mr. Brumfield.(5)
    
    Beneficial ownership includes voting or investment power with respect to securities and
includes shares that an individual has a right to acquire within 60 days after March 31, 2011.(6)
    
    Includes 42,342,800, 7,431,200 and 226,000 shares owned by GTCR Fund VIII, L.P., GTCR Fund
VIII/B, L.P. and GTCR Co-Invest II, L.P., respectively. Messrs. Katz and Nolan are principals
of GTCR and as such may be deemed to be a beneficial owner of these three funds. Messrs. Katz
and Nolan disclaim beneficial ownership of such funds.(7)
    
    Includes 789,888 shares owned by Mr. Slipkovich with financial rights that do not vest until
a sale of the Company or an initial public offering but for which Mr. Slipkovich currently has
voting power.(8)
    
    Includes 148,599 shares that were subsequently redeemed by Holdings effective May 31, 2011.
See Certain Relationships and Related Transactions  Repayment of Indebtedness to Holdings
 Ms. Warren.(9)
    
    Includes 77,897 shares that were subsequently redeemed by Holdings effective May 31, 2011.
See Certain Relationships and Related Transactions  Repayment of Indebtedness to Holdings
 Mr. Wall.(10)
    
    Includes 48,786 shares that were subsequently redeemed by Holdings effective May 31, 2011.
See Certain Relationships and Related Transactions  Repayment of Indebtedness to Holdings
 Mr. Anderson.(11)
    
    Includes 235,948.304, 41,409.142 and 1,259.348 shares owned by GTCR Fund VIII, L.P., GTCR
Fund VIII/B, L.P. and GTCR Co-Invest II, L.P., respectively. 112




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##### Table of Contents



DESCRIPTION OF OTHER INDEBTEDNESS
 Asset Based Loan
    Interest Rate and Fees
   Repayment of Principal
  Guarantee and Security
  Certain Covenants and Events of Default
  
    
    incur additional indebtedness;
 113




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##### Table of Contents




    
    issue certain capital stock;
    
    repay certain indebtedness;
    
    amend organizational documents;
    
    create liens;
    
    enter into sale and leaseback transactions;
    
    engage in mergers or consolidations;
    
    sell or transfer assets;
    
    pay dividends and distributions or repurchase our capital stock;
    
    make investments, loans, guarantees or advances;
    
    prepay certain subordinated indebtedness, subject to exceptions for
repayments of certain intercompany indebtedness;
    
    make certain acquisitions;
    
    engage in certain transactions with affiliates;
    
    amend material agreements governing certain subordinated indebtedness; and
    
    change the nature of our business.
  114




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THE EXCHANGE OFFER
 General
 1 4 1 4
  Purpose and Effect of the Exchange Offer
     
    
    it is not an affiliate of Capella;
    
    it is not engaged in, and does not intend to engage in, and has no arrangement or
understanding with any person to participate in, a distribution of the exchange notes;
    
    it is acquiring the exchange notes in its ordinary course of business; and
    
    it is not acting on behalf of any person who could not truthfully make the foregoing
representations.
  115




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Resale of Exchange Notes
  
    
    it is not an affiliate of Capella;
    
    it is not engaged in, and does not intend to engage in, and has no arrangement or
understanding with any person to participate in, a distribution of the exchange notes;
    
    it is acquiring the exchange notes in its ordinary course of business; and
    
    it is not acting on behalf of any person who could not truthfully make the foregoing
representations.
  
    
    cannot rely on the position of the staff of the SEC set forth in Morgan Stanley &
Co. Incorporated(available June 5, 1991) and Exxon Capital Holdings Corporation
(available May 13, 1988), as interpreted in the SECs letter to Shearman & Sterling,
dated July 2, 1993, or similar no-action letters; and
    
    in the absence of an exception from the position stated immediately above, must
comply with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale of the exchange notes.
  Terms of the Exchange Offer
  116




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Expiration Date, Extensions and Amendments
    
    
    to delay accepting for exchange any outstanding notes;
    
    to extend the exchange offer or to terminate the exchange offer if any of the
conditions set forth below under  Certain Conditions to the Exchange Offer have not
been satisfied, by giving oral or written notice of the delay, extension or termination
to the exchange agent; or
 117




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
    
    subject to the terms of the registration rights agreements, to amend the terms of
any of the exchange offer in any manner.
   Certain Conditions to the Exchange Offer
  
    
    the exchange notes to be received will not be tradable by the holder without
restriction under the Securities Act or the Exchange Act, and without material
restrictions under the blue sky or securities laws of substantially all of the states
of the United States;
    
    the exchange offer, or the making of any exchange by a holder of outstanding notes,
violates applicable law or any applicable interpretation of the staff of the SEC; or
    
    any action or proceeding has been instituted or threatened in any court or by or
before any governmental agency with respect to the exchange offer that, in our
judgment, would reasonably be expected to impair our ability to proceed with the
exchange offer.
  
    
    the representations described under  Purpose and Effect of the Exchange Offer,
 Procedures for Tendering and Plan of Distribution; or
    
    such other representations as may be reasonably necessary under applicable SEC
rules, regulations or interpretations to make available to it an appropriate form for
registration of the exchange notes under the Securities Act.
   118




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Procedures for Tendering
  
    
    complete, sign and date the accompanying letter of transmittal or a facsimile of the
letter of transmittal; have the signature on the letter of transmittal guaranteed if
the letter of transmittal so requires; and mail or deliver the letter of transmittal or
facsimile thereof to the exchange agent prior to the expiration date; or
    
    comply with DTCs Automated Tender Offer Program procedures described below.
  
    
    the exchange agent must receive certificates for the outstanding notes along with
the accompanying letter of transmittal prior to the expiration date; or
    
    the exchange agent must receive, prior to the expiration date, a timely confirmation
of book-entry transfer of the outstanding notes into the exchange agents account at
DTC according to the procedures for book-entry transfer described below or a properly
transmitted agents message; or
    
    the holder must comply with the guaranteed delivery procedures described below.
     
    
    make appropriate arrangements to register ownership of the outstanding notes in such
owners name; or
 119




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##### Table of Contents




    
    obtain a properly completed bond power from the registered holder of outstanding
notes.
   
    
    by a registered holder who has not completed the box entitled Special Issuance
Instructions or Special Delivery Instructions on the accompanying letter of
transmittal; or
    
    for the account of an eligible institution.
    
    
    DTC has received an express acknowledgment from a participant in its Automated
Tender Offer Program that is tendering outstanding notes that are the subject of the
book-entry confirmation;
    
    the participant has received and agrees to be bound by the terms of the accompanying
letter of transmittal, or, in the case of an agents message relating to guaranteed
delivery, that the participant has received and agrees to be bound by the applicable
notice of guaranteed delivery; and
 
    
    the agreement may be enforced against that participant.
 Acceptance of Outstanding Notes
  
    
    outstanding notes or a timely book-entry confirmation of the outstanding notes into
the exchange agents account at DTC; and
 
    
    a properly completed and duly executed letter of transmittal and all other required
documents or a properly transmitted agents message.
 120




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
    
    it is acquiring the exchange notes that the holder receives in its ordinary course
of business;
    
    it is not engaged in, and does not intend to engage in, and has no arrangement or
understanding with any person to participate in, a distribution of the exchange notes;
and
    
    it is not an affiliate of Capella, as defined in Rule 405 of the Securities Act.
   Book-Entry Transfer
  Guaranteed Delivery Procedures
  
    
    the tender is made through an eligible institution;
 121




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
    
    prior to the expiration date, the exchange agent receives from the eligible
institution either a properly completed and duly executed notice of guaranteed
delivery, by facsimile transmission, mail or hand delivery, or a properly transmitted
agents message and notice of guaranteed delivery:
 §
    
    setting forth the name and address of the holder, the registered number(s)
of the outstanding notes and the principal amount of outstanding notes
tendered;§
    
    stating that the tender is being made thereby; and§
    
    guaranteeing that, within three NYSE trading days after the expiration date,
the accompanying letter of transmittal, or facsimile thereof, together with the
outstanding notes or a book-entry confirmation, and any other documents
required by the accompanying letter of transmittal will be deposited by the
eligible institution with the exchange agent; and
 
    
    the exchange agent receives the properly completed and executed letter of
transmittal, or facsimile thereof, as well as all tendered outstanding notes in proper
form for transfer or a book-entry confirmation and all other documents required by the
accompanying letter of transmittal, within three NYSE trading days after the expiration
date.
  Withdrawal of Tenders
   
    
    the exchange agent must receive notice of withdrawal, which may be by facsimile, at
the address set forth below under  Exchange Agent; or
    
    holders must comply with the appropriate procedures of DTCs Automated Tender Offer
Program system.
  
    
    specify the name of the person who tendered the outstanding notes to be withdrawn;
    
    identify the outstanding notes to be withdrawn, including the principal amount of
the outstanding notes;
    
    be signed by the holder in the same manner as the original signature on the letter
of transmittal by which such outstanding notes were tendered (including any required
signature guarantees) or be accompanied by documents of transfer sufficient to have the
trustee under the indenture pursuant to which the outstanding notes were issued
register the transfer of such outstanding notes into the name of the person withdrawing
the tender; and
    
    specify the name in which the outstanding notes were registered, if different from
that of the withdrawing holder.
  
    
    the serial numbers of the particular certificates to be withdrawn; and
 122




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
    
    a signed notice of withdrawal with signatures guaranteed by an eligible institution
unless the holder is an eligible institution.
  Exchange Agent
  By Mail, Hand Delivery or Overnight Delivery:
    
    By Facsimile:U.S. Bank National Association
    
    (651) 495-815860 Livingston AvenueSt. Paul, MN 55107
    
    Confirm receipt ofAttn: Specialized Finance Dept.
    
    facsimile by telephone(800) 934-6802
  Fees and Expenses
    
    
    SEC registration fees;
    
    fees and expenses of the exchange agent and trustee;
    
    accounting and legal fees and printing costs; and
    
    related fees and expenses.
 123




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Transfer Taxes
  
    
    certificates representing outstanding notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be issued in the name of, any
person other than the registered holder of outstanding notes tendered;
    
    tendered outstanding notes are registered in the name of any person other than the
person signing the letter of transmittal; or
    
    a transfer tax is imposed for any reason other than the exchange of outstanding
notes under the exchange offer.
  Consequences of Failure to Exchange
  
    
    as set forth in the legend printed on the notes as a consequence of the issuance of
the outstanding notes under the exemption from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable state securities laws;
and
    
    otherwise as set forth in the offering memorandum distributed in connection with the
private offering of the outstanding notes.
  Accounting Treatment
  Other
  WE MAY IN THE FUTURE SEEK TO ACQUIRE UNTENDERED OUTSTANDING NOTES IN OPEN MARKET OR PRIVATELY
NEGOTIATED TRANSACTIONS, THROUGH SUBSEQUENT EXCHANGE OFFER OR OTHERWISE. WE HAVE NO PRESENT PLANS
TO ACQUIRE ANY OUTSTANDING NOTES THAT ARE NOT TENDERED IN THE EXCHANGE OFFER OR TO FILE A
REGISTRATION STATEMENT TO PERMIT RESALES OF ANY UNTENDERED OUTSTANDING NOTES.
 124




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DESCRIPTION OF EXCHANGE NOTES
 1 4
    Brief Description of the Notes and the Subsidiary Guarantees
 The Notes
  
    
    are general, senior, unsecured obligations of Capella;
    
    are effectively subordinated to all existing and future secured debt of
Capella to the extent of the value of the assets securing that debt;
    
    are pari passuin right of payment with all existing and future senior
unsecured debt of Capella;
    
    are senior in right of payment to all existing and future Subordinated
Obligations of Capella; and
    
    are fully and unconditionally guaranteed on a senior, unsecured basis by
the Guarantors.
 The Guarantees
   
    
    is a general unsecured obligation of the respective Guarantor;
    
    is pari passuin right of payment to all existing and future senior
unsecured debt of the respective Guarantor; and
    
    is senior in right of payment to all existing and future Subordinated
Obligations of the respective Guarantor.
  125




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Principal, Maturity and Interest
     Methods of Receiving Payments on the Notes
  Paying Agent and Registrar for the Notes
  Transfer and Exchange
  126




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Subsidiary Guarantees
             Optional Redemption
   127




---



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provided, however
     OptionalRedemptionYear
    
    Price2013
    
    
    106.938
    %2014
    
    
    104.625
    %2015
    
    
    102.313
    %2016 and thereafter
    
    
    100.000
    %
  Mandatory Redemption
  Repurchase at the Option of Holders
 Change of Control
  128




---



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provided principal
    129




---



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Asset Sales
              provided
 130




---



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bona fide
     Selection and Notice
     131




---



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Certain Covenants
 Restricted Payments
           132




---



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provided, however
  133




---



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provided,
further provided provided, further
       134




---



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provided
    Incurrence of Indebtedness and Issuance of Preferred Stock
  135




---



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136




---



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provided that provided, further
      137




---



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Liens
   Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
       138




---



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139




---



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Merger, Consolidation or Sale of Assets
           140




---



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Designation of Restricted and Unrestricted Subsidiaries
  Transactions with Affiliates
          141




---



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142




---



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Additional Subsidiary Guarantees
  Sale and Leaseback Transactions
     Business Activities
  Payments for Consent
  Reports
    143




---



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Events of Default and Remedies
              144




---



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145




---



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No Personal Liability of Directors, Officers, Employees and Stockholders
  Legal Defeasance and Covenant Defeasance
          146




---



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Amendment, Supplement and Waiver
         147




---



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Satisfaction and Discharge
     148




---



##### Table of Contents



Concerning the Trustee
   Governing Law
  Certain Definitions
  Acquired Debt
   Additional Interest
 Affiliate
 149




---



##### Table of Contents



Asset Sale
         provided
      Attributable Debt
 150




---



##### Table of Contents



Beneficial Owner
 Board of Directors
     Business Day
 Capella Surety
 Capital Lease
 Capital Lease Obligations
 Capital Stock
     Cash Equivalents
   151




---



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Change of Control
    152




---



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Commission
 Consolidated
 Consolidated Cash Flow
           153




---



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Consolidated Net Income
        154




---



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Consolidated Net Tangible Assets
 Credit Agreement
 Credit Facilities
 Default
 Designated Non-cash Consideration
 155




---



##### Table of Contents



Designated Preferred Stock
 Disqualified Stock
 Equity Interests
 Equity Offering
 Excluded Contribution
   Existing Indebtedness
 Fair Market Value
   156




---



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Fixed Charges
     Fixed Charge Coverage Ratio
  157




---



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GAAP
 Guarantee
 Guarantors
    Hedging Obligations
   Holdings
 Indebtedness
   158




---



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Investments
 Investment Grade Securities
   159




---



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Lien
 Medicaid
 Medicare
 Moodys
 Net Income
 Net Proceeds
 Non-Recourse Debt
    Obligations
 160




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Permitted Asset Swap
 Permitted Business
 Permitted Holders
 Permitted Investments
 provided, however
     161




---



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provided
 162




---



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Permitted Joint Venture provided, however
 Permitted Joint Venture Management Agreements
 Permitted Joint Venture Note provided however
 Permitted Liens
 pari passu pro forma
       163




---



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provided
  164




---



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Permitted Physician Partnership provided however
 Permitted Physician Partnership Note provided however
 Permitted Refinancing Indebtedness
    Person
 Physician Partnership Management Agreements
 Physician Support Obligation
 165




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(a)
    
    in the ordinary course of its business; and
 (b)
    
    pursuant to a written agreement.
 Preferred Stock
 Qualified Investor provided that
 Qualified Proceeds
 Restricted Investment
 Restricted Subsidiary
 Secured Indebtedness
 Secured Indebtedness Ratio
 Significant Subsidiary
 S&P
 Sponsor
 Stated Maturity
 Subordinated Obligations
 Subsidiary
 166




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Subsidiary Guarantee
 Treasury Rate
 Unrestricted Subsidiary
       167




---



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Voting Stock
 Weighted Average Life to Maturity
   168




---



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CERTAIN MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
   Exchange Offer
   169




---



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CERTAIN ERISA CONSIDERATIONS
  General Fiduciary Matters
   Prohibited Transaction Issues
   170




---



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Representation
   171




---



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PLAN OF DISTRIBUTION
    172




---



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LEGAL MATTERS
  
 EXPERTS
  
 WHERE YOU CAN FIND ADDITIONAL INFORMATION
  http://www.sec.gov http://www.capellahealth.com
  173




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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 CAPELLA HEALTHCARE, INC.Unaudited Interim Condensed Consolidated Financial Statements for the
Three-Month Periods Ended March 31, 2011 and 2010Condensed Consolidated Balance Sheets
    
    
    F-2Condensed Consolidated Statements of Operations
    
    
    F-3Condensed Consolidated Statements of Stockholders Deficit
    
    
    F-4Condensed Consolidated Statements of Cash Flows
    
    
    F-5Notes to Condensed Consolidated Financial Statements
    
    
    F-6Audited Consolidated Financial Statements for the Years Ended
December 31, 2010, 2009 and 2008Report of Independent Registered Public Accounting Firm
    
    
    F-17Consolidated Balance Sheets
    
    
    F-18Consolidated Statements of Operations
    
    
    F-20Consolidated Statements of Stockholders Deficit
    
    
    F-21Consolidated Statements of Cash Flows
    
    
    F-22Notes to Consolidated Financial Statements
    
    
    F-23
 F-1




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##### Table of Contents



Capella Healthcare, Inc.
 
 Condensed Consolidated Balance Sheets
 March 31,
    
    
    December 31,2011
    
    
    2010(Unaudited)(In millions)AssetsCurrent assets:Cash and cash equivalents
    
    $
    45.7
    
    
    $
    48.3Accounts receivable, net of allowance
for doubtful accounts of $115.5 and
$123.1 at March 31, 2011 and December
31, 2010, respectively
    
    
    121.7
    
    
    
    115.6Inventories
    
    
    25.2
    
    
    
    25.2Prepaid expenses and other current assets
    
    
    6.2
    
    
    
    4.8Other receivables
    
    
    3.1
    
    
    
    2.3Deferred tax assets
    
    
    2.3
    
    
    
    3.5Income tax receivable
    
    
    0.1
    
    
    
    0.6Total current assets
    
    
    204.3
    
    
    
    200.3Property and equipment:Land
    
    
    40.4
    
    
    
    40.7Buildings and improvements
    
    
    374.2
    
    
    
    373.7Equipment
    
    
    174.0
    
    
    
    170.0Construction in progress
    
    
    4.2
    
    
    
    4.7592.8
    
    
    
    589.1Accumulated depreciation
    
    
    (147.7
    )
    
    
    (138.4
    )445.1
    
    
    
    450.7Goodwill
    
    
    89.9
    
    
    
    89.9Intangible assets, net
    
    
    8.5
    
    
    
    9.1Other assets, net
    
    
    17.7
    
    
    
    17.8Total assets
    
    $
    765.5
    
    
    $
    767.8Liabilities and stockholders deficitCurrent liabilities:Accounts payable
    
    $
    23.4
    
    
    $
    22.4Salaries and benefits payable
    
    
    27.3
    
    
    
    22.3Accrued interest
    
    
    11.7
    
    
    
    23.7Other accrued liabilities
    
    
    14.6
    
    
    
    12.7Current portion of long-term debt
    
    
    
    
    
    
    Total current liabilities
    
    
    77.0
    
    
    
    81.1Long-term debt
    
    
    494.4
    
    
    
    494.1Deferred income taxes
    
    
    12.2
    
    
    
    12.8Other liabilities
    
    
    14.0
    
    
    
    12.1Redeemable non-controlling interests
    
    
    5.5
    
    
    
    5.5Due to parent
    
    
    210.0
    
    
    
    210.2Stockholders deficit:Common stock, $0.01 par value; 1,000
shares authorized; 100 shares issued and
outstanding at March 31, 2011 and
December 31, 2010, respectively
    
    
    
    
    
    
    Retained deficit
    
    
    (47.6
    )
    
    
    (48.0
    )Total stockholders deficit
    
    
    (47.6
    )
    
    
    (48.0
    )Total liabilities and stockholders deficit
    
    $
    765.5
    
    
    $
    767.8
 F-2




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Capella Healthcare, Inc.
 
 Condensed Consolidated Statements of Operations

(Unaudited)
 Three Months EndedMarch 31,2011
    
    
    2010(In millions)Net revenue
    
    $
    208.5
    
    
    $
    210.3Costs and expenses:Salaries and benefits
    
    
    93.9
    
    
    
    89.4Supplies
    
    
    30.5
    
    
    
    29.2Purchased services
    
    
    13.6
    
    
    
    13.1Other operating expenses
    
    
    28.4
    
    
    
    24.5Provision for bad debts
    
    
    18.0
    
    
    
    30.2Interest, net
    
    
    12.7
    
    
    
    11.6Depreciation and amortization
    
    
    9.6
    
    
    
    8.9Total costs and expenses
    
    $
    206.7
    
    
    $
    206.9Income from continuing operations before income taxes
    
    
    1.8
    
    
    
    3.4Income tax provision
    
    
    0.9
    
    
    
    0.8Income from continuing operations
    
    
    0.9
    
    
    
    2.6Income (loss) from discontinued operations, net of tax benefit of $0
    
    
    0.1
    
    
    
    (0.1
    )Net income
    
    
    1.0
    
    
    
    2.5Less: Net income attributable to non-controlling interests
    
    
    0.6
    
    
    
    0.4Net income attributable to Capella Healthcare, Inc.
    
    $
    0.4
    
    
    $
    2.1
 F-3




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Capella Healthcare, Inc.
 
 Condensed Consolidated Statement of Stockholders Deficit
 TotalCommon Stock
    
    
    Retained
    
    
    StockholdersShares
    
    
    Amount
    
    
    Deficit
    
    
    Deficit(In millions, except share amounts)Balance at December 31, 2010
    
    
    100
    
    
    $
    
    
    
    $
    (48.0
    )
    
    $
    (48.0
    )Net income (unaudited)
    
    
    
    
    
    
    
    
    
    
    0.4
    
    
    
    0.4Balance at March 31, 2011 (unaudited)
    
    
    100
    
    
    $
    
    
    
    $
    (47.6
    )
    
    $
    (47.6
    )
 F-4




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Capella Healthcare, Inc.
 
 Condensed Consolidated Statements of Cash Flows

(Unaudited)
 Three Months EndedMarch 31,2011
    
    
    2010(In millions)Operating activitiesNet income
    
    $
    1.0
    
    
    $
    2.5Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    9.6
    
    
    
    8.9Deferred income taxes
    
    
    0.6
    
    
    
    0.7Losses from mark to market swap valuation
    
    
    
    
    
    
    0.2Changes in operating assets and liabilities, net of effect of acquisitions:Accounts receivable, net
    
    
    (6.1
    )
    
    
    (7.0
    )Inventories
    
    
    
    
    
    
    0.1Prepaid expenses and other current assets
    
    
    (1.8
    )
    
    
    0.2Accounts payable and other current liabilities
    
    
    3.0
    
    
    
    3.8Accrued salaries
    
    
    5.0
    
    
    
    (1.6
    )Accrued interest
    
    
    (12.0
    )
    
    
    0.1Other
    
    
    1.3
    
    
    
    1.3Net cash provided by operating activities
    
    
    0.6
    
    
    
    9.2Investing activitiesPurchases of property and equipment, net
    
    
    (4.0
    )
    
    
    (3.9
    )Change in other assets
    
    
    1.5
    
    
    
    0.1Net cash used in investing activities
    
    
    (2.5
    )
    
    
    (3.8
    )Financing activitiesPayment of debt and capital leases
    
    
    
    
    
    
    (0.8
    )Advances (to) from Parent
    
    
    (0.2
    )
    
    
    1.0Distributions to limited partners
    
    
    (0.5
    )
    
    
    (0.4
    )Net cash used in financing activities
    
    
    (0.7
    )
    
    
    (0.2
    )Change in cash and cash equivalents
    
    
    (2.6
    )
    
    
    5.2Cash and cash equivalents at beginning of year
    
    
    48.3
    
    
    
    19.6Cash and cash equivalents at end of year
    
    $
    45.7
    
    
    $
    24.8Supplemental disclosure of cash flow informationCash paid for interest
    
    $
    23.7
    
    
    $
    10.3Cash paid (received) for taxes
    
    $
    0.1
    
    
    $
    (2.3
    )
 F-5




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##### Table of Contents



Capella Healthcare, Inc. and Subsidiaries
 
 Notes to Condensed Consolidated
Financial Statements (Unaudited)
 March 31, 2011
 1. Basis of Presentation and Adoption of New Accounting Standard
    2. Use of Estimates
  3. Goodwill and Intangible Assets
  F-6




---



##### Table of Contents



GrossCarrying
    
    
    Accumulated
    
    
    NetClass of Intangible Assets
    
    Amount
    
    
    Amortization
    
    
    TotalAmortized intangible assets:Contract-based physician minimum revenue guarantees:March 31, 2011
    
    $
    15.6
    
    
    $
    (7.7
    )
    
    $
    7.9December 31, 2010
    
    $
    15.9
    
    
    $
    (7.4
    )
    
    $
    8.5Indefinite-lived intangible assets:Certificates of need:March 31, 2011
    
    $
    0.6
    
    
    $
    
    
    
    $
    0.6December 31, 2010
    
    $
    0.6
    
    
    $
    
    
    
    $
    0.6Total intangible assets:March 31, 2011
    
    $
    16.2
    
    
    $
    (7.7
    )
    
    $
    8.5December 31, 2010
    
    $
    16.5
    
    
    $
    (7.4
    )
    
    $
    9.1
 Physician Minimum Revenue Guarantees
   Certificates of Need
  F-7




---



##### Table of Contents



4. Interest Rate Hedging Activities
     5. Income Taxes
   6. Commitments and Contingencies
  7. Long-Term Debt
  F-8




---



##### Table of Contents



March 31,
    
    
    December 31,2011
    
    
    2010(Dollars in millions)9.25% Senior Unsecured Notes
    
    $
    500.0
    
    
    $
    500.0Unamortized discount on 9.25% Senior Unsecured Notes
    
    
    (5.6
    )
    
    
    (5.9
    )Senior Secured Asset Based Loan
    
    
    
    
    
    
    Total
    
    
    494.4
    
    
    
    494.1Less: current maturities
    
    
    
    
    
    
    Total long-term debt
    
    $
    494.4
    
    
    $
    494.1
  pari passu
  July 1, 2013 to June 30, 2014
    
    
    106.938
    %July 1, 2014 to June 30, 2015
    
    
    104.625
    %July 1, 2015 to June 30, 2016
    
    
    102.313
    %July 1, 2016 and thereafter
    
    
    100.000
    %
    F-9




---



##### Table of Contents



Debt Covenants
   F-10




---



##### Table of Contents



8. Guarantor and Non-Guarantor Supplementary Information
  Capella Healthcare, Inc.
Condensed Consolidating Statements of Operations
For Three Months Ended March 31, 2011  (In Millions)
 Parent
    
    
    
    
    
    Non-Issuer
    
    Guarantors
    
    Guarantors
    
    Eliminations
    
    ConsolidatedNet revenue
    
    $
    
    
    
    $
    150.1
    
    
    $
    58.4
    
    
    $
    
    
    
    $
    208.5Salaries and benefits
    
    
    3.1
    
    
    
    68.4
    
    
    
    22.4
    
    
    
    
    
    
    
    93.9Supplies
    
    
    
    
    
    
    19.8
    
    
    
    10.7
    
    
    
    
    
    
    
    30.5Purchased services
    
    
    0.4
    
    
    
    9.5
    
    
    
    3.7
    
    
    
    
    
    
    
    13.6Other operating expenses
    
    
    0.6
    
    
    
    21.9
    
    
    
    5.9
    
    
    
    
    
    
    
    28.4Provision for bad debts
    
    
    0.8
    
    
    
    12.8
    
    
    
    4.4
    
    
    
    
    
    
    
    18.0Equity in (earnings) losses of affiliates
    
    
    (3.6
    )
    
    
    
    
    
    
    
    
    
    
    3.6
    
    
    
    Loss on refinancing
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Management fees
    
    
    (3.9
    )
    
    
    2.9
    
    
    
    1.0
    
    
    
    
    
    
    
    Interest, net
    
    
    1.3
    
    
    
    9.7
    
    
    
    1.7
    
    
    
    
    
    
    
    12.7Depreciation and amortization
    
    
    0.1
    
    
    
    7.4
    
    
    
    2.1
    
    
    
    
    
    
    
    9.6(1.2
    )
    
    
    152.4
    
    
    
    51.9
    
    
    
    3.6
    
    
    
    206.7Income (loss) from continuing operations before income taxes
    
    
    1.2
    
    
    
    (2.3
    )
    
    
    6.5
    
    
    
    (3.6
    )
    
    
    1.8Income taxes
    
    
    0.8
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    0.9Income (loss) from continuing operations
    
    
    0.4
    
    
    
    (2.4
    )
    
    
    6.5
    
    
    
    (3.6
    )
    
    
    0.9Income (loss) from discontinued operations
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    0.1Net income (loss)
    
    
    0.4
    
    
    
    (2.4
    )
    
    
    6.6
    
    
    
    (3.6
    )
    
    
    1.0Less: Net income attributable to noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    0.6
    
    
    
    
    
    
    
    0.6Net income (loss) attributable to Capella Healthcare, Inc.
    
    $
    0.4
    
    
    $
    (2.4
    )
    
    $
    6.0
    
    
    $
    (3.6
    )
    
    $
    $0.4
 F-11




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##### Table of Contents



Capella Healthcare, Inc.
Condensed Consolidating Statements of Operations
For Three Months Ended March 31, 2010  (In Millions)
 Parent
    
    
    
    
    
    Non-Issuer
    
    Guarantors
    
    Guarantors
    
    Eliminations
    
    ConsolidatedNet revenue
    
    $
    
    
    
    $
    153.7
    
    
    $
    56.6
    
    
    $
    
    
    
    $
    210.3Salaries and benefits
    
    
    2.3
    
    
    
    67.0
    
    
    
    20.1
    
    
    
    
    
    
    
    89.4Supplies
    
    
    
    
    
    
    19.4
    
    
    
    9.8
    
    
    
    
    
    
    
    29.2Purchased services
    
    
    0.3
    
    
    
    9.4
    
    
    
    3.4
    
    
    
    
    
    
    
    13.1Other operating expenses
    
    
    0.4
    
    
    
    18.8
    
    
    
    5.3
    
    
    
    
    
    
    
    24.5Provision for bad debts
    
    
    
    
    
    
    21.5
    
    
    
    8.7
    
    
    
    
    
    
    
    30.2Equity in (earnings) losses of affiliates
    
    
    (3.2
    )
    
    
    
    
    
    
    
    
    
    
    3.2
    
    
    
    Management fees
    
    
    (3.4
    )
    
    
    2.6
    
    
    
    0.8
    
    
    
    
    
    
    
    Interest, net
    
    
    1.1
    
    
    
    8.5
    
    
    
    2.0
    
    
    
    
    
    
    
    11.6Depreciation and amortization
    
    
    
    
    
    
    6.9
    
    
    
    2.0
    
    
    
    
    
    
    
    8.9(2.5
    )
    
    
    154.1
    
    
    
    52.1
    
    
    
    3.2
    
    
    
    206.9Income (loss) from continuing operations before income taxes
    
    
    2.5
    
    
    
    (0.4
    )
    
    
    4.5
    
    
    
    (3.2
    )
    
    
    3.4Income taxes
    
    
    0.4
    
    
    
    0.2
    
    
    
    0.2
    
    
    
    
    
    
    
    0.8Income (loss) from continuing operations
    
    
    2.1
    
    
    
    (0.6
    )
    
    
    4.3
    
    
    
    (3.2
    )
    
    
    2.6Income (loss) from discontinued operations
    
    
    
    
    
    
    
    
    
    
    (0.1
    )
    
    
    
    
    
    
    (0.1
    )Net income (loss)
    
    
    2.1
    
    
    
    (0.6
    )
    
    
    4.2
    
    
    
    (3.2
    )
    
    
    2.5Less: Net income attributable to noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    0.4
    
    
    
    
    
    
    
    0.4Net income (loss) attributable to Capella Healthcare, Inc.
    
    $
    2.1
    
    
    $
    (0.6
    )
    
    $
    3.8
    
    
    $
    (3.2
    )
    
    $
    2.1
 F-12




---



##### Table of Contents



Capella Healthcare, Inc.
Condensed Consolidating Balance Sheets
March 31, 2011  (In Millions)
 Non-Parent Issuer
    
    Guarantors
    
    Guarantors
    
    Eliminations
    
    ConsolidatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    49.7
    
    
    $
    (1.9
    )
    
    $
    (2.1
    )
    
    $
    
    
    
    $
    45.7Accounts receivable, net
    
    
    (2.0
    )
    
    
    86.7
    
    
    
    37.0
    
    
    
    
    
    
    
    121.7Inventories
    
    
    
    
    
    
    16.6
    
    
    
    8.6
    
    
    
    
    
    
    
    25.2Prepaid expenses and other current assets
    
    
    2.4
    
    
    
    3.0
    
    
    
    0.8
    
    
    
    
    
    
    
    6.2Other receivables
    
    
    1.2
    
    
    
    2.2
    
    
    
    (0.3
    )
    
    
    
    
    
    
    3.1Deferred tax assets
    
    
    2.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.3Income tax receivable
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.153.7
    
    
    
    106.6
    
    
    
    44.0
    
    
    
    
    
    
    
    204.3Property and equipment:Land
    
    
    
    
    
    
    32.5
    
    
    
    7.9
    
    
    
    
    
    
    
    40.4Buildings and improvements
    
    
    0.1
    
    
    
    282.3
    
    
    
    91.8
    
    
    
    
    
    
    
    374.2Equipment
    
    
    0.9
    
    
    
    138.8
    
    
    
    34.3
    
    
    
    
    
    
    
    174.0Construction in progress
    
    
    0.6
    
    
    
    2.6
    
    
    
    1.0
    
    
    
    
    
    
    
    4.21.6
    
    
    
    456.2
    
    
    
    135.0
    
    
    
    
    
    
    
    592.8Accumulated depreciation
    
    
    (0.5
    )
    
    
    (115.6
    )
    
    
    (31.6
    )
    
    
    
    
    
    
    (147.7
    )1.1
    
    
    
    340.6
    
    
    
    103.4
    
    
    
    
    
    
    
    445.1Goodwill
    
    
    89.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    89.9Intangible assets, net
    
    
    
    
    
    
    6.7
    
    
    
    1.8
    
    
    
    
    
    
    
    8.5Investments in subsidiaries
    
    
    27.8
    
    
    
    
    
    
    
    
    
    
    
    (27.8
    )
    
    
    Other assets, net
    
    
    16.3
    
    
    
    0.9
    
    
    
    0.5
    
    
    
    
    
    
    
    17.7$
    326.7
    
    
    $
    454.8
    
    
    $
    149.7
    
    
    $
    (27.8
    )
    
    $
    765.5Liabilities and stockholders deficitCurrent liabilities:Accounts payable
    
    $
    0.4
    
    
    $
    15.8
    
    
    $
    7.2
    
    
    $
    
    
    
    $
    23.4Salaries and benefits payable
    
    
    1.0
    
    
    
    18.6
    
    
    
    7.7
    
    
    
    
    
    
    
    27.3Accrued interest
    
    
    11.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11.7Other accrued liabilities
    
    
    5.4
    
    
    
    6.8
    
    
    
    2.4
    
    
    
    
    
    
    
    14.6Current portion of long-term debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18.5
    
    
    
    41.2
    
    
    
    17.3
    
    
    
    
    
    
    
    77.0Long-term debt
    
    
    
    
    
    
    389.1
    
    
    
    105.3
    
    
    
    
    
    
    
    494.4Deferred income taxes
    
    
    12.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12.2Other liabilities
    
    
    13.6
    
    
    
    0.4
    
    
    
    
    
    
    
    
    
    
    
    14.0Redeemable controlling interests
    
    
    
    
    
    
    
    
    
    
    5.5
    
    
    
    
    
    
    
    5.5Due to parent
    
    
    192.1
    
    
    
    11.0
    
    
    
    6.9
    
    
    
    
    
    
    
    210.0Total stockholders deficit
    
    
    (47.6
    )
    
    
    13.1
    
    
    
    14.7
    
    
    
    (27.8
    )
    
    
    (47.6
    )$
    326.7
    
    
    $
    454.8
    
    
    $
    149.7
    
    
    $
    (27.8
    )
    
    $
    765.5
 F-13




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##### Table of Contents



Capella Healthcare, Inc.
Condensed Consolidating Balance Sheets
December 31, 2010
 (In Millions)
 Non-Parent Issuer
    
    Guarantors
    
    Guarantors
    
    Eliminations
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    55.0
    
    
    $
    (4.6
    )
    
    $
    (2.1
    )
    
    $
    
    
    
    $
    48.3Accounts receivable, net
    
    
    (0.9
    )
    
    
    84.1
    
    
    
    32.4
    
    
    
    
    
    
    
    115.6Inventories
    
    
    
    
    
    
    16.6
    
    
    
    8.6
    
    
    
    
    
    
    
    25.2Prepaid expenses and other current assets
    
    
    1.4
    
    
    
    2.6
    
    
    
    0.8
    
    
    
    
    
    
    
    4.8Other receivables
    
    
    0.4
    
    
    
    1.8
    
    
    
    0.1
    
    
    
    
    
    
    
    2.3Deferred tax assets
    
    
    3.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.5Income tax receivable
    
    
    0.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.660.0
    
    
    
    100.5
    
    
    
    39.8
    
    
    
    
    
    
    
    200.3Property and equipment:Land
    
    
    
    
    
    
    32.5
    
    
    
    8.2
    
    
    
    
    
    
    
    40.7Buildings and improvements
    
    
    0.1
    
    
    
    281.9
    
    
    
    91.7
    
    
    
    
    
    
    
    373.7Equipment
    
    
    0.8
    
    
    
    136.0
    
    
    
    33.2
    
    
    
    
    
    
    
    170.0Construction in progress
    
    
    0.6
    
    
    
    3.3
    
    
    
    0.8
    
    
    
    
    
    
    
    4.71.5
    
    
    
    453.7
    
    
    
    133.9
    
    
    
    
    
    
    
    589.1Accumulated depreciation
    
    
    (0.4
    )
    
    
    (108.5
    )
    
    
    (29.5
    )
    
    
    
    
    
    
    (138.4
    )1.1
    
    
    
    345.2
    
    
    
    104.4
    
    
    
    
    
    
    
    450.7Goodwill
    
    
    89.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    89.9Intangible assets, net
    
    
    
    
    
    
    7.2
    
    
    
    1.9
    
    
    
    
    
    
    
    9.1Investments in subsidiaries
    
    
    24.3
    
    
    
    
    
    
    
    
    
    
    
    (24.3
    )
    
    
    Other assets, net
    
    
    16.3
    
    
    
    1.0
    
    
    
    0.5
    
    
    
    
    
    
    
    17.8$
    333.0
    
    
    $
    453.9
    
    
    $
    146.6
    
    
    $
    (24.3
    )
    
    $
    767.8Liabilities and stockholders deficitCurrent liabilities:Accounts payable
    
    $
    0.8
    
    
    $
    14.6
    
    
    $
    7.0
    
    
    $
    
    
    
    $
    22.4Salaries and benefits payable
    
    
    0.6
    
    
    
    14.9
    
    
    
    6.8
    
    
    
    
    
    
    
    22.3Accrued interest
    
    
    23.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23.7Other accrued liabilities
    
    
    4.4
    
    
    
    6.3
    
    
    
    2.0
    
    
    
    
    
    
    
    12.7Current portion of long-term debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29.5
    
    
    
    35.8
    
    
    
    15.8
    
    
    
    
    
    
    
    81.1Long-term debt
    
    
    
    
    
    
    388.9
    
    
    
    105.2
    
    
    
    
    
    
    
    494.1Deferred income taxes
    
    
    12.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12.8Other liabilities
    
    
    11.8
    
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    12.1Redeemable controlling interests
    
    
    
    
    
    
    
    
    
    
    5.5
    
    
    
    
    
    
    
    5.5Due to parent
    
    
    185.5
    
    
    
    13.5
    
    
    
    11.2
    
    
    
    
    
    
    
    210.2Total stockholders deficit
    
    
    (48.0
    )
    
    
    15.4
    
    
    
    8.9
    
    
    
    (24.3
    )
    
    
    (48.0
    )$
    333.0
    
    
    $
    453.9
    
    
    $
    146.6
    
    
    $
    (24.3
    )
    
    $
    767.8
 F-14




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##### Table of Contents



Capella Healthcare, Inc.
Condensed Consolidating Statements of Cash Flows
For Three Months Ended March 31, 2011  (In Millions)
 Non-Parent Issuer
    
    Guarantors
    
    Guarantors
    
    Eliminations
    
    ConsolidatedOperating activities:Net income (loss)
    
    $
    0.4
    
    
    $
    (2.4
    )
    
    $
    6.6
    
    
    $
    (3.6
    )
    
    $
    1.0Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:Equity in earnings of affiliates
    
    
    (3.6
    )
    
    
    
    
    
    
    
    
    
    
    3.6
    
    
    
    Depreciation and amortization
    
    
    0.1
    
    
    
    7.4
    
    
    
    2.1
    
    
    
    
    
    
    
    9.6Deferred income taxes
    
    
    0.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.6Losses from mark to market swap valuation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Changes in operating assets and liabilities, net
of effects of acquisitions:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accounts receivable, net
    
    
    1.2
    
    
    
    (2.7
    )
    
    
    (4.6
    )
    
    
    
    
    
    
    (6.1
    )Inventories
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Prepaid expenses and other current assets
    
    
    (1.3
    )
    
    
    (0.9
    )
    
    
    0.4
    
    
    
    
    
    
    
    (1.8
    )Accounts payable and other current liabilities
    
    
    0.7
    
    
    
    1.6
    
    
    
    0.7
    
    
    
    
    
    
    
    3.0Accrued salaries
    
    
    0.4
    
    
    
    3.7
    
    
    
    0.9
    
    
    
    
    
    
    
    5.0Accrued interest
    
    
    (12.0
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12.0
    )Other
    
    
    1.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.3Net cash provided by (used in) operating activities
    
    
    (12.2
    )
    
    
    6.7
    
    
    
    6.1
    
    
    
    
    
    
    
    0.6Investing activities:Purchase of property and equipment, net
    
    
    
    
    
    
    (2.9
    )
    
    
    (1.1
    )
    
    
    
    
    
    
    (4.0
    )Change in other assets
    
    
    0.6
    
    
    
    0.8
    
    
    
    0.1
    
    
    
    
    
    
    
    1.5Net cash provided by (used in) investing activities
    
    
    0.6
    
    
    
    (2.1
    )
    
    
    (1.0
    )
    
    
    
    
    
    
    (2.5
    )Financing activities:Advances to (from) Parent
    
    
    6.3
    
    
    
    (1.9
    )
    
    
    (4.6
    )
    
    
    
    
    
    
    (0.2
    )Distributions to noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    (0.5
    )
    
    
    
    
    
    
    (0.5
    )Net cash provided by (used in) financing activities
    
    
    6.3
    
    
    
    (1.9
    )
    
    
    (5.1
    )
    
    
    
    
    
    
    (0.7
    )Change in cash and cash equivalents
    
    
    (5.3
    )
    
    
    2.7
    
    
    
    
    
    
    
    
    
    
    
    (2.6
    )Cash and cash equivalents at beginning of year
    
    
    55.0
    
    
    
    (4.6
    )
    
    
    (2.1
    )
    
    
    
    
    
    
    48.3Cash and cash equivalents at end of year
    
    $
    49.7
    
    
    $
    (1.9
    )
    
    $
    (2.1
    )
    
    $
    
    
    
    $
    45.7
 F-15




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##### Table of Contents



Capella Healthcare, Inc.
Condensed Consolidating Statements of Cash Flows
For Three Months Ended March 31, 2010  (In Millions)
 Non-Parent Issuer
    
    Guarantors
    
    Guarantors
    
    Eliminations
    
    ConsolidatedOperating activities:Net income (loss)
    
    $
    2.1
    
    
    $
    (0.6
    )
    
    $
    4.2
    
    
    $
    (3.2
    )
    
    $
    2.5Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:Equity in earnings of affiliates
    
    
    (3.2
    )
    
    
    
    
    
    
    
    
    
    
    3.2
    
    
    
    Depreciation and amortization
    
    
    
    
    
    
    6.9
    
    
    
    2.0
    
    
    
    
    
    
    
    8.9Deferred income taxes
    
    
    0.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.7Losses from mark to market swap valuation
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.2Changes in operating assets and liabilities, net
of effect of acquisitions:Accounts receivable, net
    
    
    (0.1
    )
    
    
    (0.6
    )
    
    
    (6.3
    )
    
    
    
    
    
    
    (7.0
    )Inventories
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    0.1Prepaid expenses and other current assets
    
    
    1.3
    
    
    
    (1.1
    )
    
    
    
    
    
    
    
    
    
    
    0.2Accounts payable and other current liabilities
    
    
    2.1
    
    
    
    0.3
    
    
    
    1.4
    
    
    
    
    
    
    
    3.8Accrued salaries
    
    
    (0.1
    )
    
    
    (1.6
    )
    
    
    0.1
    
    
    
    
    
    
    
    (1.6
    )Accrued interest
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1Other
    
    
    1.5
    
    
    
    (0.2
    )
    
    
    
    
    
    
    
    
    
    
    1.3Net cash provided by operating activities
    
    
    4.6
    
    
    
    3.1
    
    
    
    1.5
    
    
    
    
    
    
    
    9.2Cash flows from investing activities:Purchase of property and equipment, net
    
    
    (0.2
    )
    
    
    (2.7
    )
    
    
    (1.0
    )
    
    
    
    
    
    
    (3.9
    )Change in other assets
    
    
    1.2
    
    
    
    (0.9
    )
    
    
    (0.2
    )
    
    
    
    
    
    
    0.1Net cash used in investing activities
    
    
    1.0
    
    
    
    (3.6
    )
    
    
    (1.2
    )
    
    
    
    
    
    
    (3.8
    )Net cash provided by financing activities:Payment of debt and capital leases
    
    
    
    
    
    
    (0.6
    )
    
    
    (0.2
    )
    
    
    
    
    
    
    (0.8
    )Advances to (from) Parent
    
    
    (0.1
    )
    
    
    1.8
    
    
    
    (0.7
    )
    
    
    
    
    
    
    1.0Distributions to noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    (0.4
    )
    
    
    
    
    
    
    (0.4
    )Net cash provided by financing activities
    
    
    (0.1
    )
    
    
    1.2
    
    
    
    (1.3
    )
    
    
    
    
    
    
    (0.2
    )Change in cash and cash equivalents
    
    
    5.5
    
    
    
    0.7
    
    
    
    (1.0
    )
    
    
    
    
    
    
    5.2Cash and cash equivalents at beginning of year
    
    
    25.6
    
    
    
    (4.3
    )
    
    
    (1.7
    )
    
    
    
    
    
    
    19.6Cash and cash equivalents at end of year
    
    $
    31.1
    
    
    $
    (3.6
    )
    
    $
    (2.7
    )
    
    $
    
    
    
    $
    24.8
 F-16




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     
 F-17




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##### Table of Contents



Capella Healthcare, Inc.
 
 Consolidated Balance Sheets
 December 31,2010
    
    2009(In Millions)AssetsCurrent assets:Cash and cash equivalents
    
    $
    48.3
    
    
    $
    19.6Accounts receivable, net of allowance for
doubtful accounts of $123.1 and $109.6 at
December 31, 2010 and 2009, respectively
    
    
    115.6
    
    
    
    121.9Inventories
    
    
    25.2
    
    
    
    23.7Prepaid expenses and other current assets
    
    
    4.8
    
    
    
    4.2Other receivables
    
    
    2.3
    
    
    
    3.1Deferred tax assets
    
    
    3.5
    
    
    
    4.3Income tax receivable
    
    
    0.6
    
    
    
    1.0Total current assets
    
    
    200.3
    
    
    
    177.8Property and equipment:Land
    
    
    40.7
    
    
    
    39.1Buildings and improvements
    
    
    373.7
    
    
    
    373.0Equipment
    
    
    170.0
    
    
    
    139.7Construction in progress (estimated cost to
complete and equip after December 31, 2010 is
$3.9)
    
    
    4.7
    
    
    
    11.1589.1
    
    
    
    562.9Accumulated depreciation
    
    
    (138.4
    )
    
    
    (101.2
    )450.7
    
    
    
    461.7Goodwill
    
    
    89.9
    
    
    
    89.0Intangible assets, net
    
    
    9.1
    
    
    
    8.6Other assets, net
    
    
    17.8
    
    
    
    19.2Total assets
    
    $
    767.8
    
    
    $
    756.3
 F-18




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##### Table of Contents



December 31,2010
    
    2009(In Millions)Liabilities and stockholders deficitCurrent liabilities:Accounts payable
    
    $
    22.4
    
    
    $
    25.9Salaries and benefits payable
    
    
    22.3
    
    
    
    25.8Accrued interest
    
    
    23.7
    
    
    
    Other accrued liabilities
    
    
    12.7
    
    
    
    16.5Current portion of long-term debt
    
    
    
    
    
    
    12.3Total current liabilities
    
    
    81.1
    
    
    
    80.5Long-term debt
    
    
    494.1
    
    
    
    472.2Deferred income taxes
    
    
    12.8
    
    
    
    11.4Other liabilities
    
    
    12.1
    
    
    
    9.8Redeemable noncontrolling interests
    
    
    5.5
    
    
    
    5.1Due to parent
    
    
    210.2
    
    
    
    209.3Stockholders deficit:Common stock, $0.01 par value; 1,000 shares
authorized; 100 shares issued and outstanding at
December 31, 2010 and 2009, respectively
    
    
    
    
    
    
    Retained deficit
    
    
    (48.0
    )
    
    
    (32.0
    )Total stockholders deficit
    
    
    (48.0
    )
    
    
    (32.0
    )Total liabilities and stockholders deficit
    
    $
    767.8
    
    
    $
    756.3
 See accompanying notes.
 F-19




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##### Table of Contents



Capella Healthcare, Inc.
 
 Consolidated Statements of Operations
 Year Ended December 31,2010
    
    2009
    
    2008(In Millions)Net revenue
    
    $
    869.5
    
    
    $
    813.9
    
    
    $
    702.4Costs and expenses:Salaries and benefits
    
    
    359.7
    
    
    
    346.9
    
    
    
    304.7Supplies
    
    
    119.6
    
    
    
    109.7
    
    
    
    96.8Purchased services
    
    
    52.6
    
    
    
    50.4
    
    
    
    45.3Other operating expenses
    
    
    105.7
    
    
    
    99.9
    
    
    
    92.5Provision for bad debts
    
    
    136.2
    
    
    
    111.3
    
    
    
    81.1Loss on refinancing
    
    
    20.8
    
    
    
    
    
    
    
    22.4Management fee to related party
    
    
    0.2
    
    
    
    0.2
    
    
    
    0.2Interest, net
    
    
    48.4
    
    
    
    48.5
    
    
    
    50.4Depreciation and amortization
    
    
    37.1
    
    
    
    37.8
    
    
    
    33.7Total costs and expenses
    
    
    880.3
    
    
    
    804.7
    
    
    
    727.1Income (loss) from continuing operations before income
taxes
    
    
    (10.8
    )
    
    
    9.2
    
    
    
    (24.7
    )Income taxes
    
    
    3.2
    
    
    
    2.2
    
    
    
    5.5Income (loss) from continuing operations
    
    
    (14.0
    )
    
    
    7.0
    
    
    
    (30.2
    )Loss from discontinued operations, net of tax benefit of $0
    
    
    (0.2
    )
    
    
    (4.5
    )
    
    
    (1.9
    )Net income (loss)
    
    
    (14.2
    )
    
    
    2.5
    
    
    
    (32.1
    )Less: Net income attributable to noncontrolling interests
    
    
    1.5
    
    
    
    0.9
    
    
    
    0.5Net income (loss) attributable to Capella Healthcare, Inc.
    
    $
    (15.7
    )
    
    $
    1.6
    
    
    $
    (32.6
    )
 See accompanying notes.
 F-20




---



##### Table of Contents



Capella Healthcare, Inc.
 
 Consolidated Statements of Stockholders Deficit
 TotalCommon Stock
    
    Retained
    
    StockholdersShares
    
    Amount
    
    Deficit
    
    Retained(In Millions, Except Share Amounts)Balance at January 1, 2008
    
    
    100
    
    
    $
    
    
    
    $
    (0.7
    )
    
    $
    (0.7
    )Adjustment to noncontrolling invests
from adoption of updates to US GAAP
    
    
    
    
    
    
    
    
    
    
    (0.5
    )
    
    
    (0.5
    )Net loss
    
    
    
    
    
    
    
    
    
    
    (32.6
    )
    
    
    (32.6
    )Balance at December 31, 2008
    
    
    100
    
    
    
    
    
    
    
    (33.8
    )
    
    
    (33.8
    )Adjustment to redemption value of
redeemable noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    0.2
    
    
    
    0.2Net income
    
    
    
    
    
    
    
    
    
    
    1.6
    
    
    
    1.6Balance at December 31, 2009
    
    
    100
    
    
    
    
    
    
    
    (32.0
    )
    
    
    (32.0
    )Adjustment to redemption value of
redeemable noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    (0.3
    )
    
    
    (0.3
    )Net loss
    
    
    
    
    
    
    
    
    
    
    (15.7
    )
    
    
    (15.7
    )Balance at December 31, 2010
    
    
    100
    
    
    $
    
    
    
    $
    (48.0
    )
    
    $
    (48.0
    )
 See accompanying notes.
 F-21




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##### Table of Contents



Capella Healthcare, Inc.
 
 Consolidated Statements of Cash Flows
 Year Ended December 31,2010
    
    2009
    
    2008(In Millions)Operating activitiesNet income (loss)
    
    $
    (14.2
    )
    
    $
    2.5
    
    
    $
    (32.0
    )Adjustments to reconcile net income (loss) to net
cash provided by operating activities:Depreciation and amortization
    
    
    37.1
    
    
    
    37.8
    
    
    
    33.7Loss on refinancing
    
    
    20.8
    
    
    
    
    
    
    
    22.4Deferred income taxes
    
    
    2.3
    
    
    
    2.5
    
    
    
    4.5Stock-based compensation
    
    
    0.3
    
    
    
    0.3
    
    
    
    0.1(Gains) losses from mark to market swap valuation
    
    
    (0.2
    )
    
    
    (1.7
    )
    
    
    4.7Changes in operating assets and liabilities, net
of effect of acquisitions:Accounts receivable, net
    
    
    6.5
    
    
    
    (11.0
    )
    
    
    (1.8
    )Inventories
    
    
    (1.5
    )
    
    
    (0.5
    )
    
    
    0.1Prepaid expenses and other current assets
    
    
    (0.4
    )
    
    
    (3.4
    )
    
    
    0.4Accounts payable and other current liabilities
    
    
    (7.6
    )
    
    
    7.8
    
    
    
    (0.8
    )Accrued salaries
    
    
    (3.4
    )
    
    
    4.9
    
    
    
    1.0Accrued interest
    
    
    23.7
    
    
    
    (0.3
    )
    
    
    0.2Other
    
    
    2.5
    
    
    
    (3.3
    )
    
    
    3.2Net cash provided by operating activities
    
    
    65.9
    
    
    
    35.6
    
    
    
    35.7Investing activitiesAcquisition of healthcare businesses
    
    
    
    
    
    
    
    
    
    
    (323.0
    )Escrow deposit payments for pending acquisitions
    
    
    
    
    
    
    
    
    
    
    5.0Purchases of property and equipment, net
    
    
    (26.1
    )
    
    
    (22.1
    )
    
    
    (19.8
    )Proceeds from disposition of hospital
    
    
    
    
    
    
    3.5
    
    
    
    Change in other assets
    
    
    2.3
    
    
    
    2.3
    
    
    
    0.7Net cash used in investing activities
    
    
    (23.8
    )
    
    
    (16.3
    )
    
    
    (337.1
    )Financing activitiesProceeds from long-term debt
    
    
    493.7
    
    
    
    
    
    
    
    501.5Payment of debt and capital leases
    
    
    (484.5
    )
    
    
    (3.2
    )
    
    
    (256.2
    )Advances (to) from Parent
    
    
    0.5
    
    
    
    (3.1
    )
    
    
    102.9Payment of debt issue costs
    
    
    (21.7
    )
    
    
    
    
    
    
    (40.5
    )Payments on subscription notes receivable
    
    
    
    
    
    
    
    
    
    
    0.3Distributions to noncontrolling interests
    
    
    (1.4
    )
    
    
    (0.3
    )
    
    
    (0.2
    )Proceeds from noncontrolling interests
    
    
    
    
    
    
    0.5
    
    
    
    Net cash provided by (used in) financing activities
    
    
    (13.4
    )
    
    
    (6.1
    )
    
    
    307.8Change in cash and cash equivalents
    
    
    28.7
    
    
    
    13.2
    
    
    
    6.4Cash and cash equivalents at beginning of year
    
    
    19.6
    
    
    
    6.4
    
    
    
    Cash and cash equivalents at end of year
    
    $
    48.3
    
    
    $
    19.6
    
    
    $
    6.4Supplemental disclosure of cash flow informationCash paid for interest
    
    $
    21.2
    
    
    $
    46.7
    
    
    $
    43.1Cash paid (received) for taxes
    
    $
    (1.1
    )
    
    $
    0.6
    
    
    $
    1.2
 See accompanying notes.
 F-22




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##### Table of Contents



Capella Healthcare, Inc.
 
 Notes to Consolidated Financial Statements
 December 31, 2010
 1. Organization and Significant Accounting Policies
 Organization
   Principles of Consolidation
  Discontinued Operations
  Fair Value of Financial Instruments
  Revenue Recognition and Allowance for Contractual Discounts
  F-23




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##### Table of Contents



Concentration of Revenues
  F-24




---



##### Table of Contents



Cash and Cash Equivalents
  Accounts Receivable and Allowance for Doubtful Accounts
    Additions
    
    AccountsBalances at
    
    Charged to
    
    Written Off,
    
    AllowancesBeginning of
    
    Costs and
    
    Net of
    
    Acquired in
    
    Balances atYear
    
    Expenses
    
    Recoveries
    
    Acquisition
    
    End of YearYear ended
December 31,
2010
    
    $
    109.6
    
    
    $
    136.2
    
    
    $
    (122.7
    )
    
    $
    
    
    
    $
    123.1Year ended
December 31,
2009
    
    $
    98.8
    
    
    $
    111.3
    
    
    $
    (100.5
    )
    
    $
    
    
    
    $
    109.6Year ended
December 31,
2008
    
    $
    35.6
    
    
    $
    81.1
    
    
    $
    (56.9
    )
    
    $
    39.0
    
    
    $
    98.8
 F-25




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##### Table of Contents



Inventories
  Long-Lived Assets
 Property and Equipment
     Deferred Loan Costs
  Goodwill and Intangible Assets
  F-26




---



##### Table of Contents



Physician Minimum Revenue Guarantees
   Income Taxes
   Professional and General Liability Claims
   F-27




---



##### Table of Contents



Workers Compensation Reserves
    Self-Insured Medical Benefits
  F-28




---



##### Table of Contents



Noncontrolling Interests in Consolidated Entities
   Reclassifications
  Use of Estimates
  Recently Issued Accounting Pronouncements
  2. Business Acquisitions
 Acquisition  2008
  Facility Name
    
    Location
    
    Licensed BedsHartselle Medical Center
    
    Hartselle, AL
    
    
    150Jacksonville Medical Center
    
    Jacksonville, AL
    
    
    89Parkway Medical Center
    
    Decatur, AL
    
    
    120Woodland Medical Center
    
    Cullman, AL
    
    
    100National Park Medical Center
    
    Hot Springs, AR
    
    
    166St. Marys Regional Medical Center
    
    Russellville, AR
    
    
    170Mineral Area Regional Medical Center
    
    Farmington, MO
    
    
    135White County Community Hospital
    
    Sparta, TN
    
    
    60Willamette Valley Medical Center
    
    McMinnville, OR
    
    
    88
 F-29




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##### Table of Contents



Fair value of assets acquired:Accounts receivable, net
    
    $
    54.9Inventories
    
    
    12.1Prepaid expenses and other current assets
    
    
    3.4Property and equipment
    
    
    249.8Goodwill
    
    
    23.4Other assets
    
    
    1.4Liabilities assumed:Accounts payable
    
    
    10.3Accrued salaries
    
    
    10.2Accrued expenses and other current liabilities
    
    
    0.4Capital lease obligations
    
    
    0.2Other liabilities
    
    
    1.7Net cash paid
    
    $
    322.2
  3. Discontinued Operations
   Year Ended December 31,2010
    
    2009
    
    2008Net revenues
    
    $
    
    
    
    $
    11.6
    
    
    $
    11.1Loss from operations before income taxes
    
    $
    0.2
    
    
    $
    4.5
    
    
    $
    1.9Loss from discontinued operations, net of tax
    
    $
    0.2
    
    
    $
    4.5
    
    
    $
    1.9
 F-30




---



##### Table of Contents



4. Intangible Assets
  GrossCarrying
    
    Accumulated
    
    NetClass of Intangible Assets
    
    Amount
    
    Amortization
    
    TotalAmortized intangible assets:Contract-based physician minimum
revenue guarantees:2010
    
    $
    15.9
    
    
    $
    (7.4
    )
    
    $
    8.52009
    
    $
    13.7
    
    
    $
    (5.5
    )
    
    $
    8.2Indefinite-lived intangible assets:Certificates of need2010
    
    $
    0.6
    
    
    $
    
    
    
    $
    0.62009
    
    $
    0.4
    
    
    $
    
    
    
    $
    0.4Total intangible assets:2010
    
    $
    16.5
    
    
    $
    (7.4
    )
    
    $
    9.12009
    
    $
    14.1
    
    
    $
    (5.5
    )
    
    $
    8.6
 Contract-Based Physician Minimum Revenue Guarantees
  Certificates of Need
  F-31




---



##### Table of Contents



Amortization Expense
  2011
    
    $
    4.12012
    
    
    2.82013
    
    
    1.32014
    
    
    0.32015
    
    
    Thereafter
    
    
    $
    8.5
 5. Long-Term Debt
  2010
    
    20099.25% Senior Unsecured Notes
    
    $
    500.0
    
    
    $
    Unamortized discount on 9.25% Senior Unsecured Notes
    
    
    (5.9
    )
    
    
    Senior Secured Asset Based Loan
    
    
    
    
    
    
    Term loans payable under credit facility due 2016
    
    
    
    
    
    
    484.5Revolving Loans
    
    
    
    
    
    
    Total
    
    $
    494.1
    
    
    $
    484.5Less current maturities
    
    
    
    
    
    
    (12.3
    )Total long-term debt
    
    $
    494.1
    
    
    $
    472.2
  2011
    
    $
    2012
    
    
    2013
    
    
    2014
    
    
    2015
    
    
    Thereafter
    
    
    500.0$
    500.0
 9.25% Senior Unsecured Notes
  pari passu
 F-32




---



##### Table of Contents



July 1, 2013 to June 30, 2014
    
    
    106.938
    %July 1, 2014 to June 30, 2015
    
    
    104.625
    %July 1, 2015 to June 30, 2016
    
    
    102.313
    %July 1, 2016 and thereafter
    
    
    100.000
    %
     Loss on Refinancing
  Debt Covenants
  F-33




---



##### Table of Contents



2008 Bank Credit Agreement
   Interest Rate Hedging Activities
      F-34




---



##### Table of Contents



6. Due to Parent
      7. Income Taxes
  2010
    
    2009
    
    2008Current:Federal
    
    $
    
    
    
    $
    (0.3
    )
    
    $
    0.4State
    
    
    0.9
    
    
    
    0.1
    
    
    
    0.6Total current
    
    
    0.9
    
    
    
    (0.2
    )
    
    
    1.0Deferred:Federal
    
    
    (3.4
    )
    
    
    3.9
    
    
    
    (8.6
    )State
    
    
    (1.5
    )
    
    
    (1.0
    )
    
    
    (2.1
    )Total deferred
    
    
    (4.9
    )
    
    
    2.9
    
    
    
    (10.7
    )Increase (decrease) in valuation allowance
    
    
    7.2
    
    
    
    (0.5
    )
    
    
    15.2Total
    
    $
    3.2
    
    
    $
    2.2
    
    
    $
    5.5
  F-35




---



##### Table of Contents



2010
    
    
    2009
    
    
    2008Federal statutory rate
    
    $
    (3.6
    )
    
    
    34
    %
    
    $
    3.1
    
    
    
    34
    %
    
    $
    (8.4
    )
    
    
    34
    %State income taxes, net of
federal income tax benefits
    
    
    (0.4
    )
    
    
    4
    
    
    
    (0.6
    )
    
    
    (6
    )
    
    
    (1.0
    )
    
    
    4Non-deductible expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.3
    
    
    
    (1
    )Employment tax credits
    
    
    0.4
    
    
    
    (4
    )
    
    
    0.3
    
    
    
    3
    
    
    
    
    
    
    
    AMT tax credit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.4
    )
    
    
    1Effect of actualization of
prior year tax return to
prior year tax provision
    
    
    0.1
    
    
    
    (1
    )
    
    
    0.1
    
    
    
    1
    
    
    
    
    
    
    
    Noncontrolling interests
    
    
    (0.5
    )
    
    
    5
    
    
    
    (0.3
    )
    
    
    (3
    )
    
    
    (0.2
    )
    
    
    1Valuation allowance
    
    
    7.2
    
    
    
    (67
    )
    
    
    (0.4
    )
    
    
    (5
    )
    
    
    15.2
    
    
    
    (61
    )Effective income tax rate
    
    $
    3.2
    
    
    
    (29
    )%
    
    $
    2.2
    
    
    
    24
    %
    
    $
    5.5
    
    
    
    (22
    )%
  2010
    
    2009Deferred income tax liabilities:Depreciation and amortization
    
    $
    25.2
    
    
    $
    19.4Joint ventures
    
    
    2.8
    
    
    
    0.9Physician income guarantees
    
    
    0.4
    
    
    
    0.6Other
    
    
    0.7
    
    
    
    0.3Total deferred tax liabilities
    
    
    29.1
    
    
    
    21.2Deferred income tax assets:Deferred loan costs
    
    
    
    
    
    
    4.5Organization costs
    
    
    0.5
    
    
    
    0.5Professional liability claims
    
    
    3.8
    
    
    
    3.1Accrued paid time off
    
    
    3.0
    
    
    
    2.8Employee medical claims
    
    
    1.1
    
    
    
    1.1Net operating losses
    
    
    32.4
    
    
    
    11.4AMT credit
    
    
    0.1
    
    
    
    0.1Employment credit
    
    
    2.5
    
    
    
    Accrued expenses
    
    
    1.8
    
    
    
    3.3Charitable contributions
    
    
    0.6
    
    
    
    0.5Provision for doubtful accounts
    
    
    4.5
    
    
    
    4.0Other
    
    
    
    
    
    
    0.4Total deferred income tax assets
    
    
    50.3
    
    
    
    31.7Valuation allowance
    
    
    (30.5
    )
    
    
    (17.6
    )Net deferred income tax assets
    
    
    19.8
    
    
    
    14.1Net deferred income tax liabilities
    
    $
    (9.3
    )
    
    $
    (7.1
    )
    F-36




---



##### Table of Contents



8. Commitments and Contingencies
 Employment Agreements
  Legal Proceedings and General Liability Claims
  9. Leases
    Fiscal year:2011
    
    $
    7.92012
    
    
    6.82013
    
    
    5.52014
    
    
    4.22015
    
    
    3.3Thereafter
    
    
    4.2Total minimum lease commitments
    
    $
    31.9
 10. Related-Party Transactions
  F-37




---



##### Table of Contents



11. Retirement Plan
  12. Guarantor and Non-Guarantor Supplementary Information
  Capella Healthcare, Inc.

Condensed Consolidating Statements of Operations

For the Year Ended December 31, 2010  (In Millions)
 Parent
    
    
    
    
    
    Non-Issuer
    
    Guarantors
    
    Guarantors
    
    Eliminations
    
    ConsolidatedNet revenue
    
    $
    
    
    
    $
    643.2
    
    
    $
    226.3
    
    
    $
    
    
    
    $
    869.5Salaries and benefits
    
    
    4.7
    
    
    
    271.9
    
    
    
    83.1
    
    
    
    
    
    
    
    359.7Supplies
    
    
    0.1
    
    
    
    78.5
    
    
    
    41.0
    
    
    
    
    
    
    
    119.6Purchased services
    
    
    1.4
    
    
    
    37.2
    
    
    
    14.0
    
    
    
    
    
    
    
    52.6Other operating expenses
    
    
    2.0
    
    
    
    82.7
    
    
    
    21.0
    
    
    
    
    
    
    
    105.7Provision for bad debts
    
    
    1.5
    
    
    
    102.1
    
    
    
    32.6
    
    
    
    
    
    
    
    136.2Equity in (earnings) losses of affiliates
    
    
    (11.3
    )
    
    
    
    
    
    
    
    
    
    
    11.3
    
    
    
    Loss on refinancing
    
    
    20.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20.8Management fees
    
    
    (9.3
    )
    
    
    7.1
    
    
    
    2.4
    
    
    
    
    
    
    
    0.2Interest, net
    
    
    3.8
    
    
    
    36.8
    
    
    
    7.8
    
    
    
    
    
    
    
    48.4Depreciation and amortization
    
    
    0.1
    
    
    
    28.7
    
    
    
    8.3
    
    
    
    
    
    
    
    37.1Total costs
and expenses
    
    
    13.8
    
    
    
    645.0
    
    
    
    210.2
    
    
    
    11.3
    
    
    
    880.3Income (loss) from continuing operations before income taxes
    
    
    (13.8
    )
    
    
    (1.8
    )
    
    
    16.1
    
    
    
    (11.3
    )
    
    
    (10.8
    )Income taxes
    
    
    1.9
    
    
    
    0.9
    
    
    
    0.4
    
    
    
    
    
    
    
    3.2Income (loss) from continuing operations
    
    
    (15.7
    )
    
    
    (2.7
    )
    
    
    15.7
    
    
    
    (11.3
    )
    
    
    (14.0
    )Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    (0.2
    )
    
    
    
    
    
    
    (0.2
    )Net income (loss)
    
    
    (15.7
    )
    
    
    (2.7
    )
    
    
    15.5
    
    
    
    (11.3
    )
    
    
    (14.2
    )Less: Net income attributable to noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    1.5
    
    
    
    
    
    
    
    1.5Net income (loss) attributable to Capella Healthcare, Inc.
    
    $
    (15.7
    )
    
    $
    (2.7
    )
    
    $
    14.0
    
    
    $
    (11.3
    )
    
    $
    (15.7
    )
 F-38




---



##### Table of Contents



Capella Healthcare, Inc.
Condensed Consolidating Statements of Operations
For the Year Ended December 31, 2009  (In Millions)
 Parent
    
    
    
    
    
    Non-Issuer
    
    Guarantors
    
    Guarantors
    
    Eliminations
    
    ConsolidatedNet revenue
    
    $
    
    
    
    $
    616.0
    
    
    $
    197.9
    
    
    $
    
    
    
    $
    813.9Salaries and benefits
    
    
    12.0
    
    
    
    257.1
    
    
    
    77.8
    
    
    
    
    
    
    
    346.9Supplies
    
    
    
    
    
    
    74.4
    
    
    
    35.3
    
    
    
    
    
    
    
    109.7Purchased services
    
    
    1.0
    
    
    
    37.2
    
    
    
    12.2
    
    
    
    
    
    
    
    50.4Other operating expenses
    
    
    2.2
    
    
    
    76.9
    
    
    
    20.8
    
    
    
    
    
    
    
    99.9Provision for bad debts
    
    
    
    
    
    
    86.4
    
    
    
    24.9
    
    
    
    
    
    
    
    111.3Equity in (earnings) losses of affiliates
    
    
    (8.7
    )
    
    
    
    
    
    
    
    
    
    
    8.7
    
    
    
    Management fees
    
    
    (11.6
    )
    
    
    8.6
    
    
    
    3.2
    
    
    
    
    
    
    
    0.2Interest, net
    
    
    2.1
    
    
    
    37.0
    
    
    
    9.4
    
    
    
    
    
    
    
    48.5Depreciation and amortization
    
    
    0.1
    
    
    
    28.7
    
    
    
    9.0
    
    
    
    
    
    
    
    37.8Total costs
and expenses
    
    
    (2.9
    )
    
    
    606.3
    
    
    
    192.6
    
    
    
    8.7
    
    
    
    804.7Income (loss) from continuing operations before
income taxes
    
    
    2.9
    
    
    
    9.7
    
    
    
    5.3
    
    
    
    (8.7
    )
    
    
    9.2Income taxes
    
    
    1.3
    
    
    
    0.7
    
    
    
    0.2
    
    
    
    
    
    
    
    2.2Income (loss) from continuing operations
    
    
    1.6
    
    
    
    9.0
    
    
    
    5.1
    
    
    
    (8.7
    )
    
    
    7.0Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    (4.5
    )
    
    
    
    
    
    
    (4.5
    )Net income (loss)
    
    
    1.6
    
    
    
    9.0
    
    
    
    0.6
    
    
    
    (8.7
    )
    
    
    2.5Less: Net income attributable to noncontrolling
interests
    
    
    
    
    
    
    
    
    
    
    0.9
    
    
    
    
    
    
    
    0.9Net income
(loss) attributable to Capella Healthcare, Inc.
    
    $
    1.6
    
    
    $
    9.0
    
    
    $
    (0.3
    )
    
    $
    (8.7
    )
    
    $
    1.6
 F-39




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##### Table of Contents



Capella Healthcare, Inc.
Condensed Consolidating Statements of Operations
For the Year Ended December 31, 2008  (In Millions)
 Parent
    
    
    
    
    
    Non-Issuer
    
    Guarantors
    
    Guarantors
    
    Eliminations
    
    ConsolidatedNet revenue
    
    $
    
    
    
    $
    539.6
    
    
    $
    162.8
    
    
    $
    
    
    
    $
    702.4Salaries and benefits
    
    
    5.8
    
    
    
    231.7
    
    
    
    67.2
    
    
    
    
    
    
    
    304.7Supplies
    
    
    0.1
    
    
    
    67.7
    
    
    
    29.0
    
    
    
    
    
    
    
    96.8Other operating expenses
    
    
    2.4
    
    
    
    105.9
    
    
    
    29.5
    
    
    
    
    
    
    
    137.8Provision for bad debts
    
    
    
    
    
    
    62.4
    
    
    
    18.7
    
    
    
    
    
    
    
    81.1Equity in (earnings) losses of affiliates
    
    
    (1.8
    )
    
    
    
    
    
    
    
    
    
    
    1.8
    
    
    
    Loss on refinancing
    
    
    22.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22.4Management fees
    
    
    (8.8
    )
    
    
    6.8
    
    
    
    2.2
    
    
    
    
    
    
    
    0.2Interest, net
    
    
    7.0
    
    
    
    33.9
    
    
    
    9.5
    
    
    
    
    
    
    
    50.4Depreciation and amortization
    
    
    0.1
    
    
    
    26.0
    
    
    
    7.6
    
    
    
    
    
    
    
    33.7Total costs
and expenses
    
    
    27.2
    
    
    
    534.4
    
    
    
    163.7
    
    
    
    1.8
    
    
    
    727.1Income (loss) from continuing operations before income taxes
    
    
    (27.2
    )
    
    
    5.2
    
    
    
    (0.9
    )
    
    
    (1.8
    )
    
    
    (24.7
    )Income taxes
    
    
    5.4
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    5.5Income (loss) from continuing operations
    
    
    (32.6
    )
    
    
    5.1
    
    
    
    (0.9
    )
    
    
    (1.8
    )
    
    
    (30.2
    )Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    (1.9
    )
    
    
    
    
    
    
    (1.9
    )Net income (loss)
    
    
    (32.6
    )
    
    
    5.1
    
    
    
    (2.8
    )
    
    
    (1.8
    )
    
    
    (32.1
    )Less: Net income attributable to noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    0.5
    
    
    
    
    
    
    
    0.5Net income
(loss) attributable to Capella Healthcare, Inc.
    
    $
    (32.6
    )
    
    $
    5.1
    
    
    $
    (3.3
    )
    
    $
    (1.8
    )
    
    $
    (32.6
    )
 F-40




---



##### Table of Contents



Capella Healthcare, Inc.

Condensed Consolidating Balance Sheets

December 31, 2010  (In Millions)
 Non-Parent Issuer
    
    Guarantors
    
    Guarantors
    
    Eliminations
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    55.0
    
    
    $
    (4.6
    )
    
    $
    (2.1
    )
    
    $
    
    
    
    $
    48.3Accounts receivable, net
    
    
    (0.9
    )
    
    
    84.1
    
    
    
    32.4
    
    
    
    
    
    
    
    115.6Inventories
    
    
    
    
    
    
    16.6
    
    
    
    8.6
    
    
    
    
    
    
    
    25.2Prepaid expenses and other current assets
    
    
    1.4
    
    
    
    2.6
    
    
    
    0.8
    
    
    
    
    
    
    
    4.8Other receivables
    
    
    0.4
    
    
    
    1.8
    
    
    
    0.1
    
    
    
    
    
    
    
    2.3Deferred tax assets
    
    
    3.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.5Income tax receivable
    
    
    0.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.660.0
    
    
    
    100.5
    
    
    
    39.8
    
    
    
    
    
    
    
    200.3Property and equipment:Land
    
    
    
    
    
    
    32.5
    
    
    
    8.2
    
    
    
    
    
    
    
    40.7Buildings and improvements
    
    
    0.1
    
    
    
    281.9
    
    
    
    91.7
    
    
    
    
    
    
    
    373.7Equipment
    
    
    0.8
    
    
    
    136.0
    
    
    
    33.2
    
    
    
    
    
    
    
    170.0Construction in progress
    
    
    0.6
    
    
    
    3.3
    
    
    
    0.8
    
    
    
    
    
    
    
    4.71.5
    
    
    
    453.7
    
    
    
    133.9
    
    
    
    
    
    
    
    589.1Accumulated depreciation
    
    
    (0.4
    )
    
    
    (108.5
    )
    
    
    (29.5
    )
    
    
    
    
    
    
    (138.4
    )1.1
    
    
    
    345.2
    
    
    
    104.4
    
    
    
    
    
    
    
    450.7Goodwill
    
    
    89.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    89.9Intangible assets, net
    
    
    
    
    
    
    7.2
    
    
    
    1.9
    
    
    
    
    
    
    
    9.1Investments in subsidiaries
    
    
    24.3
    
    
    
    
    
    
    
    
    
    
    
    (24.3
    )
    
    
    Other assets, net
    
    
    16.3
    
    
    
    1.0
    
    
    
    0.5
    
    
    
    
    
    
    
    17.8$
    333.0
    
    
    $
    453.9
    
    
    $
    146.6
    
    
    $
    (24.3
    )
    
    $
    767.8Liabilities and stockholders deficitCurrent liabilities:Accounts payable
    
    $
    0.8
    
    
    $
    14.6
    
    
    $
    7.0
    
    
    $
    
    
    
    $
    22.4Salaries and benefits payable
    
    
    0.6
    
    
    
    14.9
    
    
    
    6.8
    
    
    
    
    
    
    
    22.3Accrued interest
    
    
    23.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23.7Other accrued liabilities
    
    
    4.4
    
    
    
    6.3
    
    
    
    2.0
    
    
    
    
    
    
    
    12.7Current portion of long-term debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29.5
    
    
    
    35.8
    
    
    
    15.8
    
    
    
    
    
    
    
    81.1Long-term debt
    
    
    
    
    
    
    388.9
    
    
    
    105.2
    
    
    
    
    
    
    
    494.1Deferred income taxes
    
    
    12.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12.8Other liabilities
    
    
    11.8
    
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    12.1Redeemable controlling interests
    
    
    
    
    
    
    
    
    
    
    5.5
    
    
    
    
    
    
    
    5.5Due to parent
    
    
    185.5
    
    
    
    13.5
    
    
    
    11.2
    
    
    
    
    
    
    
    210.2Total stockholders deficit
    
    
    (48.0
    )
    
    
    15.4
    
    
    
    8.9
    
    
    
    (24.3
    )
    
    
    (48.0
    )$
    333.0
    
    
    $
    453.9
    
    
    $
    146.6
    
    
    $
    (24.3
    )
    
    $
    767.8
 F-41




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##### Table of Contents



Capella Healthcare, Inc.
Condensed Consolidating Balance Sheets
December 31, 2009  (In Millions)
 Parent Issuer
    
    Guarantors
    
    Non-
Guarantors
    
    Eliminations
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    25.6
    
    
    $
    (4.3
    )
    
    $
    (1.7
    )
    
    $
    
    
    
    $
    19.6Accounts receivable, net
    
    
    0.1
    
    
    
    91.3
    
    
    
    30.5
    
    
    
    
    
    
    
    121.9Inventories
    
    
    
    
    
    
    16.3
    
    
    
    7.4
    
    
    
    
    
    
    
    23.7Prepaid expenses and other current assets
    
    
    1.0
    
    
    
    2.7
    
    
    
    0.5
    
    
    
    
    
    
    
    4.2Other receivables
    
    
    0.3
    
    
    
    2.5
    
    
    
    0.3
    
    
    
    
    
    
    
    3.1Deferred tax assets
    
    
    4.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.3Income tax receivable
    
    
    1.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.032.3
    
    
    
    108.5
    
    
    
    37.0
    
    
    
    
    
    
    
    177.8Property and equipment:Land
    
    
    
    
    
    
    29.9
    
    
    
    9.2
    
    
    
    
    
    
    
    39.1Buildings and improvements
    
    
    
    
    
    
    281.7
    
    
    
    91.3
    
    
    
    
    
    
    
    373.0Equipment
    
    
    0.7
    
    
    
    111.6
    
    
    
    27.4
    
    
    
    
    
    
    
    139.7Construction in progress
    
    
    0.3
    
    
    
    8.8
    
    
    
    2.0
    
    
    
    
    
    
    
    11.11.0
    
    
    
    432.0
    
    
    
    129.9
    
    
    
    
    
    
    
    562.9Accumulated depreciation
    
    
    (0.3
    )
    
    
    (79.7
    )
    
    
    (21.2
    )
    
    
    
    
    
    
    (101.2
    )0.7
    
    
    
    352.3
    
    
    
    108.7
    
    
    
    
    
    
    
    461.7Goodwill
    
    
    89.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    89.0Intangible assets, net
    
    
    
    
    
    
    7.0
    
    
    
    1.6
    
    
    
    
    
    
    
    8.6Investments in subsidiaries
    
    
    13.0
    
    
    
    
    
    
    
    
    
    
    
    (13.0
    )
    
    
    Other assets, net
    
    
    18.3
    
    
    
    0.3
    
    
    
    0.6
    
    
    
    
    
    
    
    19.2$
    304.9
    
    
    $
    468.1
    
    
    $
    147.9
    
    
    $
    (13.0
    )
    
    $
    756.3Liabilities and stockholders deficitCurrent liabilities:Accounts payable
    
    $
    1.2
    
    
    $
    18.1
    
    
    $
    6.6
    
    
    $
    
    
    
    $
    25.9Salaries and benefits payable
    
    
    4.3
    
    
    
    16.3
    
    
    
    5.2
    
    
    
    
    
    
    
    25.8Accrued interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other accrued liabilities
    
    
    6.3
    
    
    
    8.3
    
    
    
    1.9
    
    
    
    
    
    
    
    16.5Current portion of long-term debt
    
    
    
    
    
    
    9.5
    
    
    
    2.8
    
    
    
    
    
    
    
    12.311.8
    
    
    
    52.2
    
    
    
    16.5
    
    
    
    
    
    
    
    80.5Long-term debt
    
    
    
    
    
    
    361.4
    
    
    
    110.8
    
    
    
    
    
    
    
    472.2Deferred income taxes
    
    
    11.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11.4Other liabilities
    
    
    9.2
    
    
    
    0.5
    
    
    
    0.1
    
    
    
    
    
    
    
    9.8Redeemable noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    5.1
    
    
    
    
    
    
    
    5.1Due to parent
    
    
    152.9
    
    
    
    35.9
    
    
    
    20.5
    
    
    
    
    
    
    
    209.3Total stockholders deficit
    
    
    (32.0
    )
    
    
    18.1
    
    
    
    (5.1
    )
    
    
    (13.0
    )
    
    
    (32.0
    )$
    304.9
    
    
    $
    468.1
    
    
    $
    147.9
    
    
    $
    (13.0
    )
    
    $
    756.3
 F-42




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##### Table of Contents



Capella Healthcare, Inc.
 Condensed Consolidating Statements of Cash Flows

For the Year Ended December 31, 2010  (In Millions)
 Non-Parent Issuer
    
    Guarantors
    
    Guarantors
    
    Eliminations
    
    ConsolidatedOperating activities:Net income (loss)
    
    $
    (15.7
    )
    
    $
    (2.7
    )
    
    $
    15.5
    
    
    $
    (11.3
    )
    
    $
    (14.2
    )Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:Equity in earnings of affiliates
    
    
    (11.3
    )
    
    
    
    
    
    
    
    
    
    
    11.3
    
    
    
    Depreciation and amortization
    
    
    0.1
    
    
    
    28.7
    
    
    
    8.3
    
    
    
    
    
    
    
    37.1Loss on refinancing
    
    
    20.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20.8Deferred income taxes
    
    
    2.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.3Stock-based compensation
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.3Gains from mark to market swap valuation
    
    
    (0.2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.2
    )Changes in operating assets and liabilities, net
of effect of acquisitions:
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accounts receivable, net
    
    
    1.2
    
    
    
    7.3
    
    
    
    (2.0
    )
    
    
    
    
    
    
    6.5Inventories
    
    
    
    
    
    
    (0.3
    )
    
    
    (1.2
    )
    
    
    
    
    
    
    (1.5
    )Prepaid expenses and other current assets
    
    
    (1.2
    )
    
    
    0.9
    
    
    
    (0.1
    )
    
    
    
    
    
    
    (0.4
    )Accounts payable and other current liabilities
    
    
    (2.7
    )
    
    
    (5.5
    )
    
    
    0.6
    
    
    
    
    
    
    
    (7.6
    )Accrued salaries
    
    
    (3.7
    )
    
    
    (1.3
    )
    
    
    1.6
    
    
    
    
    
    
    
    (3.4
    )Accrued interest
    
    
    23.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23.7Other
    
    
    2.8
    
    
    
    (0.3
    )
    
    
    
    
    
    
    
    
    
    
    2.5Net cash provided by operating activities
    
    
    16.4
    
    
    
    26.8
    
    
    
    22.7
    
    
    
    
    
    
    
    65.9Investing activities:Purchase of property and equipment, net
    
    
    (0.5
    )
    
    
    (21.6
    )
    
    
    (4.0
    )
    
    
    
    
    
    
    (26.1
    )Change in other assets
    
    
    3.1
    
    
    
    (0.6
    )
    
    
    (0.2
    )
    
    
    
    
    
    
    2.3Net cash provided by (used in) investing activities
    
    
    2.6
    
    
    
    (22.2
    )
    
    
    (4.2
    )
    
    
    
    
    
    
    (23.8
    )Financing activities:Proceeds from long-term debt
    
    
    
    
    
    
    388.6
    
    
    
    105.1
    
    
    
    
    
    
    
    493.7Payment of debt and capital leases
    
    
    
    
    
    
    (370.9
    )
    
    
    (113.6
    )
    
    
    
    
    
    
    (484.5
    )Advances to (from) Parent
    
    
    32.1
    
    
    
    (22.6
    )
    
    
    (9.0
    )
    
    
    
    
    
    
    0.5Payment of debt issue costs
    
    
    (21.7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21.7
    )Distributions to noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    (1.4
    )
    
    
    
    
    
    
    (1.4
    )Net cash provided by (used in) financing activities
    
    
    10.4
    
    
    
    (4.9
    )
    
    
    (18.9
    )
    
    
    
    
    
    
    (13.4
    )Change in cash and cash equivalents
    
    
    29.4
    
    
    
    (0.3
    )
    
    
    (0.4
    )
    
    
    
    
    
    
    28.7Cash and cash equivalents at beginning of year
    
    
    25.6
    
    
    
    (4.3
    )
    
    
    (1.7
    )
    
    
    
    
    
    
    19.6Cash and cash equivalents at end of year
    
    $
    55.0
    
    
    $
    (4.6
    )
    
    $
    (2.1
    )
    
    $
    
    
    
    $
    48.3
 F-43




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##### Table of Contents



Capella Healthcare, Inc.
Condensed Consolidating Statements of Cash Flows
For the Year Ended December 31, 2009  (In Millions)
 Non-Parent Issuer
    
    Guarantors
    
    Guarantors
    
    Eliminations
    
    ConsolidatedOperating activities:Net income (loss)
    
    $
    1.5
    
    
    $
    9.1
    
    
    $
    0.6
    
    
    $
    (8.7
    )
    
    $
    2.5Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:Equity in earnings of affiliates
    
    
    (8.7
    )
    
    
    
    
    
    
    
    
    
    
    8.7
    
    
    
    Depreciation and amortization
    
    
    0.1
    
    
    
    28.7
    
    
    
    9.0
    
    
    
    
    
    
    
    37.8Deferred income taxes
    
    
    2.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.5Stock-based compensation
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.3Gains from mark to market swap valuation
    
    
    (1.7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.7
    )Changes in operating assets and liabilities, net
of effect of acquisitions:Accounts receivable, net
    
    
    (0.1
    )
    
    
    (7.7
    )
    
    
    (3.2
    )
    
    
    
    
    
    
    (11.0
    )Inventories
    
    
    
    
    
    
    (0.9
    )
    
    
    0.4
    
    
    
    
    
    
    
    (0.5
    )Prepaid expenses and other current assets
    
    
    (1.6
    )
    
    
    (1.8
    )
    
    
    
    
    
    
    
    
    
    
    (3.4
    )Accounts payable and other current liabilities
    
    
    2.7
    
    
    
    3.8
    
    
    
    1.3
    
    
    
    
    
    
    
    7.8Accrued salaries
    
    
    3.7
    
    
    
    1.6
    
    
    
    (0.4
    )
    
    
    
    
    
    
    4.9Accrued interest
    
    
    (0.3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.3
    )Other
    
    
    (3.5
    )
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    (3.3
    )Net cash provided by (used in) operating activities
    
    
    (5.0
    )
    
    
    33.0
    
    
    
    7.6
    
    
    
    
    
    
    
    35.6Investing activities:Purchase of property and equipment, net
    
    
    (0.6
    )
    
    
    (15.8
    )
    
    
    (5.7
    )
    
    
    
    
    
    
    (22.1
    )Proceeds from disposition of hospital
    
    
    
    
    
    
    
    
    
    
    3.5
    
    
    
    
    
    
    
    3.5Change in other assets
    
    
    3.4
    
    
    
    (1.0
    )
    
    
    (0.1
    )
    
    
    
    
    
    
    2.3Net cash provided by (used in) investing activities
    
    
    2.8
    
    
    
    (16.8
    )
    
    
    (2.3
    )
    
    
    
    
    
    
    (16.3
    )Financing activities:Payment of debt and capital leases
    
    
    
    
    
    
    (2.4
    )
    
    
    (0.8
    )
    
    
    
    
    
    
    (3.2
    )Advances to (from) Parent
    
    
    14.1
    
    
    
    (12.3
    )
    
    
    (4.9
    )
    
    
    
    
    
    
    (3.1
    )Distributions to noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    (0.3
    )
    
    
    
    
    
    
    (0.3
    )Proceeds from noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    0.5
    
    
    
    
    
    
    
    0.5Net cash provided by (used in) financing activities
    
    
    14.1
    
    
    
    (14.7
    )
    
    
    (5.5
    )
    
    
    
    
    
    
    (6.1
    )Change in cash and cash equivalents
    
    
    11.9
    
    
    
    1.5
    
    
    
    (0.2
    )
    
    
    
    
    
    
    13.2Cash and cash equivalents at beginning of year
    
    
    14.0
    
    
    
    (5.8
    )
    
    
    (1.8
    )
    
    
    
    
    
    
    6.4Cash and cash equivalents at end of year
    
    $
    25.9
    
    
    $
    (4.3
    )
    
    $
    (2.0
    )
    
    $
    
    
    
    $
    19.6
 F-44




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##### Table of Contents



Capella Healthcare, Inc.
Condensed Consolidating Statements of Cash Flows
For the Year Ended December 31, 2008  (In Millions)
 Non-Parent Issuer
    
    Guarantors
    
    Guarantors
    
    Eliminations
    
    ConsolidatedOperating activities:Net income (loss)
    
    $
    (32.6
    )
    
    $
    5.1
    
    
    $
    (2.8
    )
    
    $
    (1.8
    )
    
    $
    (32.1
    )Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:Equity in earnings of affiliates
    
    
    (1.8
    )
    
    
    
    
    
    
    
    
    
    
    1.8
    
    
    
    Depreciation and amortization
    
    
    
    
    
    
    26.1
    
    
    
    7.6
    
    
    
    
    
    
    
    33.7Loss on refinancing
    
    
    22.4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22.4Deferred income taxes
    
    
    4.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.5Stock-based compensation
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1Losses from mark to market swap valuation
    
    
    4.7
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.7Changes in operating assets and liabilities, net
of effect of acquisitions:Accounts receivable, net
    
    
    (0.3
    )
    
    
    0.3
    
    
    
    (1.8
    )
    
    
    

    
    
    
    (1.8
    )Inventories
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    0.1Prepaid expenses and other current assets
    
    
    (0.2
    )
    
    
    0.5
    
    
    
    0.1
    
    
    
    
    
    
    
    0.4Accounts payable and other current liabilities
    
    
    (1.0
    )
    
    
    (1.0
    )
    
    
    1.2
    
    
    
    
    
    
    
    (0.8
    )Accrued salaries
    
    
    
    
    
    
    0.2
    
    
    
    0.8
    
    
    
    
    
    
    
    1.0Accrued interest
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.2Other
    
    
    3.1
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    3.2Net cash provided by (used in) operating activities
    
    
    (0.9
    )
    
    
    31.4
    
    
    
    5.2
    
    
    
    
    
    
    
    35.7Investing activities:Acquisition of healthcare businesses
    
    
    (22.0
    )
    
    
    (224.4
    )
    
    
    (76.6
    )
    
    
    
    
    
    
    (323.0
    )Escrow deposit payments for pending acquisitions
    
    
    5.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.0Purchase of property and equipment, net
    
    
    (0.1
    )
    
    
    (14.5
    )
    
    
    (5.2
    )
    
    
    
    
    
    
    (19.8
    )Change in other assets
    
    
    3.2
    
    
    
    (2.4
    )
    
    
    (0.1
    )
    
    
    
    
    
    
    0.7Net cash used in investing activities
    
    
    (13.9
    )
    
    
    (241.3
    )
    
    
    (81.9
    )
    
    
    
    
    
    
    (337.1
    )Financing activities:Proceeds from long-term debt
    
    
    
    
    
    
    384.6
    
    
    
    116.9
    
    
    
    
    
    
    
    501.5Payments of debt and capital leases
    
    
    
    
    
    
    (209.9
    )
    
    
    (46.3
    )
    
    
    
    
    
    
    (256.2
    )Advances to (from) Parent
    
    
    68.0
    
    
    
    30.2
    
    
    
    4.7
    
    
    
    
    
    
    
    102.9Payment of debt issue costs
    
    
    (40.5
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (40.5
    )Other
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.3Distributions to noncontrolling interests
    
    
    
    
    
    
    
    
    
    
    (0.2
    )
    
    
    
    
    
    
    (0.2
    )Net cash provided by financing activities
    
    
    27.8
    
    
    
    204.9
    
    
    
    75.1
    
    
    
    
    
    
    
    307.8Change in cash and cash equivalents
    
    
    13.0
    
    
    
    (5.0
    )
    
    
    (1.6
    )
    
    
    
    
    
    
    6.4Cash and cash equivalents at beginning of year
    
    
    1.0
    
    
    
    (0.8
    )
    
    
    (0.2
    )
    
    
    
    
    
    
    Cash and cash equivalents at end of year
    
    $
    14.0
    
    
    $
    (5.8
    )
    
    $
    (1.8
    )
    
    $
    
    
    
    $
    6.4
 F-45




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##### Table of Contents



$500,000,000
 Capella Healthcare, Inc.
 91/4% Senior Notes due 2017
 
  
 , 2011




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##### Table of Contents



PART II
 INFORMATION NOTE REQUIRED IN PROSPECTUS
 Item 20. Indemnification of Directors and Officers .
 Alabama Registrants
 Cullman County Medical Clinic, Inc., Cullman Hospital Corporation, Hartselle Physicians, Inc.,
Parkway Medical Clinic, Inc., and QHG of Jacksonville, Inc. are incorporated under the laws of
Alabama.
    II-1




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##### Table of Contents



Delaware Registrants
 (a) Capella Healthcare, Inc., Columbia Olympia Management, Inc., Cullman Surgery Venture Corp.,
National Healthcare of Decatur, Inc., and National Healthcare of Hartselle, Inc., are
incorporated under the laws of Delaware.
     (b) Capella Holdings of Oklahoma, LLC, Capital Medical Center Holdings, LLC, Capital
Medical Center Partner, LLC, CMHC Holdings, LLC, Farmington Heart & Vascular Center, LLC,
Jacksonville Medical Professional Services, LLC, Jacksonville Surgical and Medical Affiliates,
LLC, Lawton Holdings, LLC, Muskogee Holdings, LLC, Muskogee Medical and Surgical Associates,
LLC, Muskogee Physician Group, LLC, Muskogee Regional Medical Center, LLC, National Park
Cardiology Services, LLC, National Park Family Care, LLC, National Park Physician Services, LLC,
NPMC Holdings, LLC, NPMC Home Health,
 II-2




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##### Table of Contents



LLC, NPMC, LLC, Oregon Healthcorp, LLC, River Park Physician Group, LLC, Russelllville Holdings,
LLC, Southwestern Medical Center, LLC, Southwestern Radiology Affiliates, LLC, Southwestern
Surgical Affiliates, LLC, St. Marys Holdings, LLC, St. Marys Physician Services, LLC, St.
Marys Real Property, LLC, Williamette Valley Clinics, LLC, Williaette Valley Medical Center,
LLC, and WPC Holdco, LLC are formed under the laws of Delaware.
   Missouri Registrants
 (a) Farmington Hospital Corporation is incorporated under the laws of Missouri.
      II-3




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##### Table of Contents



(b) Farmington Clinic Company, LLC, Farmington Missouri Hospital Company, LLC, and Mineral Area
Pharmacy and Durable Medical Equipment, LLC are formed under the laws of Missouri.
   Oklahoma
Registrants
 Southwestern Emergency Department Physicians Services, LLC, Southwestern Neurosurgery
Physicians, LLC, and Southwestern Physician Services, LLC are formed under the laws of Oklahoma.
   II-4




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##### Table of Contents



Tennessee Registrants
 (a) Columbia Medical Group  South Pittsburg, Inc., River Park Hospital, Inc., SP Acquisition
Corp. and Sparta Hospital Corporation are incorporated under the laws of Tennessee.
   (b) Grandview Physician Group, LLC, River Park Hospitalists, LLC, and Sequatchie Valley Urology,
LLC are formed under the laws of Tennessee.
   II-5




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##### Table of Contents



Washington Registrant
 Western Washington Healthcare, LLC is formed under the laws of Washington.
  II-6




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##### Table of Contents



Certain Other Arrangements
  Item 21. Exhibits and Financial Statement Schedules
 Exhibits
 No.
    
    Description3.1
    
    Certificate of Incorporation of Capella Healthcare, Inc.3.2
    
    By-Laws of Capella Healthcare, Inc.3.3
    
    Certificate of Formation of Capella Holdings of Oklahoma, LLC3.4
    
    Limited Liability Company Agreement of Capella Holdings of Oklahoma, LLC3.5
    
    Certificate of Formation of Capital Medical Center Holdings, LLC3.6
    
    Operating Agreement of Capital Medical Center Holdings, LLC3.7
    
    Certificate of Formation of Capital Medical Center Partner, LLC, as amended3.8
    
    Limited Liability Company Agreement of Capital Medical Center Partner, LLC
 II-7




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##### Table of Contents



No.
    
    Description3.9
    
    Certificate of Formation of CMCH Holdings LLC3.10
    
    Limited Liability Company Agreement of CMCH Holdings LLC3.11
    
    Charter of Columbia Medical Group  South Pittsburg, Inc.3.12
    
    By-Laws of Columbia Medical Group  South Pittsburg, Inc.3.13
    
    Certificate of Incorporation of Columbia Olympia Management, Inc.3.14
    
    By-Laws of Columbia Olympia Management, Inc.3.15
    
    Articles of Incorporation of Cullman County Medical Clinic, Inc., as amended3.16
    
    By-Laws of Cullman County Medical Clinic, Inc., as amended3.17
    
    Articles of Incorporation of Cullman Hospital Corporation, as amended3.18
    
    By-Laws of Cullman Hospital Corporation, as amended3.19
    
    Articles of Incorporation of Cullman Surgery Venture Corp.3.20
    
    By-Laws of Cullman Surgery Venture Corp., as amended3.21
    
    Certificate of Formation of Farmington Clinic Company, LLC3.22
    
    Operating Agreement of Farmington Clinic Company, LLC, as amended3.23
    
    Certificate of Formation of Farmington Heart & Vascular Center, LLC3.24
    
    Operating Agreement of Farmington Heart & Vascular Center, LLC3.25
    
    Certificate of Incorporation of Farmington Hospital Corporation3.26
    
    By-Laws of Farmington Hospital Corporation, as amended3.27
    
    Certificate of Incorporation of Farmington Missouri Hospital Company, LLC3.28
    
    Operating Agreement of Farmington Missouri Hospital Company, LLC, as amended3.29
    
    Articles of Organization of Grandview Physician Group, LLC, as amended3.30
    
    Operating Agreement of Grandview Physician Group, LLC3.31
    
    Articles of Incorporation of Hartselle Physicians, Inc.3.32
    
    By-Laws of Hartselle Physicians, Inc., as amended3.33
    
    Certificate of Formation of Jacksonville Medical Professional Services, LLC, as amended3.34
    
    Limited Liability Company Agreement of Jacksonville Medical Professional Services, LLC, as
amended3.35
    
    Certificate of Formation of Jacksonville Surgical and Medical Affiliates, LLC
 II-8




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##### Table of Contents



No.
    
    Description3.36
    
    Limited Liability Company Agreement of Jacksonville Surgical and Medical Affiliates, LLC3.37
    
    Certificate of Formation of Lawton Holdings, LLC3.38
    
    Limited Liability Company Agreement of Lawton Holdings, LLC3.39
    
    Articles of Organization of Mineral Area Pharmacy and Durable Medical Equipment, LLC3.40
    
    Operating Agreement of Mineral Area Pharmacy and Durable Medical Equipment, LLC, as amended3.41
    
    Certificate of Formation of Muskogee Holdings, LLC3.42
    
    Limited Liability Company Agreement of Muskogee Holdings, LLC3.43
    
    Certificate of Formation of Muskogee Medical and Surgical Associates, LLC3.44
    
    Limited Liability Company Agreement of Muskogee Medical and Surgical Associates, LLC3.45
    
    Certificate of Formation of Muskogee Physician Group, LLC3.46
    
    Limited Liability Company Agreement of Muskogee Physician Group, LLC3.47
    
    Certificate of Formation of Muskogee Regional Medical Center, LLC3.48
    
    Limited Liability Company Agreement of Muskogee Regional Medical Center, LLC3.49
    
    Certificate of Incorporation of National Healthcare of Decatur Inc.3.50
    
    By-Laws of National Healthcare of Decatur Inc., as amended3.51
    
    Certificate of Incorporation of National Healthcare of Hartselle, Inc.3.52
    
    By-Laws of National Healthcare of Hartselle, Inc., as amended3.53
    
    Certificate of Incorporation of National Park Cardiology Services, LLC3.54
    
    Limited Liability Company Agreement of National Park Cardiology Services, LLC3.55
    
    Limited Liability Company Agreement of National Park Family Care, LLC3.56
    
    Limited Liability Company Agreement of National Park Family Care, LLC, as amended3.57
    
    Certificate of Formation of National Park Physician Services, LLC, as amended3.58
    
    Limited Liability Company Agreement of National Park Physician Services, LLC, as amended3.59
    
    Certificate of Formation of NPMC Holdings, LLC3.60
    
    Limited Liability Company Agreement of NPMC Holdings, LLC3.61
    
    Certificate of Formation of NPMC, Home Health, LLC, as amended3.62
    
    Limited Liability Company Agreement of NPMC, Home Health, LLC, as amended
 II-9




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##### Table of Contents



No.
    
    Description3.63
    
    Certificate of Formation of NPMC, LLC, as amended3.64
    
    Limited Liability Company Agreement of NPMC, LLC, as amended3.65
    
    Certificate of Formation of Oregon Healthcorp, LLC3.66
    
    Limited Liability Company Agreement of Oregon Healthcorp, LLC, as amended3.67
    
    Articles of Incorporation of Parkway Medical Clinic, Inc.3.68
    
    By-Laws of Parkway Medical Clinic, Inc., as amended3.69
    
    Articles of Incorporation of QHG of Jacksonville, Inc.3.70
    
    By-Laws of QHG of Jacksonville, Inc., as amended3.71
    
    Charter of River Park Hospital, Inc., as amended3.72
    
    By-Laws of River Park Hospital, Inc., as amended3.73
    
    Articles of Organization of River Park Hospitalists, LLC3.74
    
    Operating Agreement of River Park Hospitalists, LLC3.75
    
    Certificate of Formation of River Park Physician Group, LLC3.76
    
    Limited Liability Company Agreement of River Park Physician Group, LLC3.77
    
    Certificate of Formation of Russellville Holdings, LLC, as amended3.78
    
    Limited Liability Company Agreement of Russellville Holdings, LLC, as amended3.79
    
    Articles of Organization of Sequatchie Valley Urology, LLC3.80
    
    Operating Agreement of Sequatchie Valley Urology, LLC3.81
    
    Articles of Organization of Southwestern Emergency Department Physician Services, LLC3.82
    
    Limited Liability Company Agreement of Southwestern Emergency Department Physician
Services, LLC, as amended3.83
    
    Certificate of Formation of Southwestern Medical Center, LLC3.84
    
    Limited Liability Company Agreement of Southwestern Medical Center, LLC, as amended3.85
    
    Articles of Organization of Southwestern Neurosurgery Physicians, LLC3.86
    
    Limited Liability Company Agreement of Southwestern Neurosurgery Physicians, LLC3.87
    
    Articles of Organization of Southwestern Physician Services, LLC3.88
    
    Limited Liability Company Agreement of Southwestern Physician Services, LLC, as amended3.89
    
    Certificate of Formation of Southwestern Radiology Affiliates, LLC
 II-10




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##### Table of Contents



No.
    
    Description3.90
    
    Limited Liability Company Agreement of Southwestern Radiology Affiliates, LLC3.91
    
    Certificate of Incorporation of Southwestern Surgical Affiliates LLC3.92
    
    Limited Liability Company Agreement of Southwestern Surgical Affiliates LLC3.93
    
    Charter of SP Acquisition Corp., as amended3.94
    
    By-Laws of SP Acquisition Corp.3.95
    
    Charter of Sparta Hospital Corporation, as amended3.96
    
    By-Laws of Sparta Hospital Corporation, as amended3.97
    
    Certificate of Formation of St. Marys Holdings, LLC3.98
    
    Limited Liability Company Agreement of St. Marys Holdings, LLC, as amended3.99
    
    Certificate of Formation of St. Marys Physician Services, LLC, as amended3.100
    
    Limited Liability Company Agreement of St. Marys Physician Services, LLC, as amended3.101
    
    Certificate of Formation of St. Marys Real Property, LLC, as amended3.102
    
    Limited Liability Company Agreement of St. Marys Real Property, LLC, as amended3.103
    
    Certificate of Formation of Western Washington Healthcare, LLC3.104
    
    Limited Liability Company Agreement of Western Washington Healthcare, LLC3.105
    
    Certificate of Formation of Willamette Valley Clinics, LLC, as amended3.106
    
    Limited Liability Company Agreement of Willamette Valley Clinics, LLC, as amended3.107
    
    Certificate of Formation of Willamette Valley Medical Center, LLC, as amended3.108
    
    Limited Liability Company Agreement of Willamette Valley Medical Center, LLC, as amended3.109
    
    Certificate of Formation of WPC Holdco, LLC, as amended3.110
    
    Limited liability Company Agreement of WPC Holdco, LLC4.1
    
    Indenture, dated as of June 28, 2010, among Capella Healthcare, Inc., the Guarantors named
therein and U.S. Bank National Association, as Trustee4.2
    
    Form of 91/4% Senior Notes due 2017 (included in Exhibit 4.1)4.3
    
    First Supplemental Indenture, dated October 8, 2010, among Southwestern Radiology
Affiliates, LLC, Capella Healthcare, Inc. and U.S. Bank National Association, as Trustee4.4
    
    Second Supplemental Indenture, dated January 14, 2011, among National Park Family Care,
LLC, Capella Healthcare, Inc. and U.S. Bank National Association, as Trustee
 II-11




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##### Table of Contents



No.
    
    Description4.5
    
    Registration Rights Agreement,
dated as of June 28, 2010, among Capella Healthcare, Inc.,
the Guarantors party thereto, and Banc of America Securities LLC, as representatives of
the initial purchasers named therein5
    
    Opinion of Waller Lansden Dortch & Davis, LLP(1)10.1
    
    Stock Purchase Agreement, dated as of May 4, 2005, by and among Capella Holdings, Inc.,
GTCR Fund VIII, L.P., GTCR Fund VIII/B, L.P., GTCR Co-Invest II, L.P. and the other
investors named therein10.2
    
    Supplement No. 1 to the Stock Purchase Agreement, dated as of April , 2007, by and among
Capella Holdings, Inc., GTCR Fund VIII, L.P., GTCR Fund VIII/B, L.P., GTCR Co-Invest II,
L.P. and the other investors named therein10.3
    
    Amendment and Supplement No. 2 to the Stock Purchase Agreement, dated as of February 29,
2008, by and among Capella Holdings, Inc., GTCR Fund VIII, L.P., GTCR Fund VIII/B, L.P.,
GTCR Co-Invest II, L.P. and the other investors named therein10.4
    
    Stockholders Agreement, dated as of May 4, 2005, by and among Capella Holdings, Inc., GTCR
Fund VIII, L.P., GTCR Fund VIII/B, L.P., GTCR Co-Invest II, L.P. and the other investors
named therein10.5
    
    Amendment No. 1 to the Stockholders Agreement, dated as of February 29, 2008, by and among
Capella Holdings, Inc., GTCR Fund VIII, L.P., GTCR Fund VIII/B, L.P., GTCR Co-Invest II,
L.P. and the other investors named therein10.6
    
    Registration Rights Agreement, dated as of May 4, 2005, by and among Capella Holdings,
Inc., GTCR Fund VIII, L.P., GTCR Fund VIII/B, L.P., GTCR Co-Invest II, L.P. and the other
investors named therein10.7
    
    Professional Services Agreement, dated as of May 4, 2005, between GTCR Golder Rauner II,
LLC and Capella Healthcare, Inc.10.8
    
    Amendment No. 1 to Professional Services Agreement between GTCR Golder Rauner II, LLC and
Capella Healthcare, Inc., dated as of November 30, 200510.9
    
    Loan and Security Agreement, dated June 28, 2010, by and among Capella Healthcare, Inc.
and certain borrowing subsidiaries as Borrowers, certain guarantying subsidiaries as
Guarantors, certain financial institutions as Lenders, Bank of America, N.A. as Agent and
Collateral Agent, Citibank, N.A. as Syndication Agent, Barclays Bank PLC and General
Electric Capital Corporation as Co-Documentation Agents and Bank of America Securities LLC
and Citigroup Global Markets Inc. as Co-Lead Arrangers and Co-Book Managers(2)10.10
    
    Form of Joinder to Loan and Security Agreement10.11
    
    Senior Management Agreement, dated as of May 4, 2005, by and among Capella Holdings, Inc.,
Capella Healthcare, Inc. and Daniel S. Slipkovich10.12
    
    Amendment No. 1 to Senior Management Agreement, dated as of May 12, 2006, by and among
Capella Holdings, Inc., Capella Healthcare, Inc., Daniel S. Slipkovich and GTCR Fund VIII,
L.P.10.13
    
    Senior Management Agreement, dated as of May 4, 2005, by and among Capella Holdings, Inc.,
Capella Healthcare, Inc. and James Thomas Anderson10.14
    
    Amendment No. 1 to Senior Management Agreement, dated as of May 12, 2006, by and among
Capella Holdings, Inc., Capella Healthcare, Inc., James Thomas Anderson and GTCR Fund
VIII, L.P.
 II-12




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##### Table of Contents



No.
    
    Description10.15
    
    Amendment No. 2 to Senior Management Agreement, dated as of September 1, 2010, by and
among Capella Holdings, Inc., Capella Healthcare, Inc., James Thomas Anderson and GTCR
Fund VIII, L.P.10.16
    
    Senior Management Agreement, dated May 4, 2005, by and among Capella Holdings, Inc.,
Capella Healthcare, Inc. and David Andrew Slusser10.17
    
    Amendment No. 1 to Senior Management Agreement, dated as of May 12, 2006, by and among
Capella Holdings, Inc., Capella Healthcare, Inc., David Andrew Slusser and GTCR Fund VIII,
L.P.10.18
    
    Senior Management Agreement, dated as of October 17, 2005, by and among Capella Holdings,
Inc., Capella Healthcare, Inc. and Denise Wilder Warren10.19
    
    Amendment No. 1 to Senior Management Agreement, dated as of May 12, 2006, by and among
Capella Holdings, Inc., Capella Healthcare, Inc., Denise Wilder Warren and GTCR Fund VIII,
L.P.10.20
    
    Senior Management Agreement, dated as of May 26, 2009, by and among Capella Holdings,
Inc., Capella Healthcare, Inc. and Michael Wiechart10.21
    
    Form of Amendment No. 1 to Senior Management Agreement, dated as of      , 2011, by and
among Capella Holdings, Inc., Capella Healthcare, Inc., Michael Wiechart and GTCR Fund
VIII, L.P.(1)10.22
    
    Senior Management Agreement, dated November 7, 2005, by and among Capella Holdings, Inc.,
Capella Healthcare, Inc. and Howard T. Wall, III10.23
    
    Amendment No. 1 to Senior Management Agreement, dated May 12, 2006, by and among Capella
Holdings, Inc., Capella Healthcare, Inc. and Howard T. Wall, III10.24
    
    Confirmation of Departure Terms, effective June 10, 2011, by and among Capella Holdings,
Inc., Capella Healthcare, Inc., Howard T. Wall, III and RegionalCare Hospital Partners10.25
    
    Capella Holdings, Inc. 2006 Stock Option Plan10.26
    
    Capella Holdings, Inc. Deferred Compensation Plan10.27
    
    Computer and Data Processing Services Agreement, effective February 21, 2011, by and among
HCA-Information Technology & Services, Inc. and Capella Healthcare, Inc.(2)10.28
    
    Amendment No. 001 to Computer and Data Processing Services Agreement, effective                ,
2011, by and among HCA-Information Technology & Services, Inc. and Capella Healthcare,
Inc.10.29
    
    Lease Agreement, dated April 3, 2007, by and among Muskogee Medical Center Authority,
d/b/a Muskogee Regional Medical Center, Muskogee Regional Medical Center, LLC and
Capella Healthcare, Inc.10.30
    
    Form of Redemption Agreement12
    
    Statement of Computation of Ratio of Earnings to Fixed Charges21
    
    Subsidiaries of Registrant23.1
    
    Consent of Waller Lansden Dortch & Davis, LLP (included in Exhibit 5)23.2
    
    Consent of Ernst & Young LLP24
    
    Powers of Attorney (included on signature page)
 II-13




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##### Table of Contents



No.
    
    Description25
    
    Statement on Form T-1 as to the eligibility of the Trustee99.1
    
    Form of Letter of Transmittal99.2
    
    Form of Notice of Guaranteed Delivery
 
 (1)
    
    To be filed by amendment.(2)
    
    Certain information has been omitted pursuant to a
confidential treatment request filed with the SEC. Financial Statement Schedules
  Item 22. Undertakings .
      bona fide
  Provided however
 II-14




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##### Table of Contents



II-15




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##### Table of Contents



SIGNATURES
 th
 CAPELLA HEALTHCARE, INC.By:
    
    /s/ Daniel S. SlipkovichDaniel
S. SlipkovichChief Executive Officer
 POWER OF ATTORNEY
   Signature
    
    Title
    
    Date/s/ Daniel
S. Slipkovich Daniel
S. Slipkovich
    
    Chief Executive Officer and
Director (Principal
Executive Officer)
    
    June 28, 2011/s/ Denise
W. Warren Denise
W. Warren
    
    Senior Vice President,
Chief Financial Officer and
Treasurer (Principal
Financial Officer)
    
    June 28, 2011/s/
Steven
R. Brumfield Steven
R. Brumfield
    
    Vice President and
Controller (Principal
Accounting Officer)
    
    June 28, 2011/s/
J.
Thomas Anderson J.
Thomas Anderson
    
    Director
    
    June 28, 2011/s/
Robert
Z. Hensley Robert
Z. Hensley
    
    Director
    
    June 28, 2011/s/
David
S. Katz David
S. Katz
    
    Director
    
    June 28, 2011/s/
Joseph
P. Nolan Joseph
P. Nolan
    
    Director
    
    June 28, 2011




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##### Table of Contents



SIGNATURES
 th
 Capella Holdings of Oklahoma, LLCCapital Medical Center Holdings, LLCCapital Medical Center Partner, LLCCMCH Holdings LLCColumbia Medical Group  South Pittsburg, Inc.Columbia Olympia Management, Inc.Cullman County Medical Clinic, Inc.Cullman Hospital CorporationCullman Surgery Venture Corp.Farmington Clinic Company, LLCFarmington Heart & Vascular Center, LLCFarmington Hospital CorporationFarmington Missouri Hospital Company, LLCGrandview Physician Group, LLCHartselle Physicians, Inc.Jacksonville Medical Professional Services, LLCJacksonville Surgical and Medical Affiliates, LLCLawton Holdings, LLCMineral Area Pharmacy and Durable Medical Equipment, LLCMuskogee Holdings, LLCMuskogee Medical and Surgical Associates, LLCMuskogee Physician Group, LLCMuskogee Regional Medical Center, LLCNational Healthcare of Decatur Inc.National Healthcare of Hartselle, Inc.National Park Cardiology Services, LLCNational Park Family Care, LLCNational Park Physician Services, LLCNPMC Holdings, LLCNPMC, Home Health, LLCNPMC, LLCOregon Healthcorp, LLCParkway Medical Clinic, Inc.QHG of Jacksonville, Inc.River Park Hospital, Inc.River Park Hospitalists, LLCRiver Park Physician Group, LLCRussellville Holdings, LLCSequatchie Valley Urology, LLCSouthwestern Emergency Department Physician Services, LLCSouthwestern Medical Center, LLCSouthwestern Neurosurgery Physicians, LLCSouthwestern Physician Services, LLCSouthwestern Radiology Affiliates, LLCSouthwestern Surgical Affiliates LLCSP Acquisition Corp.Sparta Hospital Corporation




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##### Table of Contents



St. Marys Holdings, LLCSt. Marys Physician Services, LLCSt. Marys Real Property, LLCWestern Washington Healthcare, LLCWillamette Valley Clinics, LLCWillamette Valley Medical Center, LLCWPC Holdco, LLC
 By:
    
    /s/ Daniel S. SlipkovichDaniel
S. SlipkovichChief Executive Officer
 POWER OF ATTORNEY
   Signature
    
    Title
    
    Date/s/ Daniel
S. Slipkovich

 Daniel
S. Slipkovich
    
    Chief Executive Officer and
Director or Manager of Each
Additional Registrant (Principal
Executive Officer)
    
    June 28, 2011/s/ Denise
W. Warren
 Denise
W. Warren
    
    Vice President and Treasurer
of Each Additional Registrant
(Principal Financial Officer)
    
    June 28, 2011/s/ Steven
R. Brumfield

 Steven
R. Brumfield
    
    Vice President and Controller of Each
Additional Registrant (Principal
Accounting Officer)
    
    June 28, 2011




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description3.1
    
    Certificate of Incorporation of Capella Healthcare, Inc.3.2
    
    By-Laws of Capella Healthcare, Inc.3.3
    
    Certificate of Formation of Capella Holdings of Oklahoma, LLC3.4
    
    Limited Liability Company Agreement of Capella Holdings of Oklahoma, LLC3.5
    
    Certificate of Formation of Capital Medical Center Holdings, LLC3.6
    
    Operating Agreement of Capital Medical Center Holdings, LLC3.7
    
    Certificate of Formation of Capital Medical Center Partner, LLC, as amended3.8
    
    Limited Liability Company Agreement of Capital Medical Center Partner, LLC3.9
    
    Certificate of Formation of CMCH Holdings LLC3.10
    
    Limited Liability Company Agreement of CMCH Holdings LLC3.11
    
    Charter of Columbia Medical Group  South Pittsburg, Inc.3.12
    
    By-Laws of Columbia Medical Group  South Pittsburg, Inc.3.13
    
    Certificate of Incorporation of Columbia Olympia Management, Inc.3.14
    
    By-Laws of Columbia Olympia Management, Inc.3.15
    
    Articles of Incorporation of Cullman County Medical Clinic, Inc., as amended3.16
    
    By-Laws of Cullman County Medical Clinic, Inc., as amended3.17
    
    Articles of Incorporation of Cullman Hospital Corporation, as amended3.18
    
    By-Laws of Cullman Hospital Corporation, as amended3.19
    
    Articles of Incorporation of Cullman Surgery Venture Corp.3.20
    
    By-Laws of Cullman Surgery Venture Corp., as amended3.21
    
    Certificate of Formation of Farmington Clinic Company, LLC3.22
    
    Operating Agreement of Farmington Clinic Company, LLC, as amended3.23
    
    Certificate of Formation of Farmington Heart & Vascular Center, LLC3.24
    
    Operating Agreement of Farmington Heart & Vascular Center, LLC3.25
    
    Certificate of Incorporation of Farmington Hospital Corporation




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##### Table of Contents



ExhibitNumber
    
    Description3.26
    
    By-Laws of Farmington Hospital Corporation, as amended3.27
    
    Certificate of Incorporation of Farmington Missouri Hospital Company, LLC3.28
    
    Operating Agreement of Farmington Missouri Hospital Company, LLC, as amended3.29
    
    Articles of Organization of Grandview Physician Group, LLC, as amended3.30
    
    Operating Agreement of Grandview Physician Group, LLC3.31
    
    Articles of Incorporation of Hartselle Physicians, Inc.3.32
    
    By-Laws of Hartselle Physicians, Inc., as amended3.33
    
    Certificate of Formation of Jacksonville Medical Professional Services, LLC, as amended3.34
    
    Limited Liability Company Agreement of Jacksonville Medical Professional Services, LLC, as
amended3.35
    
    Certificate of Formation of Jacksonville Surgical and Medical Affiliates, LLC3.36
    
    Limited Liability Company Agreement of Jacksonville Surgical and Medical Affiliates, LLC3.37
    
    Certificate of Formation of Lawton Holdings, LLC3.38
    
    Limited Liability Company Agreement of Lawton Holdings, LLC3.39
    
    Articles of Organization of Mineral Area Pharmacy and Durable Medical Equipment, LLC3.40
    
    Operating Agreement of Mineral Area Pharmacy and Durable Medical Equipment, LLC, as amended3.41
    
    Certificate of Formation of Muskogee Holdings, LLC3.42
    
    Limited Liability Company Agreement of Muskogee Holdings, LLC3.43
    
    Certificate of Formation of Muskogee Medical and Surgical Associates, LLC3.44
    
    Limited Liability Company Agreement of Muskogee Medical and Surgical Associates, LLC3.45
    
    Certificate of Formation of Muskogee Physician Group, LLC3.46
    
    Limited Liability Company Agreement of Muskogee Physician Group, LLC3.47
    
    Certificate of Formation of Muskogee Regional Medical Center, LLC3.48
    
    Limited Liability Company Agreement of Muskogee Regional Medical Center, LLC3.49
    
    Certificate of Incorporation of National Healthcare of Decatur Inc.3.50
    
    By-Laws of National Healthcare of Decatur Inc., as amended3.51
    
    Certificate of Incorporation of National Healthcare of Hartselle, Inc.3.52
    
    By-Laws of National Healthcare of Hartselle, Inc., as amended




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ExhibitNumber
    
    Description3.53
    
    Certificate of Incorporation of National Park Cardiology Services, LLC3.54
    
    Limited Liability Company Agreement of National Park Cardiology Services, LLC3.55
    
    Limited Liability Company Agreement of National Park Family Care, LLC3.56
    
    Limited Liability Company Agreement of National Park Family Care, LLC, as amended3.57
    
    Certificate of Formation of National Park Physician Services, LLC, as amended3.58
    
    Limited Liability Company Agreement of National Park Physician Services, LLC, as amended3.59
    
    Certificate of Formation of NPMC Holdings, LLC3.60
    
    Limited Liability Company Agreement of NPMC Holdings, LLC3.61
    
    Certificate of Formation of NPMC, Home Health, LLC, as amended3.62
    
    Limited Liability Company Agreement of NPMC, Home Health, LLC, as amended3.63
    
    Certificate of Formation of NPMC, LLC, as amended3.64
    
    Limited Liability Company Agreement of NPMC, LLC, as amended3.65
    
    Certificate of Formation of Oregon Healthcorp, LLC3.66
    
    Limited Liability Company Agreement of Oregon Healthcorp, LLC, as amended3.67
    
    Articles of Incorporation of Parkway Medical Clinic, Inc.3.68
    
    By-Laws of Parkway Medical Clinic, Inc., as amended3.69
    
    Articles of Incorporation of QHG of Jacksonville, Inc.3.70
    
    By-Laws of QHG of Jacksonville, Inc., as amended3.71
    
    Charter of River Park Hospital, Inc., as amended3.72
    
    By-Laws of River Park Hospital, Inc., as amended3.73
    
    Articles of Organization of River Park Hospitalists, LLC3.74
    
    Operating Agreement of River Park Hospitalists, LLC3.75
    
    Certificate of Formation of River Park Physician Group, LLC3.76
    
    Limited Liability Company Agreement of River Park Physician Group, LLC3.77
    
    Certificate of Formation of Russellville Holdings, LLC, as amended3.78
    
    Limited Liability Company Agreement of Russellville Holdings, LLC, as amended3.79
    
    Articles of Organization of Sequatchie Valley Urology, LLC




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##### Table of Contents



ExhibitNumber
    
    Description3.80
    
    Operating Agreement of Sequatchie Valley Urology, LLC3.81
    
    Articles of Organization of Southwestern Emergency Department Physician Services, LLC3.82
    
    Limited Liability Company Agreement of Southwestern Emergency Department Physician
Services, LLC, as amended3.83
    
    Certificate of Formation of Southwestern Medical Center, LLC3.84
    
    Limited Liability Company Agreement of Southwestern Medical Center, LLC, as amended3.85
    
    Articles of Organization of Southwestern Neurosurgery Physicians, LLC3.86
    
    Limited Liability Company Agreement of Southwestern Neurosurgery Physicians, LLC3.87
    
    Articles of Organization of Southwestern Physician Services, LLC3.88
    
    Limited Liability Company Agreement of Southwestern Physician Services, LLC, as amended3.89
    
    Certificate of Formation of Southwestern Radiology Affiliates, LLC3.90
    
    Limited Liability Company Agreement of Southwestern Radiology Affiliates, LLC3.91
    
    Certificate of Incorporation of Southwestern Surgical Affiliates LLC3.92
    
    Limited Liability Company Agreement of Southwestern Surgical Affiliates LLC3.93
    
    Charter of SP Acquisition Corp., as amended3.94
    
    By-Laws of SP Acquisition Corp.3.95
    
    Charter of Sparta Hospital Corporation, as amended3.96
    
    By-Laws of Sparta Hospital Corporation, as amended3.97
    
    Certificate of Formation of St. Marys Holdings, LLC3.98
    
    Limited Liability Company Agreement of St. Marys Holdings, LLC, as amended3.99
    
    Certificate of Formation of St. Marys Physician Services, LLC, as amended3.100
    
    Limited Liability Company Agreement of St. Marys Physician Services, LLC, as amended3.101
    
    Certificate of Formation of St. Marys Real Property, LLC, as amended3.102
    
    Limited Liability Company Agreement of St. Marys Real Property, LLC, as amended3.103
    
    Certificate of Formation of Western Washington Healthcare, LLC3.104
    
    Limited Liability Company Agreement of Western Washington Healthcare, LLC3.105
    
    Certificate of Formation of Willamette Valley Clinics, LLC, as amended3.106
    
    Limited Liability Company Agreement of Willamette Valley Clinics, LLC, as amended




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##### Table of Contents



ExhibitNumber
    
    Description3.107
    
    Certificate of Formation of Willamette Valley Medical Center, LLC, as amended3.108
    
    Limited Liability Company Agreement of Willamette Valley Medical Center, LLC, as amended3.109
    
    Certificate of Formation of WPC Holdco, LLC, as amended3.110
    
    Limited liability Company Agreement of WPC Holdco, LLC4.1
    
    Indenture, dated as of June 28, 2010, among Capella Healthcare, Inc., the Guarantors named
therein and U.S. Bank National Association, as Trustee4.2
    
    Form of 91/4% Senior Notes due 2017 (included in Exhibit 4.1)4.3
    
    First Supplemental Indenture, dated October 8, 2010, among Southwestern Radiology
Affiliates, LLC, Capella Healthcare, Inc. and U.S. Bank National Association, as Trustee4.4
    
    Second Supplemental Indenture, dated January 14, 2011, among National Park Family Care,
LLC, Capella Healthcare, Inc. and U.S. Bank National Association, as Trustee4.5
    
    Registration Rights Agreement,
dated as of June 28, 2010, among Capella Healthcare, Inc.,
the Guarantors party thereto, and Banc of America Securities LLC, as representatives of
the initial purchasers named therein5
    
    Opinion of Waller Lansden Dortch & Davis, LLP(1)10.1
    
    Stock Purchase Agreement, dated as of May 4, 2005, by and among Capella Holdings, Inc.,
GTCR Fund VIII, L.P., GTCR Fund VIII/B, L.P., GTCR Co-Invest II, L.P. and the other
investors named therein10.2
    
    Supplement No. 1 to the Stock Purchase Agreement, dated as of April , 2007, by and among
Capella Holdings, Inc., GTCR Fund VIII, L.P., GTCR Fund VIII/B, L.P., GTCR Co-Invest II,
L.P. and the other investors named therein10.3
    
    Amendment and Supplement No. 2 to the Stock Purchase Agreement, dated as of February 29,
2008, by and among Capella Holdings, Inc., GTCR Fund VIII, L.P., GTCR Fund VIII/B, L.P.,
GTCR Co-Invest II, L.P. and the other investors named therein10.4
    
    Stockholders Agreement, dated as of May 4, 2005, by and among Capella Holdings, Inc., GTCR
Fund VIII, L.P., GTCR Fund VIII/B, L.P., GTCR Co-Invest II, L.P. and the other investors
named therein10.5
    
    Amendment No. 1 to the Stockholders Agreement, dated as of February 29, 2008, by and among
Capella Holdings, Inc., GTCR Fund VIII, L.P., GTCR Fund VIII/B, L.P., GTCR Co-Invest II,
L.P. and the other investors named therein10.6
    
    Registration Rights Agreement, dated as of May 4, 2005, by and among Capella Holdings,
Inc., GTCR Fund VIII, L.P., GTCR Fund VIII/B, L.P., GTCR Co-Invest II, L.P. and the other
investors named therein10.7
    
    Professional Services Agreement, dated as of May 4, 2005, between GTCR Golder Rauner II,
LLC and Capella Healthcare, Inc.10.8
    
    Amendment No. 1 to Professional Services Agreement between GTCR Golder Rauner II, LLC and
Capella Healthcare, Inc., dated as of November 30, 2005




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##### Table of Contents



ExhibitNumber
    
    Description10.9
    
    Loan and Security Agreement, dated June 28, 2010, by and among Capella Healthcare, Inc.
and certain borrowing subsidiaries as Borrowers, certain guarantying subsidiaries as
Guarantors, certain financial institutions as Lenders, Bank of America, N.A. as Agent and
Collateral Agent, Citibank, N.A. as Syndication Agent, Barclays Bank PLC and General
Electric Capital Corporation as Co-Documentation Agents and Bank of America Securities LLC
and Citigroup Global Markets Inc. as Co-Lead Arrangers and Co-Book Managers(2)10.10
    
    Form of Joinder to Loan and Security Agreement10.11
    
    Senior Management Agreement, dated as of May 4, 2005, by and among Capella Holdings, Inc.,
Capella Healthcare, Inc. and Daniel S. Slipkovich10.12
    
    Amendment No. 1 to Senior Management Agreement, dated as of May 12, 2006, by and among
Capella Holdings, Inc., Capella Healthcare, Inc., Daniel S. Slipkovich and GTCR Fund VIII,
L.P.10.13
    
    Senior Management Agreement, dated as of May 4, 2005, by and among Capella Holdings, Inc.,
Capella Healthcare, Inc. and James Thomas Anderson10.14
    
    Amendment No. 1 to Senior Management Agreement, dated as of May 12, 2006, by and among
Capella Holdings, Inc., Capella Healthcare, Inc., James Thomas Anderson and GTCR Fund
VIII, L.P.10.15
    
    Amendment No. 2 to Senior Management Agreement, dated as of September 1, 2010, by and
among Capella Holdings, Inc., Capella Healthcare, Inc., James Thomas Anderson and GTCR
Fund VIII, L.P.10.16
    
    Senior Management Agreement, dated May 4, 2005, by and among Capella Holdings, Inc.,
Capella Healthcare, Inc. and David Andrew Slusser10.17
    
    Amendment No. 1 to Senior Management Agreement, dated as of May 12, 2006, by and among
Capella Holdings, Inc., Capella Healthcare, Inc., David Andrew Slusser and GTCR Fund VIII,
L.P.10.18
    
    Senior Management Agreement, dated as of October 17, 2005, by and among Capella Holdings,
Inc., Capella Healthcare, Inc. and Denise Wilder Warren10.19
    
    Amendment No. 1 to Senior Management Agreement, dated as of May 12, 2006, by and among
Capella Holdings, Inc., Capella Healthcare, Inc., Denise Wilder Warren and GTCR Fund VIII,
L.P.10.20
    
    Senior Management Agreement, dated as of May 26, 2009, by and among Capella Holdings,
Inc., Capella Healthcare, Inc. and Michael Wiechart10.21
    
    Form of Amendment No. 1 to Senior Management Agreement, dated as of     
     , 2011, by and
among Capella Holdings, Inc., Capella Healthcare, Inc., Michael Wiechart and GTCR Fund
VIII, L.P.(1)10.22
    
    Senior Management Agreement, dated November 7, 2005, by and among Capella Holdings, Inc.,
Capella Healthcare, Inc. and Howard T. Wall, III10.23
    
    Amendment No. 1 to Senior Management Agreement, dated May 12, 2006, by and among Capella
Holdings, Inc., Capella Healthcare, Inc. and Howard T. Wall, III10.24
    
    Confirmation of Departure Terms, effective June 10, 2011, by and among Capella Holdings,
Inc., Capella Healthcare, Inc., Howard T. Wall, III and RegionalCare Hospital Partners10.25
    
    Capella Holdings, Inc. 2006 Stock Option Plan10.26
    
    Capella Holdings, Inc. Deferred Compensation Plan




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##### Table of Contents



ExhibitNumber
    
    Description10.27
    
    Computer and Data Processing Services Agreement, effective February 21, 2011, by and among
HCA-Information Technology & Services, Inc. and Capella Healthcare, Inc.(2)10.28
    
    Amendment No. 001 to Computer and Data Processing Services Agreement, effective
          , 2011, by and among HCA-Information Technology & Services, Inc. and Capella Healthcare,
Inc.10.29
    
    Lease Agreement, dated April 3, 2007, by and among Muskogee Medical Center Authority,
d/b/a Muskogee Regional Medical Center , Muskogee Regional Medical Center, LLC, and
Capella Healthcare, Inc.10.30
    
    Form of Redemption Agreement12
    
    Statement of Computation of Ratio of Earnings to Fixed Charges21
    
    Subsidiaries of Registrant23.1
    
    Consent of Waller Lansden Dortch & Davis, LLP (included in Exhibit 5)23.2
    
    Consent of Ernst & Young LLP24
    
    Powers of Attorney (included on signature page)25
    
    Statement on Form T-1 as to the eligibility of the Trustee99.1
    
    Form of Letter of Transmittal99.2
    
    Form of Notice of Guaranteed Delivery
 
 (1)
    
    To be filed by amendment.(2)
    
    Certain information has been omitted pursuant to a
confidential treatment request filed with the SEC.