|UNITED
STATESSECURITIES
AND EXCHANGE COMMISSIONWASHINGTON,
D.C. 20549

FORM 10-K
|--------------------------------------------------------------------------------

|[X] |  | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the Fiscal Year Ended September 30, 2002
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------

|OR
|--

|[_] |  | Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Transition Period from ________________to_________________
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------

|Commission File No. 001-11141

HEALTH  MANAGEMENT ASSOCIATES, INC.(Exact name of Registrant as specified in its charter)
|------------------------------------------------------------------------------------------------------------------------

|Delaware                                                      | 61-0963645                          
|------------------------------------------------------------- | ------------------------------------
|                                                              |                                     
|(State or other jurisdiction ofincorporation or organization) | (I.R.S. Employer Identification No.)

|5811 Pelican Bay BoulevardSuite 500Naples, Florida | 34108-2710
|-------------------------------------------------- | ----------
|                                                   |           
|(Address of principal executive offices)           | (Zip Code)

|Registrants telephone number, including area code: (239) 598-3131


Securities registered  pursuant to
Section 12(b) of the Act:
|---------------------------------------------------------------------------------------------------------------------------------

|Title of Each Class                  | Name of Each Exchange on Which Registered
|------------------------------------ | -----------------------------------------
|Class A Common Stock, $.01 par value | New York Stock Exchange                  

|Securities registered  pursuant to
Section 12(g) of the Act:
|------------------------------------------------------------

|Title of Each Class                                         
|------------------------------------------------------------
|Convertible Senior Subordinated Debentures due 2020         
|Zero-Coupon - Convertible Senior Subordinated Notes due 2022

|Indicate
by check mark whether the Registrant (1) has filed all reports required to be  filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the  preceding 12
months (or for such shorter period that the Registrant was required  to file such
reports), and (2) has been subject to such filing requirements for  the past 90 days. Yes
[X] No [_]


Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of  Regulation S-K
is not contained herein, and will not be contained, to the best  of Registrants
knowledge, in definitive proxy or information statements  incorporated by reference in
Part III of this Form 10-K or any amendment to this  Form 10-K. [_]


As
of December 16, 2002 there were 238,660,281 shares of  Common Stock, par value $.01 per
share outstanding. The aggregate market value  of the voting stock held by non-affiliates
of the Registrant is $4,235,188,489, as determined by reference to the listed price of
the Registrants Class A  Common Stock as of the close of business on December 16,
2002.


Indicate
by check mark whether the Registrant is an accelerated filer (as defined in Rule  12b-2
of the Act.) Yes [X] No [_]


As
of September 30, 2002, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was $4,675,092,830, as determined by reference  to the
listed price of the Registrants Class A Common Stock as of the  close of business
on such day.


Portions
of the Registrants definitive Proxy Statement to be issued in connection  with the
Annual Meeting of Stockholders of the Registrant to be held on February  18, 2003 have
been incorporated by reference into Part III, Items 10, 11, 12 and  13 of this Report.



TABLE OF CONTENTS
FORM 10-K ANNUAL REPORT
HEALTH MANAGEMENT ASSOCIATES, INC.
Fiscal year ended September 30, 2002
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|PART I   |  | Page                                                                                 
|-------- |  | -------------------------------------------------------------------------------------
|        
|Item 1.  |  | Business                                                                             
|Item 2.  |  | Properties                                                                           
|Item 3.  |  | Legal Proceedings                                                                    
|Item 4.  |  | Submission of Matters to a Vote of Security Holders                                  
|        
|PART II 
|        
|Item 5.  |  | Market for Registrants Common Equity and Related Stockholder Matters                
|Item 6.  |  | Selected Financial Data                                                              
|Item 7.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations
|Item 7A. |  | Quantitative and Qualitative Disclosures about Market Risk                           
|Item 8.  |  | Financial Statements and Supplementary Data                                          
|Item 9.  |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
|        
|PART III
|        
|Item 10. |  | Directors and Executive Officers of the Registrant                                   
|Item 11. |  | Executive Compensation                                                               
|Item 12. |  | Security Ownership of Certain Beneficial Owners and Management                       
|Item 13. |  | Certain Relationships and Related Transactions                                       
|        
|PART IV 
|        
|Item 14. |  | Controls and Procedures                                                              
|Item 15. |  | Exhibits, Financial Statement Schedule, and Reports on Form 8-K                      

|Note: |  | Portions of the Registrants definitive Proxy Statement to be issued in connection
with the Annual Meeting of Stockholders of the Registrant to be held on February 18, 2003
have been incorporated by reference into Part III, Items 10, 11, 12, and 13 of this
Report.
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|i



PART I


Item 1. Business


General


Health
Management Associates, Inc. (the Company or the  Registrant) was
incorporated in Delaware in 1979 and succeeded to  the operations of its subsidiary,
Hospital Management Associates, Inc., which  was formed in 1977. The Company provides a
broad range of general acute care  health services in non-urban communities. As of
September 30, 2002, the Company  operated 41 general acute care hospitals with a total of
5,769 licensed beds and  two psychiatric-only hospitals with a total of 134 licensed
beds. (See Item 2  Properties) For the year ended September 30, 2002 (Fiscal
2002), the acute care hospital operations accounted for approximately 97%  of the
Companys net patient service revenue and the psychiatric-only  hospital operations
and other revenue accounted for approximately 3%.


Business Strategy


The
Company pursues a business strategy of efficiently and profitably operating its  existing
base of facilities and selectively acquiring additional 100 to 300 bed  acute care
hospitals located in non-urban communities in market areas of 30,000  to 400,000 people
primarily in the southeastern and southwestern United States.  The Company seeks to
acquire, at reasonable prices, acute care hospitals which  are the sole or predominant
health care providers in their market service areas.  In evaluating potential
acquisitions, the Company requires a hospitals  market service area to exhibit a
demographic need for the facility and to have  an established physician base which can be
augmented by the Companys  ability to attract additional physicians to the
community. Many of the hospitals  the Company has acquired were unprofitable at the time
of acquisition. Upon  acquiring a facility, the Company employs a well-qualified chief
executive  officer, chief financial officer, and chief nursing officer, implements its
proprietary management information system, recruits physicians, introduces  strict cost
control measures with respect to hospital staffing and volume  purchasing under
Company-wide or group purchasing agreements, and spends the  necessary capital to
renovate the facility and upgrade equipment. The Company  strives to provide all of the
acute care needs of each community its hospitals  serve, thereby reducing the
out-migration of potential patients to hospitals in  larger urban areas.


The
Company manages each acquired hospital to maximize operating margins and return  on
capital within the first 24 to 48 months of operations, a time period which  the Company
believes is sufficient to fully implement the plan of improvement.  Generally, the
Company has been successful in achieving a significant  improvement in the operating
performance of its facilities within this time  period. Once a facility has matured, the
Company generally achieves additional  growth through favorable demographic trends, the
continued growth of  physicians practices in the community, expansion of health
care services  offered and selective rate increases.


The
Company continually seeks to improve the quality of the health care services  delivered
through a company-wide proprietary Quality Service Management  (QSM) program.
Upon discharge, all patients are asked to fill out a  confidential survey that seeks the
patients perception of the hospitals health  care services, including medical treatment,
nursing care, the hospitals  attention to patient concerns, the admissions process, room
cleanliness, and the  quality of dietary services. The Companys commitment to
quality is  evidenced by the achievements and accomplishments awarded to its hospitals by
independent raters of quality for health care organizations. In Fiscal 2002 such
achievements and accomplishments included:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 17
of the Companys hospitals were surveyed by the Joint Commission on  Accreditation
of Health Care Organizations (JCAHO). Despite more  stringent guidelines
adopted by the Commission for 2002, the Companys  hospitals that were surveyed in
2002 received an average grade of 92 out of a  possible 100.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Franklin
Regional Medical Center in Louisburg, North Carolina received a JCAHO  score of 95, which
was among the higher scores awarded last year by the JCAHO  under its new scoring
criteria.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Charlotte
Regional Medical Center in Punta Gorda, Florida, was named one of the  Top 100 Cardiac
Hospitals in America by Solucient, Inc., a provider of  independent annual studies that
measure the effectiveness of hospitals clinical practices, operations and financial
management.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The
Heart Program at Medical Center of Mesquite in Mesquite, Texas, was awarded a five-star
rating by Health Grades,  Inc., an independent rating agency.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|1
|-

| |  | Rankin
Medical Center in Brandon, Mississippi, was named the best facility for  basic life
support training in Mississippi and ranked second for the number of  people that it
trained in CPR.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | The
dietary department at Franklin Regional Medical Center in Louisburg, North  Carolina, was
awarded a perfect score of 100 by the North Carolina Board of  Health.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Operations and
Marketing


Upon
acquisition of a hospital, the Company immediately implements its policies to  achieve
its financial and operating goals. The Company: (i) appraises current  management
personnel and makes necessary changes; (ii) seeks to reduce expenses  by managing
staffing more effectively and purchasing supplies through volume and  group purchasing
agreements; (iii) improves billings and collections; and (iv)  installs its proprietary
management information system. The Companys  flexible staffing program allows the
Company to manage its labor costs  effectively by properly staffing a hospital based on
current occupancy,  utilizing a combination of full-time and part-time employees. The
Companys  proprietary management information system provides the hospitals
chief  executive officer, chief financial officer, and chief nursing officer with the
necessary financial and operational information to operate the hospital  effectively and
to implement the Companys flexible staffing program. Based  on the information
gathered, the Company can also assist physicians in  appropriate case management.


The
Company also attempts to increase admissions and outpatient business through  marketing
programs. The marketing programs of each of the Companys  hospitals are directed by
the hospitals chief executive officer to best  suit the particular geographic,
demographic and economic characteristics of the  hospitals market area. A key
element of the Companys marketing  strategy is to establish and maintain a
cooperative relationship with its  physicians. The Company pursues an active physician
recruitment program to  attract and retain qualified specialists and other physicians to
broaden the  services available and meet identifiable community needs. The Companys
hospitals often provide newly recruited physicians with various services  necessary to
relocate and assist them in opening and commencing the operation of  their practices.
Such costs are generally expensed as incurred. The  Companys hospitals also pursue
various strategies aimed at increasing  utilization of their services, particularly
emergency and outpatient services.  For example, hospitals offer an emergency service
program called Nurse  First, which quickly assigns a registered nurse
specially trained for  emergency room duties to assess the condition of each patient upon
arrival.  Other programs include Pro Med, an emergency room computer-based
diagnostic aid that helps physicians assess a patients medical condition  quickly
and formulate a diagnosis and course of treatment, Med Key, a plastic
identification card that contains a variety of patient information  which streamlines the
registration process, and One Call Scheduling, a dedicated phone system which
physicians and their staff can utilize to  schedule various diagnostic tests and other
services easily at one time.


The
operations of the Companys two psychiatric-only hospitals focus mainly on
child/adolescent intensive residential treatment programs. Since the  Companys
psychiatric hospitals receive most of their admissions for the  child/adolescent programs
from state and locally-sponsored child and adolescent  care agencies and the court
system, the majority of the hospitals marketing efforts are devoted to these areas.
There is little direct marketing  to the public. See Competition  Psychiatric
Hospitals in this  Item 1.


The
Company considers its management structure to be decentralized. Its hospitals  are run by
experienced chief executive officers, chief financial officers and  chief nursing
officers that have both the authority and responsibility for  day-to-day operations.
Incentive compensation programs have been implemented to  reward such managers for
accomplishing established goals. The Company employs a  relatively small corporate staff
to provide services such as systems design and  development, marketing assistance,
training, human resource management,  reimbursement, technical accounting support,
purchasing, risk management, and  construction management. Financial control is
maintained through fiscal and  accounting policies which are established at the corporate
level for use at the  hospitals. Financial information is centralized at the corporate
level through  the Companys proprietary management information system.


2
Selected Operating
Statistics


The
following table sets forth selected operating statistics for the Companys
hospitals for the periods and dates indicated.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                                          | Year ended September 30, | 
|--------------------------------------------------------------------------------------------------------- | ------------------------ | 
|
|Total hospitals owned or leased (as of the end of each period, except for 2000, which is as of October 1) |                          | 
|Licensed beds (as of the end of each period, except for 2000, which is as of October 1)                   |                          | 
|Admissions                                                                                                |                          | 
|Patient days                                                                                              |                          | 
|Acute care average length of stay (days)                                                                  |                          | 
|Occupancy rate (1)                                                                                        |                          | 
|Outpatient utilization (2)                                                                                |                          | 
|Earnings margin, before depreciation, interest and income taxes (excluding minority interest)             |                          | 

|
|

|(1) |  | Hospital
occupancy rates are affected by many factors, including the population size and
general economic conditions within the service area, the degree of variation in
medical and surgical products, outpatient use of hospital services, quality and
treatment availability at competing hospitals, and seasonality. Generally, the
Companys hospitals experience a seasonal decline in occupancy in the first and
fourth fiscal quarters.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Outpatient
revenue as a percent of Total Patient Service Revenue (defined as revenue from all
sources before deducting contractual allowances and discounts from established billing
rates).
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Competition


Acute
Care Hospitals. The health care industry is highly competitive and, in  recent years,
has been characterized by increased competition for patients and  staff physicians, a
shift from inpatient to outpatient settings, and increased  consolidation. The principal
factors contributing to these trends are advances  in medical technology,
cost-containment efforts by managed care payors,  employers and traditional health
insurers, changes in regulations and  reimbursement policies, increases in the number and
type of competing health  care providers and changes in physician practice patterns. A
hospital competes  within the geographic area in which it operates by distinguishing
itself based  on the quality and scope of medical services provided. With respect to the
delivery of general acute care services, most of the Companys hospitals  face less
competition in their immediate patient service areas than would be  expected in larger
communities. While the Companys hospitals are generally  the predominant provider
in their respective communities, most of its hospitals  face competition; however, that
competition is generally limited to a single  competitor in each respective market. The
Company seeks to provide all the acute  health care needs in each community its hospitals
serve.


The
competitive position of a hospital is increasingly affected by its ability to  negotiate
service contracts with purchasers of group health care services. Such  purchasers include
employers, preferred provider organizations  (PPOs) and health maintenance
organizations (HMOs). PPOs  and HMOs attempt to direct and control the use of
hospital services through  management of care and either (i) receive discounts from a
hospitals  established charges or (ii) pay based on a fixed per diem or on a
capitated  basis, where hospitals receive fixed periodic payments based on the number of
members of the organization regardless of the actual services provided. To date,  HMOs
have not been a competitive factor in the Companys non-urban  hospitals. In
addition, employers and traditional health insurers are  increasingly interested in
containing costs through negotiations with hospitals  for managed care programs and
discounts from established charges. In return,  hospitals secure commitments for a larger
number of potential patients.  Accordingly, the Company has been proactive in
establishing or joining such  programs to maintain, and even increase, hospital services.
Management believes  the Company is able to compete effectively in its markets, and does
not believe  such programs will have a significant adverse impact on the Companys
net  revenue. See Operations and Marketing in this Item 1.


3
Acquisitions.
The Company faces competition for the acquisition of non-urban community acute  care
hospitals from proprietary and not-for-profit multi-hospital groups. Some  of these
competitors may have greater financial and other resources than the  Company.
Historically, the Company has been able to acquire hospitals at  reasonable prices.
However, increased competition for the acquisition of  non-urban community acute care
hospitals could have an adverse impact on the  Companys ability to acquire such
hospitals on favorable terms.


Consolidation.There has been significant consolidation in the hospital industry over the  past
decade due, in large part, to continuing pressures on payments from  government and
private payors and increasing shifts away from the provision of  traditional inpatient
services. Those economic trends have caused many hospitals  to close and many to
consolidate either through acquisitions or affiliations.  The Company believes that these
cost containment pressures will continue and  will lead to further consolidation in the
hospital industry.


Sources of Revenue


The
Company receives payment for services rendered to patients from: (i) the Federal
government under the Medicare program; (ii) each of the states in which its  hospitals
are located under the Medicaid program; and (iii) private insurers and  patients. The
following table sets forth the approximate percentage of Net  Patient Service Revenue
(defined as revenue from all sources after deducting  contractual allowances and
discounts from established billing rates) derived  from the various sources of payment
for the periods indicated:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                          | Year ended September 30, | 
|------------------------- | ------------------------ | 
|
|Medicare                  |                          | 
|Medicaid                  |                          | 
|Private and other sources |                          | 
|                          |                          | 
|Total                     |                          | 
|                          |                          | 

|Hospital
revenues depend upon inpatient occupancy levels, the extent to which ancillary  services
and therapy programs are ordered by physicians and provided to  patients, and the volume
of outpatient procedures. Reimbursement rates for  inpatient routine services vary
significantly depending on the type of service  (e.g., acute care, intensive care or
psychiatric) and the geographic location of  the hospital. The Company has maintained
increased levels in the percentage of  patient revenues attributable to outpatient
services in recent years. These  increased levels are primarily the result of advances in
medical technology  (which allow more services to be provided on an outpatient basis) and
increased  pressures from Medicare, Medicaid and private insurers to reduce hospital
stays  and provide services, where possible, on a less expensive outpatient basis. The
Companys experience with respect to increased outpatient levels mirror the  trend
the Company believes is occurring in the hospital industry.


Medicare.
Most hospitals (including all of the Companys acute care hospitals) derive  a
substantial portion of their revenue from the Medicare program, which is a  Federal
government program designed to reimburse participating health care  providers for covered
services rendered and items furnished to qualified  beneficiaries. The Medicare program
is heavily regulated and subject to frequent  changes which in recent years have reduced,
and in future years could further  restrict increases in, Medicare payments to hospitals.
In light of its  hospitals high percentage of Medicare patients, the Companys
ability  in the future to operate its business successfully will depend in large measure
on its ability to adapt to changes in the Medicare program.


The
Medicare program is designed primarily to provide health care services to  persons aged
65 and over and those who are chronically disabled or who have End  Stage Renal Disease (ESRD).
The Medicare program is governed by the  Social Security Act of 1965 and is administered
by the Federal government,  primarily the Department of Health and Human Services (DHHS)
and the  Centers for Medicare and Medicaid Services (CMS), formerly known as
the Health Care Financing Administration (HCFA).


4
Legislative
action and Federal regulatory changes over the years have resulted in  significant
changes in the Medicare program. Formerly, Medicare provided  reimbursement for the
reasonable direct and indirect costs of hospital services  furnished to beneficiaries,
plus an allowed return on equity for proprietary  hospitals. Pursuant to the Social
Security Amendments of 1983 (the  Amendments) and subsequent budget
reconciliation act modifications,  Congress adopted a prospective payment system (PPS)
to reimburse the  routine and ancillary operating costs of most Medicare inpatient
hospital  services. In November 2000, as described below, a prospective payment system
was  proposed for rehabilitation hospitals and rehabilitation units that are a  distinct
part unit of a hospital. Psychiatric, long-term care and pediatric  hospitals, as well as
psychiatric units that are distinct parts of a hospital,  currently are exempt from PPS
and continue to be reimbursed on a reasonable cost  basis. Effective August 1, 2000, as
also further described below, a prospective  payment system was implemented for hospital
outpatient services. The  Companys two psychiatric hospitals do not participate in
the Medicare  program.


Under
PPS, the Secretary of DHHS has established fixed payment amounts per discharge  for
categories of hospital treatment, commonly known as diagnosis-related groups  (DRGs).
DRG rates have been established for each individual hospital  participating in the
Medicare program, in part based upon each facilitys  geographic location. As a
general rule under PPS, if a facilitys costs of  providing care for the beneficiary
are less than the predetermined DRG rate, the  facility retains the difference.
Conversely, if the facilitys costs of  providing the necessary service are more
than the predetermined rate, the  facility must absorb the loss. Because DRG rates are
based upon a statistically  normal distribution of severity, patients falling outside the
normal  distribution are afforded additional payments and defined as  outliers. In
certain instances, additional payments may be received  for outliers.


The
DRG rates are updated annually to account for projected inflation. For several  years the
annual updates or percentage increases to the DRG rates have been  lower than the actual
inflation in the cost of goods and services purchased by  general hospitals. The
inflation index used by CMS to adjust the DRG rates gives  consideration to the cost of
goods and services purchased by hospitals as well  as non-hospitals (the market
basket). Pursuant to the Balanced  Budget Act of 1997, the net annual updates were
set as follows: market basket  minus 1.1% for the Federal fiscal year (FY)
beginning October 1,  2001 (FY 2001) and FY 2002; and for FY 2003 and each
subsequent FY,  the market basket percentage. The Medicare, Medicaid and State Childrens
Health Insurance Program (SCHIP) Benefits Improvement and Protection  Act of
2000 (BIPA) further revised the update for FY 2001 to the  full market basket
and for FY 2002 and FY 2003 to the market basket minus 0.55%.  The Company cannot predict
how future adjustments by Congress and the CMS will  affect the profitability of its
health care facilities. The increase in the  market basket for FY 2002 and FY 2001 was 3.3% and 3.4%, respectively.


On
December 21, 2000, BIPA was enacted. BIPA made a number of changes to the  Medicare and
Medicaid Acts affecting payments to hospitals which total more than  $35 billion
nationwide and target $2 billion to rural providers over the next  six years. Some of the
changes made by BIPA that affect the Companys  facilities are as follows: (i)
lowering the threshold by which hospitals qualify  as rural or small urban
disproportionate share hospitals; (ii) decreasing the  reductions in payments to
disproportionate share hospitals that had been  mandated by previous Congressional
enactments; (iii) increasing the update  factors for inpatient PPS payments to hospitals;
(iv) increasing certain  payments to non-PPS psychiatric hospitals and units; and (v)
increasing Medicare  reimbursement for bad debt from 55% to 70%. In addition, BIPA places
limits on  the amount of co-insurance a Medicare beneficiary must pay for outpatient
services. Under BIPA, outpatient service co-payments are capped at a maximum of  57% of
the Ambulatory Payment Classification (APC rate) for the  period April 1,
2001 to December 31, 2001; 55% of the APC for calendar years  2002 and 2003; 50% of the
APC rate for calendar year 2004; 45% of the APC rate  for calendar year 2005; and, 40% of
the APC rate for calendar year 2006 and  thereafter. BIPA also directs DHHS to establish
categories of items eligible for  additional or pass-through payments to
hospitals for certain  outpatient services rendered on or after April 1, 2001 including
such items as  current cancer therapy drugs, biologicals, brachtherapy, and medical
devices.


5
Hospitals
currently excluded from the PPS, such as psychiatric and rehabilitation  hospitals,
receive reimbursement based on their reasonable costs, with limits  placed upon the
annual rate of increase in operating costs per discharge.  Pursuant to the Balanced
Budget Act of 1997, the annual update for FY 1998 was  set at 0%. For FY 1999 through FY
2002, the annual update factor was and is  dependent upon where the hospitals costs
fall in relation to the limits  set by the Tax Equity and Fiscal Responsibility Act of
1982 (TEFRA).  The annual update factor will range from 0% to the market
basket percentage  increase, depending upon whether the hospitals costs are at,
below or  above the TEFRA target limits. On November 3, 2000, CMS announced plans to
implement a PPS system for certain rehabilitation hospitals and rehabilitation  units of
a hospital currently exempt from the PPS system. The final rules  implementing the
rehabilitation PPS were issued on August 7, 2001 and became  effective on January 2, 2002
for cost reporting periods beginning on or after  January 2, 2002. The payment unit under
PPS is a discharge, and the payment rate  will encompass the inpatient operating costs
and capital costs of furnishing the  covered rehabilitation services. Payment rates have
been calculated using a  relative weight system to account for the varying resources used
in each patient  category. Payments during FY 2001 and 2002, by statute, are to be budget
neutral, with the FY 2001 payments equaling 98% of the amount the payments would  have
been if paid under the old reasonable cost system, and 100% for fiscal year  2002.
Although the BBA envisioned a 2-year phase-in period for the new PPS  system, beginning
on April 1, 2001, because the final rules were promulgated  late, the transitional
phase-in period will be truncated. For cost reporting  periods beginning on or after
January 2, 2002 and before October 1, 2002,  payment was based on 1/3 of the
facility-specific and 2/3 of the FY 2002 Federal  prospective payment. For cost reporting
periods beginning on or after October 1,  2002, payment is based solely on the Federal
prospective payment. Under final  rules, a facility has the option to select payment
solely based on the Federal  prospective rate for periods prior to October 1, 2002.
Because of the limited  number of rehabilitation beds operated by the Company, changes
under the PPS  system will not have a material effect on the Companys financial
results.  The Companys two psychiatric-only hospitals are exempt from the
PPS  system.


Prior
to October 1, 1990, Medicare payments for outpatient hospital-based services  were
generally the lower of hospital costs or customary charges. Due to Federal  budget
restraints, the Omnibus Budget Reconciliation Act of 1993  (OBRA-1993)
reduced Medicare payments for the majority of outpatient  services to the lower of 94.2%
of hospital costs, customary charges or a blend  of 94.2% of hospital costs and a fee
schedule (such fee schedule generally being  lower than hospital costs) through FY 1998.
The Balanced Budget Act of 1997, and  the Balanced Budget Refinement Act of 1999,
extended this reduction to the first  date that an outpatient PPS was implemented. On
August 1, 2000, as required by  the Balanced Budget Act of 1997 and the Balanced Budget
Refinement Act of 1999,  a Medicare PPS went into place for hospital outpatient services.
Under the  outpatient PPS, all outpatient services are grouped into Ambulatory Payment
Classifications (APCs). Services in each APC are clinically similar  and are
similar in terms of the resources they require. A payment rate has been  established by
CMS for each APC, with adjustments provided for geographic wage  differentials. Hospitals
may be paid more than one APC per patient and per  encounter, depending upon the services
required by and provided to the Medicare  eligible beneficiary. Significantly, the
outpatient PPS revises the way in which  beneficiary co-insurance amounts are determined.
Initially, co-insurance amounts  were based on 20% of the national median charge for
the APC. The Balanced  Budget Refinement Act of 1999 limits beneficiary liability so that
no  co-insurance amount can be greater than the Medicare hospital inpatient  deductible
for a given year. The outpatient PPS provides for a transitional  adjustment to limit
potential payment reductions experienced as a result of the  transition to prospective
encounter payments. For the FY 2000 through FY 2003,  providers will receive an
adjustment if their payment-to-cost ratio for  outpatient services furnished during such
year is less than a set percentage of  their payment-to-cost ratio for those services in
their cost reporting period  ending in 1996 (the base year). Rural hospitals with 100 or
fewer beds and  cancer hospitals will be held harmless under this provision. In addition,
small  rural hospitals, for services furnished before January 1, 2004, will be
maintained at the same payment-to-cost ratio as their base year cost report, if  their
PPS payment-to-cost ratio is less. The outpatient PPS has not had a  material impact on
reimbursement to the Company. The Company anticipates the  Medicare outpatient
prospective payment system will continue to be refined and  future adjustments may limit
or reduce payments from the program. Outpatient  laboratory services are paid based on a
fee schedule which is substantially  lower than customary charges. Certain ambulatory
surgery procedures are paid for  at a rate based on a blend of hospital costs and the
rate paid by Medicare for  similar procedures performed in free standing ambulatory
surgery centers.  Certain radiology and other diagnostic services are paid on a blend of
actual  cost and prevailing area charge.


6
Payments
        under the Medicare program for capital related costs, for cost reporting
        periods prior to October 1, 1991, were made on a reasonable cost basis.
        Reasonable capital costs generally include depreciation, rent and lease
        expense, capital interest, property taxes, insurance related to the physical
        plant, fixed equipment and movable equipment. As a result of changes made
        to the Social Security Act by the Omnibus Reconciliation Act of 1987 (OBRA-1987),
        hospitals paid under PPS for operating costs must be reimbursed for capital
        costs on a prospective basis, effective with the cost reporting period
        beginning October 1, 1991 (i.e., FY 1992). CMS implemented the PPS for
        capital costs for FY 1992 based upon FY 1989 Medicare inpatient capital
        costs per discharge updated to FY 1992 by the estimated increase in Medicare
        capital costs per discharge. A ten year transition period, beginning with
        FY 1992, was established for the phasing-in of the capital PPS. Under
        the transition period rules, hospitals with a hospital-specific capital
        rate below the standard Federal rate are paid on a fully prospective methodology.
        Hospitals with a hospital-specific rate above the standard Federal rate
        are paid based on a hold-harmless method or 100% of the standard Federal
        rate, whichever results in the higher payment. Beginning with cost reporting
        periods on or after October 1, 2001, at the end of the transition period,
        all hospitals are to be paid at the standard Federal rate. Pursuant to
        the Balanced Budget Act of 1997, capital payment rates were rebased in
        FY 1998 using the actual rates in effect in FY 1995 and the budget neutrality
        adjustment factor used to determine the Federal capital payment rate on
        September 30, 1995. In addition, capital rates are reduced by an additional
        2.1% by the Balanced Budget Act of 1997. For FY 2002, CMS increased the
        Federal rate by 2.28%. The increase for FY 2003, was 4.2%. The Company anticipates further
        adjustments in the future but is unable to predict the amount or impact
        of future adjustments.


The
Medicare program reimburses each hospital on a reasonable cost basis for the  Medicare
programs pro rata share of the hospitals allowable capital  costs related to
outpatient services. Outpatient capital reimbursement was  reduced by 15% (i.e., 85% of
outpatient capital costs) during FY 1990 and  OBRA-1990 extended the 15% reduction
through FY 1991. OBRA-1990 and OBRA-1993  further directed that outpatient capital
reimbursement be reduced by only 10%  beginning FY 1992 through FY 1998. The Balanced
Budget Act of 1997 continued the  10% reduction during FY 2000 up to January 1, 2000. The
Company anticipates that  payments to hospitals could be reduced as a result of future
legislation but is  unable to predict what the amount of the final reduction will be.


On
October 1, 2000, as required by the Balanced Budget Act of 1997 and the Balanced  Budget
Refinement Act of 1999, Medicare began paying all home health agencies  under a PPS
system. Medicare will pay home health care agencies for each covered  60-day episode of
care for each Medicare beneficiary who continues to remain  eligible for home health
services. The home health care PPS system provides  payment at a higher rate for the
beneficiaries with greater medical needs, based  upon a payment system that relies upon
data collected by caregivers on a patient  clinical assessment. PPS rates vary depending
upon the intensity of care  required by each beneficiary, with actual rates adjusted by
CMS to reflect the  geographic area wage differentials. Home health care agencies will
receive less  than the full PPS amounts in those instances where they provide only a
minimal  number of visits to beneficiaries. In addition, the new PPS provides for  outlier payments
in instances where the costs of care are  significantly higher than the specified rate.
In most other instances, they will  be paid the full PPS amount. Currently, there is not
a material impact on the  Company due to the implementation of this PPS system. However,
the Company will  continue to monitor the progress of the program and take the necessary
steps to  minimize any further reductions in payments as a result of this program.


The
Balanced Budget Act of 1997 mandated numerous other adjustments and reductions  to the
Medicare system that collectively may impact the Companys  operations. With respect
to the valuation of capital assets as a result of a  change in hospital ownership, the
Balanced Budget Act of 1997 eliminates the  allowance for return on equity capital, and
bases reimbursement on the book  value of the assets, recognizing no gain, loss or
recapture of depreciation. In  addition, the Balanced Budget Act of 1997 mandated the
following changes: i)  reimbursement for Medicare enrollee deductible and coinsurance bad
debts is  reduced 40% for FY 2000 and 45% for FY 2001 and each subsequent year  BIPA
further changed the bad debt reimbursement reduction to 30% for FY 2001 and  subsequent
years; ii) the bonus payments made to hospitals whose costs are below  the target amounts
is reduced to 2% of the target amount; and, iii) skilled  nursing home reimbursement must
transition to a prospective payment system,  based upon 1995 allowable costs, with a
three year transition period beginning  on or after July 1, 1998.


7
The
Balanced Budget Refinement Act (BBRA) was signed into law on  November 29,
1999, and provided hospitals some relief from the impact of the  Balanced Budget Act of
1997. The provisions enacted by the BBRA did not  materially impact the Company. It did,
however, indicate the recognition by  Congress that further reductions in payments to
hospitals were not necessary.  Congress continues to evaluate a number of proposals that
would give hospitals  additional relief from the impact of the Balanced Budget Act of
1997. However,  the uncertainty and fiscal pressures placed upon the Federal government
as a  result of the ongoing War on Terrorism, and the economic recovery stimulus, may
affect the funds available to provide such additional relief in the future.


Medicaid.
The Medicaid program, created by the Social Security Act of 1965, is designed to  provide
medical assistance to individuals unable to afford care. Medicaid is a  joint Federal and
state program in which states voluntarily participate. Payment  rates and services
covered under the Medicaid program are set by each  participating state. As a result,
Medicaid payment rates and covered services  may vary from state to state. Approximately
50% of Medicaid funding comes from  the Federal government, with the balance shared by
the state and local  governments. The Medicaid program is administered by individual
state  governments, subject to compliance with broadly defined Federal requirements.


The
Balanced Budget Act of 1997 repealed the Boren Amendment to the Medicaid Act  which had
been interpreted by the Courts as establishing a Federal minimum  standard for Medicaid
rates payable to hospitals and nursing homes. Congress  repealed the Boren Amendment in
order to give states greater flexibility in  establishing Medicaid payment methods and
rates. The Boren Amendment required  states to undertake a finding analysis and then to
assure the Federal government  that their Medicaid rates were reasonable and adequate to
meet the costs that  must be incurred by economically and efficiently operated hospitals
in providing  care to Medicaid recipients. In place of this minimum standard, Congress
has  mandated that states employ a rate setting process that requires prior  publication
and an opportunity for provider comment on the rates. This  replacement requirement
became effective for rates of payment on and after  January 1, 1998.


State
Medicaid payment methodologies vary from state to state. The most common  methodologies
are state Medicaid prospective payment systems or state programs  that negotiate payment
rates with individual hospitals. Generally, Medicaid  payments are less than Medicare
payments and are substantially less than a  hospitals cost of services. In 1991
Congress passed legislation limiting  the states use of provider-specific taxes and
donated funds to bolster the  states share and obtain increased Federal Medicaid
matching funds. Certain  states in which the Company operates have adopted broad-based
provider taxes to  fund their Medicaid programs in response to the 1991 legislation.
Congress has  also established a national limit on disproportionate share hospital
adjustments  (which are additional amounts required to be paid to hospitals defined as
providing a disproportionate amount of Medicaid and low-income inpatient  services). This
legislation and the resulting state broad-based provider taxes  have adversely affected
the Companys net Medicaid payments, but to date  the net impact has not been
materially adverse.


The
Federal government and many states are currently considering additional ways to  limit
the increase in the level of Medicaid funding, which also could adversely  affect future
levels of Medicaid payments received by the Companys  hospitals. Because the
Company cannot predict precisely what action the Federal  government or the states will
take as a result of existing and future  legislation, the Company is unable to assess the
effect of such legislation on  its business. Like Medicare funding, Medicaid funding may
also be affected by  health care reform legislation, and it is impossible to predict the
effect such  legislation might have on the Company.


TRICARE.
Some of the Companys hospitals provide services to retired and certain  other
military personnel and their families pursuant to the TRICARE program.  TRICARE pays for
inpatient acute hospital care on the basis of a prospectively  determined rate applied on
a per discharge basis using DRGs similar to the  Medicare system. At this time, inpatient
psychiatric hospital services are  reimbursed on an individual hospital per diem rate
calculated based upon the  average charges for these services by all psychiatric
hospitals. The Company can  make no assurance that the TRICARE program will continue per
diem reimbursement  for psychiatric hospital services in the future.


8
The
Medicare, Medicaid and TRICARE programs are subject to statutory and regulatory  changes,
administrative rulings, interpretations and determinations,  requirements for utilization
review and new governmental funding restrictions,  all of which may materially increase
or decrease program payments as well as  affect the cost of providing services and the
timing of payments to facilities.  The final determination of amounts earned under the
programs often requires many  years, because of audits by the program representatives,
providers rights  of appeal and the application of numerous technical reimbursement
provisions.  Management believes that adequate provision has been made for such
adjustments.  Until final adjustment, however, significant issues remain unresolved and
previously determined allowances could become either inadequate or more than  ultimately
required.


Commercial
Insurance. The Companys hospitals provide services to individuals  covered by
private health care insurance. Private insurance carriers either  reimburse their policy
holders or make direct payments to the Companys  hospitals based upon the
particular hospitals established charges and the  particular coverage program that
provides its subscribers with hospital benefits  through independent organizations that
vary from state to state. The  Companys hospitals are paid directly by local Blue
Cross organizations on  the basis agreed to by each hospital and Blue Cross by a written
contract.


Recently,
several commercial insurers have undertaken efforts to limit the costs of  hospital
services by adopting prospective payment or DRG-based systems. To the  extent such
efforts are successful, and to the extent that the insurers systems fail to
reimburse hospitals for the costs of providing services to their  beneficiaries, such
efforts may have a negative impact on the results of  operations of the Companys
hospitals.


Health Care Reform,
Regulation and Other Factors


General.Health care, as one of the largest industries in the United States,  continues to
attract much legislative interest and public attention. Medicare,  Medicaid, mandatory
and other public and private hospital cost-containment  programs, proposals to limit
health care spending, proposals to limit prices and  industry competitive factors are
highly significant to the health care industry.  In addition, the health care industry is
governed by a framework of Federal and  state laws, rules and regulations that are
extremely complex and for which the  industry often has the benefit of little or no
regulatory or judicial  interpretation. Although the Company believes it is in compliance
in all  material respects with such laws, rules and regulations, if a determination is
made that the Company was in material violation of such laws, rules or  regulations, its
operations and financial results could be materially adversely  affected.


Licensure,
Certification and Accreditation. Health care facility construction and  operation is
subject to Federal, state and local regulation relating to the  adequacy of medical care,
equipment, personnel, operating policies and  procedures, fire prevention, rate-setting
and compliance with building codes and  environmental protection laws. Facilities are
subject to periodic inspection by  governmental and other authorities to assure continued
compliance with the  various standards necessary for licensing and accreditation. All of
the  Companys health care facilities are properly licensed under appropriate  state
laws and are certified under the Medicare program or are accredited by the  Joint
Commission on Accreditation of HealthCare Organizations or the American  Osteopathic
Association (Accredited), the effect of which is to  permit the facilities to
participate in the Medicare/Medicaid programs. Should  any Accredited facility lose its
accreditation, and then not become certified  under the Medicare program, the facility
would be unable to receive  reimbursement from the Medicare/Medicaid programs. Management
believes that the  Companys facilities are in substantial compliance with current
applicable  Federal, state, local and independent review body regulations and standards.
The  requirements for licensure, certification and accreditation are subject to  change
and, in order to remain qualified, it may be necessary for the Company to  effect changes
in its facilities, equipment, personnel and services. Although  the Company intends to
continue its qualification, there can be no assurance  that its hospitals will be able to
comply in the future.


Utilization
Review. In order to ensure efficient utilization of facilities and services,  Federal
regulations require that admissions to, and the utilization of,  facilities by Medicare
and Medicaid patients be reviewed by a Federally funded  Peer Review Organization (PRO).
Pursuant to Federal law, the PRO  must review the need for hospitalization and the
utilization of services,  denying admission of a patient or denying payment for services
provided, where  appropriate. Each of the Companys facilities has contracted with a
PRO and  has had in effect a quality assurance program that provides for retrospective
patient care evaluation and utilization review.


9
Certificates
of Need. The construction of new facilities, the acquisition of existing  facilities,
and the addition of new beds or services may be reviewable by state  regulatory agencies
under a program frequently referred to as Certificate of  Need. Except for Arkansas,
Oklahoma, Pennsylvania, and Texas, all of the other  states in which the Companys
health care facilities are located have  Certificate of Need or equivalent laws which
generally require appropriate state  agency determination of public need and approval
prior to beds or services being  added, or a related capital amount being spent. Failure
to obtain necessary  state approval can result in the inability to complete the
acquisition, the  imposition of civil or, in some cases, criminal sanctions, the
inability to  receive Medicare or Medicaid reimbursement and/or the revocation of the
facilitys license.


State
Hospital Rate-Setting Activity. The Company currently operates one facility  in a
state that has some form of mandated hospital rate-setting. The West  Virginia Health
Care Authority (HCA) requires that hospitals seeking  an increase in rates
must submit requests for increases to hospital charges  annually. Requests for rate
increases are reviewed by the HCA and are either  approved at the amount requested,
approved for a lower amount than requested or  are rejected. As a result, in West
Virginia, the Companys ability to  increase its rates to compensate for increased
costs per admission is limited  and the Companys operating margin on its West
Virginia facility may be  adversely affected. There can be no assurance that other states
in which the  Company operates hospitals will not enact rate-setting provisions as well.


      Anti-kickback
        and Self-Referral Regulations. During 1998, the Federal government
        announced that reducing health care fraud was a top priority. As a result,
        the health care industry continues to be subjected to unprecedented scrutiny
        and a panoply of statutes, regulations and government initiatives intended
        to prevent those practices deemed fraudulent or abusive by the government,
        extensive Federal, state and local regulation relating to licensure, conduct
        of operations, ownership of facilities, addition of facilities and services
        and prices for services. In particular, Medicare and Medicaid anti-kickback,
        antifraud and abuse amendments codified under Section 1128B(b) of the
        Social Security Act (the Anti-kickback Amendments) prohibit
        certain business practices and relationships that might affect the provision
        and cost of health care services reimbursable under Medicare and Medicaid,
        including the payment or receipt of remuneration for the referral of patients
        whose care will be paid for by Medicare or other government programs.
        Sanctions for violating the Anti-kickback Amendments include criminal
        penalties and civil sanctions, including fines and possible exclusion
        from the Medicare and Medicaid programs. Pursuant to the Medicare and
        Medicaid Patient and Program Protection Act of 1987, the DHHS has issued
        regulations that describe some of the conduct and business relationships
        permissible under the Anti-kickback Amendments (Safe Harbors).
        The fact that a given business arrangement does not fall within a Safe
        Harbor does not render the arrangement per se illegal. Business arrangements
        of health care service providers that fail to clearly satisfy the applicable
        Safe Harbor criteria, however, risk increased scrutiny by enforcement
        authorities. Because the Company may be less willing than some of its
        competitors to enter into business arrangements that do not clearly satisfy
        the Safe Harbors, it could be at a competitive disadvantage.


      In
        addition, Section 1877 of the Social Security Act, enacted on December
        19, 1989, which restricts referrals by physicians of Medicare and other
        government-program patients to providers of a broad range of designated
        health services with which they have ownership or certain other financial
        arrangements, has been amended numerous times since initial enactment,
        the most recent of which was amended effective January 1, 1995, to significantly
        broaden the scope of prohibited physician referrals for certain services
        to entities with which they have financial relationships (the Stark
        Law or the Self-Referral Prohibitions). Final rules
        implementing the Self-Referral Prohibitions were adopted by DHHS on August
        14, 1995 (the Stark I rules) and January 4, 2001 (the Stark
        II rules). Many states have adopted or are considering similar legislative
        proposals, some of which extend beyond the Medicaid program to prohibit
        the payment or receipt of remuneration for the referral of patients and
        physician self-referrals regardless of the source of the payment for the
        care. The Companys participation in and development of joint ventures
        and other financial relationships with physicians could be adversely affected
        by these amendments and similar state enactments. The Company systematically
        reviews all of its operations on an ongoing basis to ensure that it complies
        with the Social Security Act and similar state statutes. In addition,
        the Company has in operation a corporate compliance program at all of
        the Companys hospitals, which is an ongoing, working program to
        monitor and promote continuing compliance with these statutory prohibitions
        and requirements. (See Compliance Program below for
        further discussion)


10
Both
Federal and state government agencies have announced heightened and coordinated  civil
and criminal enforcement efforts in accordance with the requirements of  recent Federal
statutory enactments including the Health Insurance Portability and Accountability  Act of 1996. The Company
is unable to predict the future course of Federal,  state and local regulation or
legislation, including Medicare and Medicaid  statutes and regulations. Further changes
in the regulatory framework could have  a material adverse effect on the Companys
financial condition.


Conversion
Legislation. Many states have enacted or are considering enacting laws  affecting the
conversion or sale of not-for-profit hospitals. These laws  generally require prior
approval from state attorney generals, advance  notification and community involvement.
In addition, state attorney generals in  states without specific conversion legislation
may exercise authority over these  transactions based upon existing law. States are
showing an increased interest  in overseeing the sales or conversions of not-for-profit
hospitals. The adoption  of conversion legislation and the increased review of
not-for-profit hospital  conversions may make it more difficult for the Company to
acquire not-for-profit  hospitals, or could increase acquisition costs in the future. See
Business  Strategy in this Item 1.


Environmental
Regulations.The Companys health care operations generate medical  waste that
must be disposed of in compliance with Federal, state and local  environmental laws,
rules and regulations. The Companys operations, as  well as the Companys
purchases and sales of facilities, are also subject  to compliance with various other
environmental laws, rules and regulations. Such  compliance does not, and the Company
anticipates that such compliance will not,  materially affect the Companys capital
expenditures, financial position or  results of operations.


Compliance
Program. During 1996 the Company began developing, and in 1997 formally  implemented,
a Corporate compliance program to supplement and enhance its  existing ethics program.
The Company believes its current compliance program  meets or exceeds all applicable
Federal guidelines and industry standards. The  program is designed to raise awareness of
various regulatory issues among  employees and to stress the importance of complying with
all governmental laws  and regulations. As part of the program, the Company provides
ethics and  compliance training to every employee. Management encourages all employees to
report, without fear of retaliation, any suspected legal or ethical violation to  their
supervisors, the compliance officer on staff at the hospital or the  Companys
corporate compliance officer. In addition, the Company maintains  a 24-hour toll-free
telephone hotline, which is manned by an independent  company, so that employees can
report suspected violations anonymously.


HIPAA.The Health Insurance Portability and Accountability Act of 1996  (HIPAA)
was enacted on August 21, 1996. HIPAA is an effort to  encourage overall administrative
simplification and enhance the effectiveness  and efficiency of the health care industry.
It mandates the adoption of  standards for the exchange of electronic health information.
The two key factors  of HIPAA are accountability and portability. Accountability refers
to the  attempt of the legislation to ensure privacy and security of patient information
and portability refers to the legislations intent to ensure that  individuals can
take their medical and insurance records with them when they  change employers.


HIPAA
mandates new security measures, sets standards for electronic signatures,  standardizes a
method for identifying providers, employers, health plans and  patients, requires that
the health care industry utilize the most efficient  method to codify data and may
significantly change the manner in which hospitals  communicate with payors. These are
significant and potentially costly changes to  the health care industry.


      Although
        proposed security rules were issued on August 11, 1998, DHHS has yet to
        adopt final rules implementing the security and integrity portions of
        HIPAA. It is anticipated that final security rules will be promulgated
        and adopted on or about December 27, 2002. On December 28, 2000, DHHS
        published final privacy rules implementing the privacy portions of HIPAA,
        which were subsequently amended by CMS on August 14, 2002. The final privacy
        rules were effective April 14, 2001. The privacy rules give patients greater
        access to their own medical records and more control over how their personal
        health information is used and disclosed. The privacy rules address the
        obligations of health care providers to protect health information. Providers,
        including the Company, have until April 14, 2003 to comply with the privacy
        rules requirements. Sanctions for failing to comply with HIPAA include
        criminal penalties and civil sanctions.


11
The
Company filed a plan with the Secretary of DHHS as permitted under The  Administrative
Simplification Compliance Act (the ASCA). This law  was signed by President
Bush on December 27, 2001. The ASCA granted covered  entities a one-year extension (until
October 16, 2003) to be in compliance with  the electronic submission requirements of all
HIPAA transactions as defined in  the rule. The Company anticipates that it will be in
compliance with the  transaction standards by October 16, 2003. The Company also
anticipates that it  will be able to fully comply with the HIPAA requirements and
regulations as they  have been adopted to date. The Company has initiated a plan which
will allow it  to comply with the currently adopted regulations. Estimating the cost of
such  compliance is difficult and no such estimations have been made at this time.  Based
on its current knowledge, however, the Company believes that the cost of  its compliance
will not have a material adverse effect on its business,  financial condition or results
of operations.


Employees and
Medical Staff


As
of September 30, 2002, the Company had approximately 23,000 full-time and  part-time
employees, approximately 600 of whom were covered by three collective  bargaining
agreements. The Companys corporate office staff consisted of  approximately 100
people at that date. The Company believes that its relations  with employees are
satisfactory. In general, the staff physicians at the  Companys acute care and
psychiatric-only hospitals are not employees of  the Company. The physicians may also be
staff members of other hospitals. The  Company provides physicians with certain services
and assistance. The Company  does employ approximately 100 physicians, approximately
one-half of whom are  primary care physicians located at clinics the Company owns and
operates. In  addition, the Companys hospitals provide emergency room coverage,
radiology, pathology and anesthesiology services by entering into service  contracts with
physician groups which are generally cancelable on 90 days  notice.


Liability Insurance


Through
September 2002, the Company insured for its professional liability risks under a  claims-made basis
policy, whereby each claim is covered up to $1  million per occurrence, subject to a
$100,000 deductible (with an annual  deductible cap of $6.1 million). Liabilities in
excess of these amounts were  covered through a combination of limits provided by
commercial insurance  companies and a self-insurance program.


Accruals
for self-insured professional liability risks are determined using asserted and
unasserted claims identified by the Companys incident reporting system and
actuarially determined estimates based on Company and industry historical loss  payment
patterns and have been discounted to their present value using a  discount rate of 6.0%.
Although the ultimate settlement of these accruals may  vary from these estimates,
management believes that the amounts provided in the  Companys consolidated
financial statements are adequate. If actual  payments of claims exceed projected
estimates of claims, the Companys  insurance accruals could be materially adversely
affected.


Effective
October 1, 2002, in response to difficulty in obtaining primary insurance from
commercial companies at reasonable rates, the Company formed a wholly owned  insurance
subsidiary in order to self-insure a greater portion of its primary  professional and
general liability risk. The captive subsidiary reinsures risk  up to $1 million per claim
and $3 million in the aggregate per hospital, and  further acts as an excess insurer for
all hospitals in combination with three  commercial insurance companies.


The
Company believes that its insurance is adequate in amount and coverage. There  can be no
assurance that in the future such insurance will be available at a  reasonable price or
that the Company will not have to increase its levels of  self-insurance.


Available Information


The
Company maintains an internet website located at www.hma-corp.com. The  Company
makes available through such website its Annual Reports on Form 10-K,  Quarterly Reports
on Form 10-Q, Current Reports on Form 8-K, and amendments to  those reports filed
pursuant to Section 13(a) or 15(d) of the Securities  Exchange Act as soon as reasonably
practicable after electronically filing such  material with the Securities and Exchange
Commission.


12



Item 2. Properties


The
Companys acute care hospitals offer a broad range of medical and surgical
services, including inpatient care, intensive and cardiac care, diagnostic  services and
emergency services that are physician-staffed 24 hours a day, seven  days a week. The
Company also provides outpatient services such as one-day  surgery, laboratory, x-ray,
respiratory therapy, cardiology and physical  therapy. At certain of the Companys
hospitals, specialty services such as  oncology, radiation therapy, CT scanning, MRI
imaging, lithotripsy and  full-service obstetrics are provided.


The
Companys psychiatric care operations consist of two psychiatric-only  hospitals:
one 64-bed and one 70-bed intensive residential treatment hospital.


13
The
following table presents certain information with respect to the Companys
facilities as of September 30, 2002. For more information regarding the  utilization of
the Companys facilities, see Item 1 Business  Selected Operating
Statistics.
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|Hospital                                 |  | Location       |  | Type        |  | LicensedBeds |  | Owned,Leased orManaged |        | AcquisitionCommencementDate
|---------------------------------------- |  | -------------- |  | ----------- |  | ------------ |  | ---------------------- | ------ | ---------------------------
|Paul B. Hall Regional Medical Center     |  | Paintsville,   |  | Acute Care  |  | 72           |  |                        | Owned  |                            
|                                         |  | Kentucky       | 
|                                        
|Williamson Memorial Hospital             |  | Williamson,    |  | Acute Care  |  | 76           |  |                        | Owned  |                            
|                                         |  | West Virginia  | 
|                                        
|Highlands Regional Medical Center        |  | Sebring,       |  | Acute Care  |  | 126          |  |                        | Leased |                            
|                                         |  | Florida        | 
|                                        
|Lake Norman Regional Medical Center      |  | Mooresville,   |  | Acute Care  |  | 105          |  |                        | Owned  |                            
|                                         |  | North Carolina | 
|                                        
|Fishermens Hospital                     |  | Marathon,      |  | Acute Care  |  | 58           |  |                        | Leased |                            
|                                         |  | Florida        | 
|                                        
|Franklin Regional Medical Center         |  | Louisburg,     |  | Acute Care  |  | 70           |  |                        | Owned  |                            
|                                         |  | North Carolina | 
|                                        
|Biloxi Regional Medical Center           |  | Biloxi,        |  | Acute Care  |  | 153          |  |                        | Leased |                            
|                                         |  | Mississippi    | 
|                                        
|Medical Center of Southeastern Oklahoma  |  | Durant,        |  | Acute Care  |  | 103          |  |                        | Owned  |                            
|                                         |  | Oklahoma       | 
|                                        
|Crawford Memorial Hospital               |  | Van Buren,     |  | Acute Care  |  | 103          |  |                        | Leased |                            
|                                         |  | Arkansas       | 
|                                        
|Sandhills Regional Medical Center        |  | Hamlet,        |  | Acute Care  |  | 54           |  |                        | Owned  |                            
|                                         |  | North Carolina |  | Psychiatric |  | 10           | 
|                                        
|Upstate Carolina Medical Center          |  | Gaffney,       |  | Acute Care  |  | 125          |  |                        | Owned  |                            
|                                         |  | South Carolina | 
|                                        
|University Behavioral Center             |  | Orlando,       |  | Psychiatric |  | 70           |  |                        | Owned  |                            
|                                         |  | Florida        | 
|                                        
|SandyPines                               |  | Tequesta,      |  | Psychiatric |  | 64           |  |                        | Owned  |                            
|                                         |  | Florida        | 
|                                        
|Riverview Regional Medical Center        |  | Gadsden,       |  | Acute Care  |  | 281          |  |                        | Owned  |                            
|                                         |  | Alabama        | 
|                                        
|Heart of Florida Regional Medical Center |  | Greater Haines |  | Acute Care  |  | 75           |  |                        | Owned  |                            
|                                         |  | City, Florida  | 
|                                        
|Natchez Community Hospital               |  | Natchez,       |  | Acute Care  |  | 101          |  |                        | Owned  |                            
|                                         |  | Mississippi    | 

|14
|--

|Hospital                               |  | Location       |  | Type            |  | LicensedBeds |  | Owned,Leased orManaged |         | AcquisitionCommencementDate
|-------------------------------------- |  | -------------- |  | --------------- |  | ------------ |  | ---------------------- | ------- | ---------------------------
|Sebastian River Medical Center         |  | Sebastian,     |  | Acute Care      |  | 129          |  |                        | Owned   |                            
|                                       |  | Florida        | 
|                                      
|Charlotte Regional Medical Center      |  | Punta Gorda,   |  | Acute Care      |  | 156          |  |                        | Owned   |                            
|                                       |  | Florida        |  | Psychiatric     |  | 52           | 
|                                      
|Carolina Pines Regional Medical Center |  | Hartsville,    |  | Acute Care      |  | 116          |  |                        | Owned   |                            
|                                       |  | South Carolina | 
|                                      
|East Georgia Regional Medical Center   |  | Statesboro,    |  | Acute Care      |  | 150          |  |                        | Owned   |                            
|                                       |  | Georgia        | 
|                                      
|Northwest Mississippi Regional         |  | Clarksdale,    |  | Acute Care      |  | 175          |  |                        | Leased  |                            
|Medical Center                         |  | Mississippi    |  | Skilled Nursing |  | 20           | 
|                                      
|Midwest Regional Medical Center        |  | Midwest City,  |  | Acute Care      |  | 197          |  |                        | Leased  |                            
|                                       |  | Oklahoma       |  | Psychiatric     |  | 30           | 
|                                       |  |                |  | Skilled Nursing |  | 20           | 
|                                      
|Stringfellow Memorial Hospital         |  | Anniston,      |  | Acute Care      |  | 125          |  |                        | Managed |                            
|                                       |  | Alabama        | 
|                                      
|Rankin Medical Center                  |  | Brandon,       |  | Acute Care      |  | 120          |  |                        | Leased  |                            
|                                       |  | Mississippi    |  | Gero-Psych      |  | 14           | 
|                                      
|Southwest Regional Medical Center      |  | Little Rock,   |  | Acute Care      |  | 108          |  |                        | Owned   |                            
|                                       |  | Arkansas       |  | Gero-Psych      |  | 17           | 
|                                      
|Riley Hospital                         |  | Meridian,      |  | Acute Care      |  | 168          |  |                        | Owned   |                            
|                                       |  | Mississippi    |  | Skilled Nursing |  | 12           | 
|                                      
|River Oaks Hospital                    |  | Flowood,       |  | Acute Care      |  | 110          |  |                        | Owned   |                            
|                                       |  | Mississippi    | 
|                                      
|Womans Hospital at River Oaks         |  | Flowood,       |  | Acute Care      |  | 94           |  |                        | Owned   |                            
|                                       |  | Mississippi    |  | Skilled Nursing |  | 17           | 
|                                      
|Brooksville Regional Hospital          |  | Brooksville,   |  | Acute Care      |  | 91           |  |                        | Leased  |                            
|                                       |  | Florida        | 
|                                      
|Spring Hill Regional Hospital          |  | Spring Hill,   |  | Acute Care      |  | 75           |  |                        | Leased  |                            
|                                       |  | Florida        | 
|                                      
|Central Mississippi Medical Center     |  | Jackson,       |  | Acute Care      |  | 444          |  |                        | Leased  |                            
|                                       |  | Mississippi    |  | Psychiatric     |  | 29           | 
|                                      
|Lower Keys Medical Center              |  | Key West,      |  | Acute Care      |  | 112          |  |                        | Leased  |                            
|                                       |  | Florida        |  | Skilled Nursing |  | 15           | 
|                                       |  |                |  | Psychiatric     |  | 40           | 

|15
|--

|Hospital                                                           |  | Location        |  | Type       |  | LicensedBeds |  | Owned,Leased orManaged |        | AcquisitionCommencementDate
|------------------------------------------------------------------ |  | --------------- |  | ---------- |  | ------------ |  | ---------------------- | ------ | ---------------------------
|Community Hospital of Lancaster                                    |  | Lancaster,      |  | Acute Care |  | 154          |  |                        | Owned  |                            
|                                                                   |  | Pennsylvania    | 
|                                                                  
|Lancaster Regional Medical Center                                  |  | Lancaster,      |  | Acute Care |  | 268          |  |                        | Owned  |                            
|                                                                   |  | Pennsylvania    | 
|                                                                  
|Pasco Regional Medical Center                                      |  | Dade City,      |  | Acute Care |  | 120          |  |                        | Owned  |                            
|                                                                   |  | Florida         | 
|                                                                  
|Davis Regional Medical Center (1)                                  |  | Statesville,    |  | Acute Care |  | 149          |  |                        | Owned  |                            
|                                                                   |  | North Carolina  | 
|                                                                  
|Carlisle Regional Medical Center (2)                               |  | Carlisle,       |  | Acute Care |  | 200          |  |                        | Leased |                            
|                                                                   |  | Pennsylvania    | 
|                                                                  
|Lee Regional Medical Center (3)                                    |  | Pennington Gap, |  | Acute Care |  | 80           |  |                        | Owned  |                            
|                                                                   |  | Virginia        | 
|                                                                  
|Lehigh Regional Medical Center (4)                                 |  | Lehigh Acres,   |  | Acute Care |  | 88           |  |                        | Owned  |                            
|                                                                   |  | Florida         | 
|                                                                  
|Jamestown Regional Medical Center (5)                              |  | Jamestown,      |  | Acute Care |  | 85           |  |                        | Owned  |                            
|                                                                   |  | Tennessee       | 
|                                                                  
|Medical Center of Mesquite (5) (7)                                 |  | Mesquite,       |  | Acute Care |  | 176          |  |                        | Owned  |                            
|                                                                   |  | Texas           | 
|                                                                  
|Santa Rosa Medical Center (5)                                      |  | Milton,         |  | Acute Care |  | 129          |  |                        | Owned  |                            
|                                                                   |  | Florida         | 
|                                                                  
|Mesquite Community Hospital (6) (7)                                |  | Mesquite,Texas  |  | Acute Care |  | 172          |  |                        | Owned  |                            
|                                                                  
|Total licensed beds owned, leased or managed at September 30, 2002 |  |                 |  | 5,903      |  |              |  |                        |       

|(1) |  | Effective October 1, 2000, the Company acquired Davis Regional Medical Center
pursuant to an Asset Purchase Agreement. The Agreement included the purchase of
substantially all property, plant and equipment and working capital of the
hospital. The total consideration approximated $55.0 million in cash.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Effective June 18, 2001 the Company acquired Carlisle Hospital from Carlisle
Hospital and Health Services, Inc. pursuant to a Definitive Agreement. The
Agreement included the lease of certain real property, the purchase of certain
real property and substantially all plant and equipment and working capital of
the hospital. The total consideration involved approximately $41.0 million in
cash. The Company is obligated to the construction of a replacement hospital,
subject to obtaining all required governmental and regulatory approvals.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | Effective September 1, 2001, the Company acquired Lee County Community Hospital
pursuant to an Asset Purchase Agreement. The Agreement included the purchase of
substantially all property, plant and equipment and working capital of the
hospital. The total consideration approximated $18.0 million in cash and the
assumption of $3.6 million in liabilities.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|16
|--

|(4) |  | Effective December 1, 2001, the Company acquired the assets of East Pointe
Hospital. The assets purchased included substantially all of the property, plant
and equipment of the hospital. The total consideration approximated $16.5
million in cash.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) |  | On December 31, 2001 (with an effective date of January 1, 2002), the Company
acquired four acute care hospitals from Clarent Hospital Corporation pursuant to
a Stock Purchase Agreement for approximately $170.0 million in cash. On the same
day the Company sold one of these hospitals to a third party for $40.0 million
in cash.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) |  | Effective May 1, 2002, the Company acquired Mesquite Community Hospital pursuant
to an Asset Purchase Agreement from Manor Care, Inc. The Company purchased 100
percent of the assets of the hospital for $80.0 million using cash on hand and
subsequently sold back to Manor Care, Inc. a 20 percent equity interest in such
hospital for $16.0 million in cash. As part of the transaction, the Company also
sold to Manor Care, Inc. a 20 percent equity interest in the Medical Center of
Mesquite (acquired by the Company on December 31, 2001) for $16.0 million in
cash.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) |  | The Company owns an 80 percent interest in this hospital pursuant to the transaction
described in (6) above.
|--- |  | ------------------------------------------------------------------------------------------------------------

|As
indicated in the table above, the Company currently leases the facilities of  Highlands
Regional Medical Center, Fishermens Hospital, Biloxi Regional  Medical Center,
Crawford Memorial Hospital, Northwest Mississippi Regional  Medical Center, Midwest
Regional Medical Center, Rankin Medical Center,  Brooksville Regional Hospital/Spring
Hill Regional Hospital, Central Mississippi  Medical Center, Lower Keys Medical Center
and Carlisle Regional Medical Center  pursuant to long-term leases expiring in 2025,
2011, 2040, 2027, 2025, 2026,  2026, 2027, 2028, 2040, 2029 and 2006, respectively, which
provide the Company  with the exclusive right to use and control the hospital operations.


The
Companys corporate headquarters are located in an office building complex  in
Naples, Florida, which was purchased by the Company during Fiscal 2002. The  Company uses
approximately 20 percent of the complex and leases the remaining  space.


The
Company believes that all of its facilities are suitable and adequate for its  needs.
Certain of the Companys hospitals are subject to mortgages securing  various
borrowings. See Note 3 of the Notes to the Consolidated Financial  Statements in Item 8
hereof.




Item 3. Legal
Proceedings


The
Company is subject to claims and legal actions by patients and others in the  ordinary
course of business. The Company believes that all such claims and  actions are either
adequately covered by insurance or are unlikely, individually  or in the aggregate, to
have a material adverse effect on the Companys  financial condition. (See also Item
7  Critical Accounting Policies,  Professional Liability Insurance Claims)




Item 4. Submission
of Matters to a Vote of Security Holders


No
matters were submitted to a vote of security holders during the fourth quarter of
Fiscal 2002.


17
Executive Officers
of the Registrant


The
following is certain information regarding the executive officers of the  Company.


William
J. Schoen, age 67, has served as Chairman of the Board since April 1986. He was  first
elected a director in February 1983, became President and Chief Operating  Officer in
December 1983, Co-Chief Executive Officer in December 1985 and Chief  Executive Officer
in April 1986. He served as President until April 1997 and  Chief Executive Officer until
January 2001. From 1982 to 1987 Mr. Schoen was  Chairman of Commerce National Bank,
Naples, Florida, and from 1973 to 1981 he  was President, Chief Operating Officer and
Chief Executive Officer of The  F&M Schaefer Corporation, a consumer products
company. From 1971 to 1973,  Mr. Schoen was President of the Pierce Glass subsidiary of
Indian Head, Inc., a  diversified company. Mr. Schoen also serves on the Board of
Directors of Horace  Mann Insurance Companies.


Joseph
V. Vumbacco, age 57, became Chief Executive Officer of the Company in January  2001.
Prior to that and since April 1997, he has been the Companys  President, as well as
serving as Chief Administrative Officer and Chief  Operating Officer. He joined the
Company as an Executive Vice President in  January 1996 after 14 years with The Turner
Corporation (construction and real  estate), most recently as an Executive Vice
President. Prior to joining Turner,  he served as the Senior Vice President and General
Counsel for The F&M  Schaefer Corporation, and previously was an attorney with the
Manhattan law firm  of Mudge, Rose, Guthrie & Alexander. Mr. Vumbacco was elected a
director by  the Board of Directors in May 2001.


Timothy
R. Parry, age 47, is Senior Vice President and General Counsel of the Company.  He joined
the Company in February 1996 as a Divisional Vice-President and  Assistant General
Counsel after 12 years in the law firm of Harter, Secrest  & Emery, the last seven
years as partner. Prior to joining Harter, Secrest  & Emery he was an Assistant Ohio
Attorney General for two years and before  that a law clerk for the United States
District Court for the Southern District  of Ohio.


Robert
E. Farnham, age 47, is Senior Vice President and Chief Financial Officer of the  Company.
He joined the Company in 1985 and served as the Companys  Controller for twelve
years before his promotion to Chief Financial Officer in  March 2001. Prior to joining
the Company, Mr. Farnham, who is a C.P.A., was with  Coopers & Lybrand, LLP.


18



PART II


Item 5. Market for
the Registrants Common Equity and Related Stockholder Matters


The
Company completed an initial public offering of its Class A Common Stock on  February 5,
1991. The Companys Class A Common Stock is listed on the New  York Stock Exchange
under the symbol HMA. At December 16, 2002 there  were approximately 1,500
record holders of the Companys Class A Common  Stock. The following table sets
forth, for the periods indicated, the high and  low sale prices per share of the Companys
Class A Common Stock as listed  on the New York Stock Exchange.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                     | High |  | Low |      
|------------------------------------ | ---- |  | --- | -----
|Fiscal Year Ended September 30, 2001 |      |  |     |      
|First Quarter                        |      |  | $   | 22.75
|Second Quarter                       |      |  |     | 20.56
|Third Quarter                        |      |  |     | 21.14
|Fourth Quarter                       |      |  | $   | 22.22
|                                    
|Fiscal Year Ended September 30, 2002 |      | 
|First Quarter                        |      |  | $   | 21.00
|Second Quarter                       |      |  |     | 21.00
|Third Quarter                        |      |  |     | 22.99
|Fourth Quarter                       |      |  | $   | 20.75

|On
October 29, 2002, the Board of Directors initiated a quarterly cash dividend  policy and
declared its first cash dividend of $0.02 per share of the  Companys common stock
payable on December 2, 2002 to stockholders of  record at the close of business on
November 8, 2002. Prior to the initiation of  this quarterly cash dividend policy, the
Company had not paid any cash dividends  since inception.


In
September 2001, the Board of Directors approved a stock repurchase program to  repurchase
up to 5,000,000 shares of the Companys common stock. On January  29, 2002, the
Company announced that it had completed the stock repurchase  program by purchasing a
total of 5,000,000 shares of its common stock at an  average purchase price of $19.29 per
share.


In
February 2002, the Board of Directors approved a stock repurchase program to  repurchase
up to 5,000,000 shares of the Companys common stock. On August  8, 2002, the
Company announced that it had completed the stock repurchase  program by purchasing a
total of 5,000,000 shares of its common stock at an average purchase price  of $18.54 per share.


At
September 30, 2002 and 2001, there were approximately 14.5 million shares of  common
stock reserved for future issuance upon the conversion of the  Companys Convertible
Senior Subordinated Debentures due 2020.At  September 30, 2002, there were
approximately 10.6 million shares of common stock  reserved for future issuance upon the
conversion of the Companys  Zero-Coupon Convertible Senior Subordinated Notes due
2022(see Note No.  3(b) of the Notes to Consolidated Financial Statements in Item
8 hereof).


19
Equity
Compensation Plan Information
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Plan category       | Number of securitiesto be issuedupon exercise ofoutstanding options,warrants and rights | Weighted-averageexercise price ofoutstanding options,warrants and rights | Number of securitiesremaining available forfuture issuance underequity compensation plans(excluding securitiesreflected in column (a))
|------------------- | --------------------------------------------------------------------------------------- | ------------------------------------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------
|
|Equity compensation |                                                                                         |                                                                          |                                                                                                                                       
|plans approved by   |                                                                                         |                                                                         
|security holders    |                                                                                         |                                                                          |                                                                                                                                       
|                   
|Equity compensation |                                                                                         |                                                                         
|plans not approved  |                                                                                         |                                                                         
|by security holders |                                                                                         |                                                                          |                                                                                                                                       
|                    |                                                                                         |                                                                          |                                                                                                                                       
|                   
|Total               |                                                                                         |                                                                          |                                                                                                                                       

|Item 6. Selected
Financial Data


The
following table summarizes certain selected financial data of the Company and  should be
read in conjunction with the related Consolidated Financial Statements and  accompanying
Notes to Consolidated Financial Statements in Item 8 hereof.


HEALTH MANAGEMENT ASSOCIATES, INC.
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
(Dollars in thousands, except per share data)
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                      | Year ended September 30, | 
|----------------------------------------------------- | ------------------------ | 
|
|Net patient service revenue                           |                          | 
|Costs and expenses(1)                                 |                          | 
|Income before income taxes(2)                         |                          | 
|Net income(2)                                         |                          | 
|Net income per share-diluted(2)                       |                          | 
|Weighted average number of shares outstanding-diluted |                          | 
|Cash dividends per common share                       |                          | 
|                                                     
|At Year End                                           |                          | 
|Working capital                                       |                          | 
|Total assets                                          |                          | 
|Short-term debt                                       |                          | 
|Long-term debt                                        |                          | 
|Stockholders equity                                  |                          | 
|Book value per common share                           |                          | 

|(1)
For  the year ended September 30, 2002, amount includes minority interests in  earnings
of consolidated entities.


(2)
As discussed in Note 1 to the consolidated financial statements, in accordance  with SFAS
No. 142, the Company discontinued the amortization of goodwill  effective October 1,
2001. The selected financial data summarized for the years  ended September 30, 1998
through September 30, 2001 has not been adjusted for  the effect of this accounting
change.


20



Item 7. Managements
Discussion and Analysis of Financial Condition and Results of Operations


Critical Accounting
Policies and Estimates


The
preparation of financial statements in conformity with accounting principles  generally
accepted in the United States requires management of the Company to  make estimates and
assumptions that affect the amounts reported in the  Consolidated Financial Statements
and the accompanying Notes.


The
Company considers its critical accounting policies to be those that require the  more
significant judgments and estimates in the preparation of the  Companys financial
statements, including the following:


Net
Patient Service Revenues


The
Company derives a significant portion of its revenues from the Medicare and  Medicaid
programs and from managed care health plans. Payments for services  rendered to patients
covered by these programs are generally less than billed  charges. For Medicare and
Medicaid revenues, provisions for contractual  adjustments are made to reduce the charges
to these patients to estimated  receipts based upon the programs principles of
payment/reimbursement  (either prospectively determined or retrospectively determined
costs). Final  settlements under these government programs are subject to administrative
review  and audit, and provision is currently made for adjustments which may result.
Provisions for contractual allowances under managed care health plans are based
primarily on the payment terms of contractual arrangements such as predetermined  rates
per diagnosis, per diem rates or discounted fee for service rates.  Historical collection
rates, law changes and changes in contract terms are  closely monitored to be certain
that provisions are made using the most accurate  information available. However, due to
the complexities involved in these  estimations, actual payments could be different from
the amounts estimated and  recorded in the contractual provisions included in these
financial statements.


Provision
for Doubtful Accounts


The
collection of receivables from third party payers and patients is the  Companys
primary source of cash and is critical to its operating  performance. The primary
collection risks relate to uninsured patient accounts  and patient accounts for which the
primary insurance payor has paid, but patient  responsibility amounts (generally
deductibles and co-payments) remain  outstanding. Provisions for doubtful accounts are
estimated based primarily upon  the age of patients account, the patients economic
ability to pay  and the effectiveness of collection efforts. Accounts receivable balances
are  routinely reviewed in conjunction with historical collection rates and other
economic conditions which might ultimately affect the collectibility of patient  accounts
when considering the adequacy of the amounts recorded as reserves for  doubtful accounts.
Significant changes in payer mix, business office operations,  economic conditions or
trends in Federal and state governmental health care  coverage could affect the Companys
collection of accounts receivable, cash  flows and results of operations.


Impairment
of Long-Lived Assets


The
Company periodically reviews the carrying values of long-lived assets, including
goodwill, for impairment of value. In performing the review of asset impairment,
management calculates future cash flows expected to result from these assets and
determines whether the asset is impaired. Significant judgments are required by
management in determining these future cash flows as well as determining whether  the
asset is impaired.


21
Income
Taxes


Management
must make estimates in recording the Companys provision for income taxes,
including determination of deferred tax assets and deferred tax liabilities and  any
valuation allowances that might be required against the deferred tax assets.  Management
believes that future income will enable the Company to realize these  benefits in the
future and, therefore, has not recorded any valuation allowance  against the deferred tax
asset.


The
Company operates in multiple states with varying tax laws. The Company is  subject to
both Federal and state audits of tax returns. The Companys  Federal income tax
returns have been examined by the Internal Revenue Service  through Fiscal Year 1999,
which resulted in no material adjustments. Management  must make estimates to determine
that tax reserves are adequate to cover any  potential audit adjustments.


Professional
Liability Insurance Claims


Through
September 30, 2002, the Company insured for its professional liability risks  under a
claims-made basis policy, whereby each claim is covered up  to $1 million per
occurrence, subject to a $100,000 deductible (with an annual  deductible cap of $6.1
million). Liabilities in excess of these amounts are  covered through a combination of
limits provided by commercial insurance  companies and a self-insurance program.


Accruals
for self-insured professional liability risks are determined using asserted and
unasserted claims identified by the Companys incident reporting system and
actuarially determined estimates based on Company and industry historical loss  payment
patterns and have been discounted to their present value using a  discount rate of 6.0%.
Although the ultimate settlement of these accruals may  vary from these estimates,
management believes that the amounts provided in the  Companys consolidated
financial statements are adequate. If actual  payments of claims exceed projected
estimates of claims, the Companys  insurance accruals could be materially adversely
affected.


Effective
October 1, 2002, in response to difficulty in obtaining primary insurance from
commercial companies at reasonable rates, the Company formed a wholly owned  insurance
subsidiary in order to self-insure a greater portion of its primary  professional and
general liability risk. The captive subsidiary reinsures risk  up to $1 million per claim
and $3 million in the aggregate per hospital, and  further acts as an excess insurer for
all hospitals in combination with three  commercial insurance companies.


Results of Operations


Fiscal
Year Ended September 30, 2002 Compared to Fiscal Year Ended September 30, 2001


Net
patient service revenue for Fiscal 2002 was $2,262.6 million, as compared to  $1,879.8
million for the fiscal year ended September 30, 2001 (Fiscal  2001). This
represented an increase in net patient service revenue of  $382.8 million, or 20.4%.
Hospitals in operation for the entire period of Fiscal  2002 and Fiscal 2001 (same
hospitals) provided $139.7 million of the  increase in net patient service revenue,
which resulted primarily from inpatient  and outpatient volume increases and rate
increases. The source of the remaining  net increase of $243.1 million included the
following: (i) $240.4 million of net  patient service revenue from Fiscal 2001 and Fiscal
2002 acquisitions including  the June 2001 acquisition of a 200-bed hospital, the
September 2001 acquisition  of an 80-bed hospital, December 2001 acquisition of an 88-bed
hospital, the  January 2002 acquisitions of an 85-bed hospital, a 129-bed hospital and a
126-bed hospital, and the May 2002 acquisition of a 172-bed hospital, and (ii)  $2.7
million increase in net patient service revenue from psychiatric hospitals  and other
corporate revenue.


The
Companys hospitals generated 1,000,480 patient days of service in Fiscal  2002,
which produced an overall occupancy rate of 47.9%. During Fiscal 2001 the  Companys
hospitals generated 880,624 patient days of service for an  overall occupancy rate of
47.2%. Admissions in same hospitals for Fiscal 2002  increased 2.2%, from 184,533 to
188,576.


22
The
Companys salaries and benefits, supplies and other expenses and provision  for
doubtful accounts for Fiscal 2002 were $1,698.0 million, or 75.0% of net  patient service
revenue, as compared to $1,390.4 million, or 74.0% of net  patient service revenue for
Fiscal 2001. Of the total $307.6 million increase  approximately $94.9 million related to
same hospitals, which was largely  attributable to increased inpatient and outpatient
volumes. Another $199.5  million of increased operating expenses related to the
acquisitions mentioned  previously. The remaining increase of $13.2 million represented
an increase in  corporate and miscellaneous other operating expenses. During Fiscal 2002,
the  Companys rent expense increased by $6.2 million, which resulted both from
acquisitions and the expansion of hospital services.


During
Fiscal 2002, the Companys depreciation and amortization costs increased by  $4.7
million. The increase in depreciation and amortization resulted primarily  from the
acquisitions mentioned previously, offset by a decrease in amortization  expense related
to the Companys adoption of SFAS No. 142 on October 1,  2001. Interest expense
decreased $4.4 million due to paydowns on higher interest  rate debt and lower interest
rates on the remaining overall outstanding debt.  The non-cash charge for retirement
benefits and write down of assets held for  sale during Fiscal 2001 represents: (i) the
present value of the future costs of  retirement benefits granted to the Companys
chairman pursuant to an  employment agreement which became effective January 2, 2001, and
(ii) the write  down of two hospital assets held for sale in conjunction with their
respective  replacement.


The
Companys income before income taxes was $405.7 million for Fiscal 2002  and,
excluding the non-recurring charge for retirement benefits and write down  of assets held
for sale of $17.0 million, the Companys income before taxes  was $338.0 million for
Fiscal 2001, an increase of $67.7 million or 20.0%.  Including the non-cash charge,
income before income taxes was $321.0 million for  Fiscal 2001. As noted above, the
increased profitability resulted from an  increase in same hospital inpatient and
outpatient business, rate increases, and  from the acquisitions previously mentioned. The
Companys provision for  income taxes was $159.2 million for Fiscal 2002 as compared
to $126.0 million  for Fiscal 2001. These provisions reflect an effective income tax rate
of  approximately 39.3% for Fiscal 2002 and Fiscal 2001. As a result of the  foregoing,
the Companys net income was $246.4 million for Fiscal 2002 and  $205.3 million for
Fiscal 2001, excluding the non-cash charge, and $195.0  million including such charge.


Fiscal
Year Ended September 30, 2001 Compared to Fiscal Year Ended September 30, 2000


Net
patient service revenue for Fiscal 2001 was $1,879.8 million, as compared to  $1,577.8
million for the fiscal year ended September 30, 2000 (Fiscal  2000). This
represented an increase in net patient service revenue of  $302.0 million, or 19.1%.
Hospitals in operation for the entire period of Fiscal  2001 and Fiscal 2000 (same
hospitals) provided $134.0 million of the  increase in net patient service revenue,
which resulted primarily from inpatient  and outpatient volume increases. The source of
the remaining net increase of  $168.0 million included the following: (i) $169.5 million
of net patient service  revenue from Fiscal 2000 and Fiscal 2001 acquisitions including
the July 2000  acquisition of a 268-bed hospital, the October 2000 acquisition of a
149-bed  hospital system, the June 2001 acquisition of a 200-bed hospital system and the
September 2001 acquisition of a 80-bed hospital, and (ii) $1.5 million decrease  in net
patient service revenue from psychiatric-only hospitals, due primarily to  the closure of
one facility as of December 2000.


      The
        Companys hospitals generated 880,624 patient days of service in
        Fiscal 2001, which produced an overall occupancy rate of 47.2%. During
        Fiscal 2000, the Companys hospitals generated 791,617 patient days
        of service for an overall occupancy rate of 46.2%. Admissions in same
        hospitals for Fiscal 2001 increased 4.8%, from 158,830 to 166,521.


The
Companys salaries and benefits, supplies and other expenses and provision  for
doubtful accounts for Fiscal 2001 were $1,390.4 million, or 74.0% of net  patient service
revenue, as compared to $1,163.8 million, or 73.8% of net  patient service revenue for
Fiscal 2000. Of the total $226.6 million increase  approximately $92.5 million related to
same hospitals, which was largely  attributable to increased inpatient and outpatient
volumes. Another $132.3  million of increased operating expenses related to the
acquisitions mentioned  previously. The remaining increase of $1.8 million represented an
increase in  Corporate and miscellaneous other operating expenses offset by a reduction
in  expenses resulting from the closure of one psychiatric facility as previously  noted.
The Companys Fiscal 2001 rent expense increased by $2.7 million,  which resulted
both from acquisitions and the expansion of hospital services.


23
The
        Companys depreciation and amortization costs increased by $16.1
        million. Approximately $8.0 million of the increase resulted from the
        acquisitions mentioned above with the remaining increase attributable
        to two replacement hospitals opened in Fiscal 2000, as well as ongoing
        building improvements and equipment purchases. Interest expense decreased
        $5.4 million due to paydowns and lower interest rates on the Companys
        Revolving Credit Agreement. The non-cash charge of $17.0 million was for
        retirement benefits and write down of assets held for sale during Fiscal
        2001. This charge related to (1) the present value of the future costs
        of retirement benefits granted to the Companys chairman pursuant
        to an employment agreement which became effective January 2, 2001, and
        (2) the write down of two hospital assets held for sale subsequent to
        their respective replacement.


      The
        Companys income before income taxes was $321.0 million for Fiscal
        2001 as compared to $276.0 million for Fiscal 2000, an increase of $45.0
        million or 16.3%. Excluding the non-recurring charge for retirement benefits
        and write down of assets held for sale of $17.0 million, income before
        taxes was $338.0 million for Fiscal 2001 as compared to $276.0 million
        for Fiscal 2000, an increase of $62.0 million or 22.5%. As noted above,
        the increased profitability resulted from an increase in same hospital
        inpatient and outpatient business and from the acquisitions previously
        mentioned. The Companys provision for income taxes was $126.0 million
        for Fiscal 2001 as compared to $108.3 million for Fiscal 2000. These provisions
        reflect an effective income tax rate of 39.25% for Fiscal 2001 and Fiscal
        2000. As a result of the foregoing, the Companys net income was
        $195.0 million for Fiscal 2001 including the aforementioned charge, and
        $205.3 million excluding the charge, as compared to $167.7 million for
        Fiscal 2000.


Liquidity and
Capital Resources


Fiscal
2002 Cash Flows Compared to Fiscal 2001 Cash Flows


Working
capital increased to $422.0 million at September 30, 2002 from $377.1 million at
September 30, 2001, resulting primarily from increased business volumes and good
management of the Companys working capital. The Companys cash flows  from
operating activities increased by $57.9 million from $296.2 million in  Fiscal 2001 to
$354.1 million in Fiscal 2002. Improved profitability contributed  to the majority of
this net increase. The use of the Companys cash in  investing activities increased
by $172.2 million from $171.0 million in Fiscal  2001 to $343.2 million in Fiscal 2002,
resulting primarily from the acquisitions  of five hospitals in Fiscal 2002 compared to
two hospital acquisitions in Fiscal  2001. The Companys cash flows from financing
activities increased $113.9  million from $71.4 million used in Fiscal 2001 to $42.5
million provided in  Fiscal 2002. The increase is primarily the result of net payments on
debt of  $93.5 million in Fiscal 2001 versus net proceeds from borrowings of debt of
$215.8 million which was offset by $186.4 million used for stock repurchases in  Fiscal
2002.


Fiscal
2001 Cash Flows Compared to Fiscal 2000 Cash Flows


Working
capital increased to $377.1 million at September 30, 2001 from $317.2 million at
September 30, 2000, resulting primarily from increased business volumes and good
management of the Companys working capital. The Companys cash flows  from
operating activities increased by $116.7 million from $179.5 million in  Fiscal 2000 to
$296.2 million in Fiscal 2001. Improved profitability contributed  to the majority of
this net increase. The use of the Companys cash in  investing activities decreased
from $250.9 million in Fiscal 2000 to $171.0  million in Fiscal 2001, resulting from
smaller outlays of cash for acquisitions  and replacement hospitals in Fiscal 2001
compared to Fiscal 2000. The  Companys cash flows from financing activities
decreased $146.3 million  from $74.9 million provided in Fiscal 2000 to $71.4 million
used in Fiscal 2001.  The decrease is primarily the result of net proceeds from
borrowings of debt of  $104.3 million in Fiscal 2000 versus net payments on debt of $93.5
million in  Fiscal 2001.


24
Capital
Resources


The
Company currently has a 5-year $450 million Credit Agreement (the Credit  Agreement)
due November 30, 2004. The Credit Agreement is a term loan  agreement which permits the
Company to borrow under an unsecured revolving  credit loan at any time through November
30, 2004, at which time the agreement  terminates and all outstanding amounts become due
and payable. The Company may  choose a Base Rate Loan (prime interest rate) or a
Eurodollar Rate Loan (LIBOR  interest rate). The interest rate for a Eurodollar Rate Loan
is currently LIBOR  plus 1.00 percent, and will increase or decrease in relation to a
change in the  Companys credit rating. Monthly or quarterly interest payments are
required depending on the type of loan chosen by the Company. The interest rate  at
September 30, 2002 and 2001 was 2.8% and 3.7%, respectively. As of September  30, 2002,
there were no amounts outstanding under the Credit Agreement.


The
Company also has a $15 million unsecured revolving credit commitment with a  bank. The
$15 million credit is a working capital commitment which is tied to  the Companys
cash management system, and renews annually on November 1.  Currently, interest on any
outstanding balance is payable monthly at a  fluctuating rate not to exceed the banks
prime rate less 1/4%. The  interest rate at September 30, 2002 and 2001 was 4.5% and
6.0%, respectively. As  of September 30, 2002 and 2001, there were no amounts outstanding
under this  credit agreement.


In
addition, the Company is obligated to pay certain commitment fees based upon  amounts
available for borrowing during the terms of the credit agreements  described above.


The
credit agreements contain covenants which, without prior consent of the banks,  limit
certain activities, including those relating to mergers, consolidations  and the Companys
ability to secure additional indebtedness, make  guarantees, grant security interests and
declare dividends. The Company must  also maintain minimum levels of consolidated
tangible net worth, debt service  coverage and interest coverage. At September 30, 2002,
the Company was in  compliance with these covenants.


On
August 16, 2000, the Company sold $488.8 million face value of Zero-Coupon  Subordinated
Convertible Debentures due 2020 (the Debentures) for  gross proceeds of
$287.7 million. The Debentures mature on August 16, 2020  unless converted or redeemed
earlier. The Debentures are convertible into the  Companys common stock at a
conversion rate of 29.5623 shares of common  stock for each $1,000 principal amount of
the Debentures (equivalent to a  conversion price of $19.9125 per share). Interest on the
Debentures is payable  semiannually in arrears on August 16 and February 16 of each year
at a rate of  .25% per year on the principal amount at maturity. The rate of cash
interest and  accrual of original issue discount represent a yield to maturity of 3% per
year  calculated from August 16, 2000.


Holders
may require the Company to purchase all or a portion of their Debentures on  August 16,
2003, August 16, 2008 and August 16, 2013 for a purchase price per  Debenture of $635.88,
$724.58 and $827.53, respectively, plus accrued and unpaid  interest to each purchase
date. The Company may choose to pay the purchase price  in cash or common stock or a
combination of cash and common stock. In addition,  upon a change in control of the
Company occurring on or before August 16, 2003,  each holder may require the Company to
repurchase all or a portion of such  holders Debentures. The Company may redeem all
or a portion of the  Debentures at any time on or after August 16, 2003. There are
approximately 14.5  million shares of common stock reserved for future issuance upon the
conversion  of the Companys Debentures.


On
January 28, 2002, the Company sold $330.00 million in face value of Zero-Coupon
Convertible Senior Subordinated Notes due 2022 (the Notes) for gross
proceeds of approximately $277.0 million. The Notes are the Companys  general
unsecured obligations and are subordinated in right of payment to the  Companys
existing and future indebtedness that is not, by its terms,  expressly subordinated or
pari passu in right of payment to the Notes. The  Debentures rank pari passu with the
Notes. The Notes mature on January 28, 2022,  unless converted or redeemed earlier. Upon
the occurrence of certain events, the  Notes are convertible into the Companys
common stock at a conversion rate  of 32.1644 shares of common stock for each $1,000
principal amount of the Notes  (equivalent to a conversion price of $26.11 per share).
The equivalent number of  shares associated with the conversion of the Notes become
dilutive (and thus  would be included in the Companys earnings per share
calculation) when the  Companys common stock attains a level of $31.33 for at least
20 trading  days of the 30 trading days prior to the conversion or the Notes otherwise
become convertible. The accrual of the original issue discount represents a  yield to
maturity of 0.875% per year calculated from January 28, 2002, excluding  any contingent
interest which could be payable under the terms of the Notes.


25
Holders
may require the Company to purchase all or a portion of their Notes on January  28, 2005,
January 28, 2007, January 28, 2012 and January 28, 2017 for a purchase  price per note of
$862.07, $877.25, $916.40 and $957.29, respectively, plus  accrued and unpaid interest to
each purchase date. The Company will pay cash for  all Notes so purchased on January 28,
2005. The Company may choose to pay the  purchase price in cash or common stock or a
combination of cash and common stock  for purchases on or after January 28, 2007. In
addition, upon a change in  control of the Company occurring on or before January 28,
2007, each holder may  require the Company to purchase all or a portion of such holders
Notes.  The Company may redeem all or a portion of the Notes at any time on or after
January 28, 2007. There are approximately 10.6 million shares of common stock  reserved
for future issuance upon the conversion of the Notes.


Legislative
and regulatory action has resulted in continuing change in the Medicare and  Medicaid
reimbursement programs which will continue to limit payment increases  under these
programs. However, the Company believes that these continued changes  will not have a
material adverse effect on the Companys future revenue or  liquidity. Within the
statutory framework of the Medicare and Medicaid programs,  there are substantial areas
subject to administrative rulings, interpretations  and discretion which may further
affect payments made under those programs, and  the Federal and state governments might,
in the future, reduce the funds  available under those programs or require more stringent
utilization and quality  reviews of hospital facilities, either of which could have a
material adverse  effect on the Companys future revenue and liquidity.
Additionally, any  future restructuring of the financing and delivery of health care in
the United  States and the continued rise in managed care programs could have an effect
on  the Companys future revenue and liquidity. See Item 1 Sources of  Revenue and
Regulation and Other Factors.


Capital
Expenditures


Effective
December 1, 2001, the Company acquired the assets of East Pointe Hospital. The  assets
purchased included substantially all of the property, plant and equipment  of the
hospital. The total consideration approximated $16.5 million in cash.


On
December 31, 2001 (with an effective date of January 1, 2002), the Company  acquired four
acute care hospitals from Clarent Hospital Corporation pursuant to  a Stock Purchase
Agreement for approximately $170.0 million in cash. On the same  day the Company sold one
of these hospitals to a third party for $40.0 million  in cash.


Effective
May 1, 2002, the Company acquired Mesquite Community Hospital pursuant to an  Asset
Purchase Agreement from Manor Care, Inc. The Company purchased 100 percent  of the assets
of the hospital for $80.0 million using cash on hand and  subsequently sold back to Manor
Care, Inc. a 20 percent equity interest in such  hospital for $16.0 million in cash. As
part of the transaction, the Company also  sold to Manor Care, Inc. a 20 percent equity
interest in the Medical Center of  Mesquite (acquired by the Company on December 31,
2001) for $16.0 million in  cash.


The
Company financed the above acquisitions through a combination of cash on hand  and
borrowings under its Credit Agreement.


In
September 2001, the Board of Directors approved a stock repurchase program to  repurchase
up to 5,000,000 shares of the Companys common stock. On January  29, 2002, the
Company announced that it had completed the stock repurchase  program by purchasing a
total of 5,000,000 shares of its common stock at an  average price of $19.29 per share.
The Company used cash on hand for these  purchases.


In
February 2002, the Board of Directors approved a stock repurchase program to  repurchase
up to 5,000,000 shares of the Companys common stock. On August  8, 2002, the
Company announced that it had completed the stock repurchase  program by purchasing a
total of 5,000,000 shares of its common stock at an average purchase price  of $18.54 per share. The Company
used cash on hand for these purchases.


26
On
August 1, 2002, the Company purchased an office complex in Naples, Florida  consisting of
two commercial office buildings, including the one that houses the  Companys
corporate headquarters. The Company paid $25.8 million for the  office complex,
consisting of $5.8 million in cash and $20.0 million financed  using a 5-year note
bearing interest at LIBOR rate plus .75%.


The
Company currently has a number of hospital renovation/expansion projects  underway. None
of these projects are individually significant nor do they  represent a significant
commitment in total to the Company. In addition, the  Company plans to replace three of
its existing hospitals and build one new  hospital over the next four years. Regulatory
approval to begin construction on  one replacement facility has been granted while the
remaining planned projects  are awaiting regulatory approval by the appropriate agencies.
Included in these  planned projects is the Companys obligation to construct a new
facility at  its Carlisle, Pennsylvania location.


The
Company anticipates spending between approximately $120 and $125 million for  capital
equipment and renovations during the fiscal year ending September 30,  2003 (Fiscal
2003). At the present time, cash on hand, internally  generated funds in Fiscal
2003, and funds available under the Credit Agreement  are expected to be sufficient to
satisfy the Companys requirements for  capital expenditures, future acquisitions
and working capital in Fiscal 2003.


Impact of
Seasonality and Inflation


The
Companys business is seasonal, with higher patient volumes and net patient  service
revenue in the second and third quarters of the Companys fiscal  year. This
seasonality occurs because more people become ill during the winter  months, which
results in significant increases in the number of patients treated  in the Companys
hospitals during those months.


The
health care industry is labor intensive. Wages and other expenses increase  especially
during periods of inflation and when shortages in the marketplace  occur. In addition,
suppliers pass along rising costs to the Company in the form  of higher prices. The
Company has, to date, offset increases in operating costs  to the Company by increasing
charges for services and expanding services. The  Company has also implemented cost
control measures to curb increases in  operating costs and expenses. The Company cannot
predict its ability to cover or  offset future cost increases.


27
Forward-Looking
Statements


Certain
statements contained in this Form 10-K, including, without limitation,  statements
containing the words believes, anticipates, intends, plans, expects and
words of similar  import, constitute forward-looking statements within the
meaning of  the Private Securities Litigation Reform Act of 1995. Forward-looking
statements  are based upon the Companys current plans, expectations and projections
about future events. However, such statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance  or
achievements of the Company to be materially different from any future  results,
performance or achievements expressed or implied by such  forward-looking statements.
Such factors include, among others, the following:  general economic and business
conditions, both nationally and in the regions in  which the Company operates;
demographic changes; existing governmental  regulations and changes in, or the failure to
comply with, governmental  regulations; legislative proposals for health care reform; the
ability to enter  into managed care provider arrangements on acceptable terms; changes in
Medicare  and Medicaid payment levels; liability and other claims asserted against the
Company; competition; the loss of any significant ability to attract and retain
qualified personnel, including physicians; the availability and terms of capital  to fund
additional acquisitions or replacement facilities. Given these  uncertainties,
prospective investors are cautioned not to place undue reliance  on such forward-looking
statements. The Company disclaims any obligation to  update any such factors or to
publicly announce the results of any revision to  any of the forward-looking statements
contained herein to reflect future events  or developments.




      Item
        7A. Quantitative and Qualitative Disclosures about Market Risk


Interest
Rates


The
Company is exposed to interest rates, primarily as a result of its $450 million Credit  Agreement
with a floating interest rate (see financial statement note No. 3).  The Company is
currently not using derivative instruments to alter the interest  rate characteristics of
the Companys variable rate long term debt. The  following table summarizes
principal cash flows and related weighted average  interest rates by expected maturity
dates. At September 30, 2002 the fair value  of the Companys fixed rate debt was
$679.6 million, while the carrying  value was approximately $638.3 million. At September
30, 2002 the fair value of  the Companys variable rate debt was $19.5 million,
while the carrying  value was approximately $19.5 million.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------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------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                      | 2003 | 2004 | 2005 | 2006 | 2007 | Thereafter | Total
|------------------------------------- | ---- | ---- | ---- | ---- | ---- | ---------- | -----
|
|Long term debt:                       |      |      |      |      |      |            |      
|                                     
|Fixed rate long-term debt             |      |      |      | $5.6 |      |            | $6.1 
|Average interest rates                |      |      |      | 7.8  | %    |            | 7.8  
|                                     
|Fixed rate convertible long-term debt |      |      |      |     |      |            |     
|Average interest rate                 |      |      |      |      |      |            |      
|                                     
|Variable rate long-term debt          |      |      |      | $2.0 |      |            | $2.0 
|Average interest rate                 |      |      |      | *    |      |            | *    

|*
The interest  rate is LIBOR plus 0.75  percent.  The interest  rate on the  outstanding
balance at September  30, 2002 was  2.6%.


28



Item 8. Financial
Statements and Supplementary Data


INDEX TO FINANCIAL
STATEMENTS
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                                        | Page |   
|------------------------------------------------------------------------------------------------------- | ---- | --
|Health Management Associates, Inc.                                                                      |      |   
|Consolidated Financial Statements:                                                                      |     
|Report of Independent Certified Public Accountants                                                      |      | 30
|Consolidated Statements of Income - for the years ended September 30, 2002, 2001 and 2000               |      | 31
|Consolidated Balance Sheets - September 30, 2002 and 2001                                               |      | 32
|Consolidated Statements of Stockholders Equity - for the years ended September 30, 2002, 2001 and 2000 |      | 34
|Consolidated Statements of Cash Flows - for the years ended September 30, 2002, 2001 and 2000           |      | 35
|Notes to Consolidated Financial Statements                                                              |      | 37

|29



REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Board of Directors and StockholdersHealth
Management Associates, Inc.


We
have audited the accompanying consolidated balance sheets of Health Management
Associates, Inc. and subsidiaries as of September 30, 2002 and 2001, and the  related
consolidated statements of income, stockholders equity, and cash  flows for each of
the three years in the period ended September 30, 2002. Our  audits also included the
financial statement schedule listed in the Index at  Item 14(a). These financial
statements and schedule are the responsibility of  the Companys management. Our
responsibility is to express an opinion on  these financial statements and schedule based
on our audits.


We
conducted our audits in accordance with auditing standards generally accepted in  the
United States. Those standards require that we plan and perform the audit to  obtain
reasonable assurance about whether the financial statements are free of  material
misstatement. An audit includes examining, on a test basis, evidence  supporting the
amounts and disclosures in the financial statements. An audit  also includes assessing
the accounting principles used and significant estimates  made by management, as well as
evaluating the overall financial statement  presentation. We believe that our audits
provide a reasonable basis for our  opinion.


In
our opinion, the financial statements referred to above present fairly, in all  material
respects, the consolidated financial position of Health Management  Associates, Inc. and
subsidiaries at September 30, 2002 and 2001 and the  consolidated results of their
operations and their cash flows for each of the  three years in the period ended
September 30, 2002, in conformity with  accounting principles generally accepted in the
United States. Also, in our  opinion, the related financial statement schedule, when
considered in relation  to the basic financial statements taken as a whole, presents
fairly in all  material respects the information set forth therein.


As
discussed in Note 1 to the consolidated financial statements, the Company  changed its
method of accounting for the excess of cost over acquired net assets  during the year
ended September 30, 2002.


Ernst & Young LLP


Tampa, FloridaOctober 23, 2002


30


HEALTH
MANAGEMENT ASSOCIATES, INC.CONSOLIDATED STATEMENTS OF INCOME
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                               | Year ended September 30, | 
|------------------------------------------------------------------------------ | ------------------------ | 
|
|
|                                                                              
|Net patient service revenue                                                    |                          | 
|                                                                              
|Costs and expenses:                                                            |                          | 
|Salaries and benefits                                                          |                          | 
|Supplies and other                                                             |                          | 
|Provision for doubtful accounts                                                |                          | 
|Depreciation and amortization                                                  |                          | 
|Rent expense                                                                   |                          | 
|Interest, net                                                                  |                          | 
|Non-cash charge for retirement benefits and write down of assets held for sale |                          | 
|                                                                               |                          | 
|                                                                              
|Total costs and expenses                                                       |                          | 
|                                                                               |                          | 
|                                                                              
|Income before minority interests and income taxes                              |                          | 
|Minority interests in earnings of consolidated entities                        |                          | 
|                                                                               |                          | 
|                                                                              
|Income before income taxes                                                     |                          | 
|                                                                              
|Provision for income taxes                                                     |                          | 
|                                                                               |                          | 
|                                                                              
|Net income                                                                     |                          | 
|                                                                               |                          | 
|                                                                              
|Net income per share:                                                          |                          | 
|Basic                                                                          |                          | 
|                                                                               |                          | 
|Diluted                                                                        |                          | 
|                                                                               |                          | 
|                                                                              
|Weighted average number of shares outstanding:                                 |                          | 
|Basic                                                                          |                          | 
|                                                                               |                          | 
|Diluted                                                                        |                          | 
|                                                                               |                          | 

|See accompanying
notes.


31



HEALTH MANAGEMENT ASSOCIATES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
|-------------------------------------------------------------------------------------------------------------

|                                                  | September 30, | 
|------------------------------------------------- | ------------- | 
|
|                                                  |               | 
|ASSETS                                            |              
|                                                 
|Current assets:                                   |               | 
|Cash and cash equivalents                         |               | 
|Accounts receivable, less allowances for doubtful |               | 
|accounts of $138,616 and $116,785 at September    |               | 
|30, 2002 and 2001, respectively                   |               | 
|Accounts receivable - other                       |               | 
|Supplies, at cost                                 |               | 
|Prepaid expenses and other assets                 |               | 
|Funds held by trustee                             |               | 
|Deferred income taxes                             |               | 
|                                                  |               | 
|                                                 
|Total current assets                              |               | 
|                                                 
|Property, plant and equipment:                    |               | 
|Land and improvements                             |               | 
|Buildings and improvements                        |               | 
|Leaseholds                                        |               | 
|Equipment                                         |               | 
|Construction in progress                          |               | 
|                                                  |               | 
|                                                  |               | 
|                                                 
|Less: accumulated depreciation and amortization   |               | 
|                                                  |               | 
|                                                 
|Net property, plant and equipment                 |               | 
|                                                 
|Funds held by trustee                             |               | 
|                                                 
|Excess of cost over acquired net assets, net      |               | 
|Deferred charges and other assets                 |               | 
|                                                  |               | 
|                                                  |               | 
|                                                  |               | 

|See accompanying
notes.


32
HEALTH MANAGEMENT ASSOCIATES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
|----------------------------------------------------------------------------------------------------------

|                                                  | September 30, | 
|------------------------------------------------- | ------------- | 
|
|                                                 
|LIABILITIES AND STOCKHOLDERS EQUITY              |              
|                                                  |               | 
|Current liabilities:                              |               | 
|Accounts payable                                  |               | 
|Accrued payroll and related taxes                 |               | 
|Accrued expenses and other liabilities            |               | 
|Due to third party payors                         |               | 
|Income taxes - currently payable                  |               | 
|Current maturities of long-term debt              |               | 
|                                                  |               | 
|                                                 
|Total current liabilities                         |               | 
|                                                 
|Deferred income taxes                             |               | 
|Other long-term liabilities                       |               | 
|Long-term debt                                    |               | 
|                                                 
|Minority interests in consolidated entities       |               | 
|                                                 
|Stockholders equity:                             |               | 
|Preferred stock, $.01 par value, 5,000 shares     |               | 
|authorized                                        |               | 
|Common stock, Class A, $.01 par value, 750,000    |               | 
|shares authorized, 261,067 and 258,074            |               | 
|shares issued September 30, 2002                  |               | 
|and 2001, respectively                            |               | 
|Additional paid-in-capital                        |               | 
|Retained earnings                                 |               | 
|                                                  |               | 
|                                                  |               | 
|Less: treasury stock, 22,500 and 12,639 shares at |               | 
|September 30, 2002 and 2001, respectively         |               | 
|                                                  |               | 
|                                                 
|Total stockholders equity                        |               | 
|                                                  |               | 
|                                                  |               | 
|                                                  |               | 

|See accompanying
notes.


33



HEALTH MANAGEMENT ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
Years ended September 30, 2002, 2001 and 2000
(in thousands)
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                  | Common Stock |  | Additional |         | 
|------------------------------------------------- | ------------ |  | ---------- | ------- | 
|
|                                                  |              |  |            |         | 
|Balance at September 30, 1999                     |              |  |            | 253,405 | 
|                                                 
|Exercise of stock options                         |              |  |            | 1,952   | 
|Income tax benefit from exercise of stock options |              |  |            |        | 
|Purchase of treasury stock, at cost               |              |  |            |        | 
|Net income                                        |              |  |            |        | 
|                                                  |              |  |            |         | 
|                                                 
|Balance at September 30, 2000                     |              |  |            | 255,357 | 
|                                                 
|Exercise of stock options                         |              |  |            | 2,717   | 
|Income tax benefit from exercise of stock options |              |  |            |        | 
|Purchase of treasury stock, at cost               |              |  |            |        | 
|Net income                                        |              |  |            |        | 
|                                                  |              |  |            |         | 
|                                                 
|Balance at September 30, 2001                     |              |  |            | 258,074 | 
|                                                 
|Exercise of stock options                         |              |  |            | 2,993   | 
|Income tax benefit from exercise of stock options |              |  |            |        | 
|Purchase of treasury stock, at cost               |              |  |            |        | 
|Net income                                        |              |  |            |        | 
|                                                  |              |  |            |         | 
|                                                 
|Balance at September 30, 2002                     |              |  |            | 261,067 | 
|                                                  |              |  |            |         | 

|See accompanying
notes.


34



HEALTH MANAGEMENT ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands
|----------------------------------------------------------------------------------------------------------------------

|                                                                                   | Year ended September 30, | 
|---------------------------------------------------------------------------------- | ------------------------ | 
|
|Cash flows from operating activities:                                              |                          | 
|Net income                                                                         |                          | 
|Adjustments to reconcile net income to net cash provided by operating  activities: |                          | 
|Depreciation and amortization                                                      |                          | 
|Provision for doubtful accounts                                                    |                          | 
|Loss (gain) on sale of fixed assets                                                |                          | 
|Change in deferred income taxes                                                    |                          | 
|Charges for retirement benefits and write down of assets held for sale             |                          | 
|Changes in assets and liabilities, net of effects of acquisitions:                 |                          | 
|Accounts receivable                                                                |                          | 
|Supplies                                                                           |                          | 
|Prepaid expenses and other assets                                                  |                          | 
|Deferred charges and other assets                                                  |                          | 
|Accounts payable                                                                   |                          | 
|Accrued expenses and other liabilities                                             |                          | 
|Income taxes  currently payable                                                   |                          | 
|Other long-term liabilities                                                        |                          | 
|                                                                                   |                          | 
|                                                                                  
|Net cash provided by operating activities                                          |                          | 
|                                                                                   |                          | 
|                                                                                  
|Cash flows from investing activities:                                              |                          | 
|Acquisition of facilities, net of  cash acquired and purchase price adjustments    |                          | 
|Additions to property, plant and equipment                                         |                          | 
|Proceeds from sale of property, plant and equipment                                |                          | 
|Proceeds from sale of minority interests in consolidated entities                  |                          | 
|                                                                                   |                          | 
|                                                                                  
|Net cash used in investing activities                                              |                          | 
|                                                                                   |                          | 

|See accompanying
notes.


35
HEALTH MANAGEMENT ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(in thousands)
|--------------------------------------------------------------------------------------------------------------------------------

|                                                                     | Year ended September 30, | 
|-------------------------------------------------------------------- | ------------------------ | 
|
|Cash flows from financing activities:                                |                          | 
|Proceeds from long-term borrowings                                   |                          | 
|Principal payments on debt                                           |                          | 
|Purchase of treasury stock, at cost                                  |                          | 
|Proceeds from issuance of common stock                               |                          | 
|Payment of interest on debentures                                    |                          | 
|(Decrease) increase in funds held by trustee                         |                          | 
|                                                                     |                          | 
|                                                                    
|Net cash provided by (used in) financing activities                  |                          | 
|                                                                     |                          | 
|                                                                    
|Net increase in cash and cash equivalents                            |                          | 
|Cash and cash equivalents at beginning of year                       |                          | 
|                                                                     |                          | 
|                                                                    
|Cash and cash equivalents at end of year                             |                          | 
|                                                                     |                          | 
|                                                                    
|Supplemental schedule of noncash investing and financing activities: |                          | 
|Fair value of assets acquired (including cash)                       |                          | 
|Consideration: Cash paid                                             |                          | 
|                                                                     |                          | 
|                                                                    
|Liabilities assumed                                                  |                          | 
|                                                                     |                          | 

|See accompanying
notes.


36



HEALTH MANAGEMENT ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002


1. Business and
summary of significant accounting policies


Health
Management Associates, Inc. (the Company), through its subsidiary  companies,
substantially all of which are wholly-owned, provides health care  services to patients
in owned and leased facilities primarily in the southeast  and southwest United States.
The Company consistently applies the following  significant accounting policies:


a.
Principles of consolidation


The
consolidated financial statements include the accounts of the Company and its
subsidiaries in which the Company exercises control. All significant  intercompany
accounts and transactions have been eliminated.


b.
Cash equivalents


The
Company considers all highly liquid investments purchased with a maturity of  less than
three months to be cash equivalents. The Companys cash  equivalents consist
principally of investment grade instruments.


c.
Property, plant and equipment


Property,
plant and equipment are carried at cost and include major expenditures which  increase
their values or extend their useful lives. Depreciation and  amortization are computed
using the straight line method based on estimated  useful lives. Estimated useful lives
for buildings and improvements range from  twenty to forty years and for equipment range
from three to ten years.  Leaseholds are amortized on a straight-line basis over the
terms of the  respective leases. Depreciation expense was $91.9 million, $77.3 million
and  $63.7 million for the years ended September 30, 2002, 2001 and 2000,  respectively.


d.
Excess of cost over acquired net assets, net and deferred charges and other assets


Prior
to October 1, 2001, excess of cost over acquired net assets (goodwill) had been
amortized on a straight-line basis over lives ranging from three to twenty-five  years.
As of October 1, 2001, the Company adopted the provisions of Statement of  Financial
Accounting Standards (SFAS) No. 142,Goodwill and Other Intangible  Assets. SFAS
No. 142 requires that goodwill and intangible assets with  indefinite useful lives no
longer be amortized, but instead tested for  impairment at least annually in accordance
with the provisions of SFAS No. 142.  The transition provisions of SFAS No. 142 require
the completion of a  transitional impairment test within six months of adoption of SFAS
No. 142. The  Company completed the required transitional impairment test in March 2002,
which  resulted in no goodwill impairment.


Deferred
charges and other assets consist principally of deferred financing costs and  certain
non-productive assets held for sale. The financing costs are being  amortized over the
life of the related debt. The accumulated amortization of  deferred financing costs was
$4.5 million and $3.7 million at September 30, 2002  and 2001, respectively.


Certain
long-lived assets may become impaired, requiring a writedown of the assets to  their
estimated fair values. The Company periodically reviews future cash flows  related to
these assets, and if necessary, will reduce such assets to their  estimated fair values.


e.
Use of estimates


The
preparation of financial statements in conformity with accounting principles  generally
accepted in the United States requires management of the Company to  make estimates and
assumptions that affect the amounts reported in the  consolidated financial statements
and accompanying notes. Actual results could  differ from those estimates.


f.
Net patient service revenue and accounts receivable


Approximately
59%, 59% and 60% of gross patient service charges for the years ended September  30,
2002, 2001 and 2000, respectively, relates to services rendered to patients  covered by
the Medicare and Medicaid programs. Payments for services rendered to  patients covered
by these programs are generally less than billed charges.  Provisions for contractual
adjustments are made to reduce the charges to these  patients to estimated receipts based
upon the programs principles of  payment/reimbursement (either prospectively
determined or retrospectively  determined costs). Final settlements under these programs
are subject to  administrative review and audit, and provision is currently made for
adjustments  which may result. Laws and regulations governing the Medicare and Medicaid
programs are extremely complex and subject to interpretation. As a result, there  is a
possibility that recorded estimates may change in the future. Revenues and  receivables
from government programs are significant to the Companys  operations, but the
Company does not believe that there are significant credit  risks associated with these
government programs.


Estimates
for contractual allowances under managed care health plans are based primarily  on the
payment terms of contractual arrangements such as predetermined rates per  diagnosis, per
diem rates or discounted fee for service rates.


37
HEALTH
MANAGEMENT ASSOCIATES, INC.NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (Continued)


1. Business and
summary of significant accounting policies (continued)


Net
patient service revenue is presented net of provisions for contractual  adjustments and
other allowances of $4.121 billion, $2.981 billion and $2.195  billion in 2002, 2001 and
2000, respectively, in the accompanying consolidated  statements of income. In the
ordinary course of business, the Company renders  services in its facilities to patients
who are financially unable to pay for  their hospital care. The value of these services
to patients who are unable to  pay is not material to the Companys consolidated
results of operations.


g.
Provision for doubtful accounts


The
collection of receivables from third party payers and patients is the  Companys
primary source of cash and is critical to its operating  performance. The primary
collection risks relate to uninsured patient accounts  and patient accounts for which the
primary insurance payer has paid, but patient  responsibility amounts (generally
deductibles and co-payments) remain  outstanding. Provisions for doubtful accounts are
estimated based primarily upon  the age of the patients account, the patients economic
ability to  pay and the effectiveness of collection efforts. Accounts receivable balances
are routinely reviewed in conjunction with historical collection rates and other
economic conditions which might ultimately affect the collectibility of patient  accounts
when considering the adequacy of the amounts recorded as allowances for  doubtful
accounts. Significant changes in payer mix, business office operations,  economic
conditions or trends in Federal and state governmental health care  coverage could affect
the Companys collection of accounts receivable, cash  flows and results of
operations.


h.
Professional liability insurance claims


The
Company insures for its professional liability risks under a  claims-made basis
policy. Each claim is covered up to $1 million per  occurrence, subject to a $100,000
deductible the Company must pay (with an  annual deductible cap of $6.1 million).
Liabilities in excess of these amounts  are covered through a combination of limits
provided by commercial insurance  companies and a self-insurance program. (see Note 9)


Estimates
for self-insured professional liability risks are determined by management using  the
Companys incident reporting system and actuarially determined amounts.  The
estimates are continually reviewed and adjustments recorded as experience  develops
and/or new information becomes available. Actual results could vary  from those estimates
recorded.


i.
Minority interests in consolidated entities


The
consolidated financial statements include all assets, liabilities, revenues and  expenses
of less than 100% owned entities controlled by the Company.  Accordingly, the Company has
recorded minority interests in the earnings and  equity of such entities.


j.
Income taxes


The
Company accounts for income taxes under SFAS No. 109, Accounting for Income  Taxes. Deferred
income tax assets and liabilities are determined based upon  difference between financial
reporting and tax bases of assets and liabilities  and are measured using the enacted tax
rates and laws that will be in effect  when the differences are expected to reverse (see
Note 5). Management must make  estimates in recording the Companys provision for
income taxes, including  determination of deferred tax assets and deferred tax
liabilities and any  valuation allowance that might be required against the deferred tax
asset.  Management believes that future income will enable the Company to realize these
benefits in the future; therefore, the Company has not recorded a valuation  allowance
against the deferred tax asset.


The
Company operates in multiple states with varying tax laws. The Company is  subject to
both Federal and state audits of tax returns. Management must make  estimates to
determine that tax reserves are adequate to cover any potential  audit adjustments.
Actual results of those audits, if any, could vary from the  estimates recorded by
management.


38
HEALTH
MANAGEMENT ASSOCIATES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


1. Business and
summary of significant accounting policies (continued)


k.
Earnings per share


Earnings
per share is based on the weighted average number of common and common  equivalent shares
(stock options and convertible debt) outstanding during the  periods presented (see Note
7).


l.
Segment reporting


The
Companys business of providing health care services to patients in owned  and
leased facilities comprises a single reportable operating segment under SFAS  No. 131, Disclosures
About Segments of an Enterprise and Related Information.


m.
Reclassifications


Certain
amounts have  been reclassified in prior years to conform with the current year
presentation.


n.
Recent Accounting Pronouncements


In
accordance with SFAS No. 142, the Company discontinued the amortization of  goodwill
effective October 1, 2001. During the years ended September 30, 2001  and 2000, the
Company recorded $9.2 million and $7.8 million of goodwill  amortization expense which
reduced earnings by approximately $5.5 million and  $4.7 million (net of tax expense of
approximately $3.7 million and $3.1  million), or approximately $0.02 per share on a
diluted basis for 2001 and 2000,  respectively.


In
August 2001, the Financial Accounting Standards Board issued SFAS No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets, which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets and
supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, and the accounting and reporting provisions of
APB Opinion No. 30, Reporting the Results of Operations,for a disposal of a
segment of a business. SFAS No. 144 is effective for fiscal years beginning after December
15, 2001. The Company will adopt SFAS No. 144 as of October 1, 2002 and does not expect
the adoption will have a significant impact on the Companys financial position or
results of operations.


39
HEALTH
MANAGEMENT ASSOCIATES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


2. Acquisitions and
dispositions


During
2002, the Company acquired certain assets of two hospitals and the stock of  three
hospitals through purchase agreements for $226.2 million in cash and the  assumption of
$1.0 million in liabilities. During 2001, the Company acquired  certain assets of two
hospitals through purchase agreements for $59.4 million in  cash and the assumption of
$3.6 million in liabilities. During 2000, the Company  acquired certain assets of three
hospitals (one at September 30, 2000) through  purchase agreements for $130.4 million in
cash and the assumption of $6.2  million in liabilities. The foregoing acquisitions were
accounted for using the  purchase method of accounting. The allocation of the purchase
price has been  determined by the Company based upon available information and is subject
to  further refinement.


As
part of a group purchase of four hospitals during 2002, the Company acquired one
acute-care hospital and sold it on the same day for $40.0 million in cash.


The
operating results of the foregoing hospitals have been included in the  accompanying
consolidated statements of income from the respective dates of  acquisition. The
following unaudited pro forma combined summary of operations of  the Company for each of
the years in the three year period ended September 30,  2002 give effect to the operation
of the hospitals purchased in 2002, 2001 and  2000 as if the acquisitions had occurred as
of October 1, 2000, 1999 and 1998,  respectively:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                               | 2002 |  | 2001 |         | 2000 |  
|------------------------------ | ---- |  | ---- | ------- | ---- | -
|
|                              
|Net patient service revenue    |      |  | $    | 2,403.0 |      | $
|Net income                     |      |  | $    | 253.0   |      | $
|Net income per share - Basic   |      |  | $    | 1.05    |      | $
|Net income per share - Diluted |      |  | $    | .99     |      | $

|The changes in the carrying amount
of goodwill for the year ended September 30, 2002 are as follows:
|----------------------------------------------------------------------------------------------------

|Balance at September 30, 2001             |  |  | $ | 251,315 |  
|----------------------------------------- |  |  | - | ------- | -
|Goodwill acquired during the year         |  |  |   | 92,061  |  
|Impairment losses                         |  |  |   |        |  
|Goodwill written off related to disposals |  |  |   |        |  
|Other                                     |  |  |   | (8,063  | )
|                                          |  | 
|Balance at September 30, 2002             |  |  | $ | 335,313 |  

|40
HEALTH MANAGEMENT ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


3. Long-term debt


The
Companys long-term debt consists of the following:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | September 30, | 
| | ------------- | 
|
|
|
| |               | 
| |               | 
| |               | 
| |               | 
| |               | 
| |               | 
| |               | 
| |               | 
| |               | 
| |               | 
| |               | 
| |               | 
| |               | 

|a.
Revolving Credit Agreements


The
Company currently has a 5-year $450 million Credit Agreement (the Credit  Agreement)
due November 30, 2004. The Credit Agreement is a term loan  agreement which permits the
Company to borrow under an unsecured revolving  credit loan at any time through November
30, 2004, at which time the agreement  terminates and all outstanding amounts become due
and payable. The Company may  choose a Base Rate Loan (prime interest rate) or a
Eurodollar Rate Loan (LIBOR  interest rate). The interest rate for a Eurodollar Rate Loan
is currently LIBOR  plus 1.00 percent, and will increase or decrease in relation to a
change in the  Companys credit rating. Monthly or quarterly interest payments are
required depending on the type of loan chosen by the Company. The interest rate  at
September 30, 2002 and 2001 was 2.8% and 3.7%, respectively. As of September  30, 2002,
there were no amounts outstanding under the Credit Agreement.


The
Company also has a $15 million unsecured revolving credit commitment with a  bank. The
$15 million credit commitment is a working capital commitment which is  tied to the
Companys cash management system, and renews annually on  November 1. Currently,
interest on any outstanding balance is payable monthly at  a fluctuating rate not to
exceed the banks prime rate less .25%. The  interest rate at September 30, 2002 and
2001 was 4.5% and 6.0%, respectively. As  of September 30, 2002 and 2001, there were no
amounts outstanding under this  credit commitment.


In
addition, the Company is obligated to pay certain commitment fees based upon  amounts
available for borrowing during the terms of the credit agreements  described above.


The
credit agreements contain covenants which, without prior consent of the banks,  limit
certain activities, including those relating to mergers, consolidations  and the Companys
ability to secure additional indebtedness, make  guarantees, grant security interests and
declare dividends. The Company must  also maintain minimum levels of consolidated
tangible net worth, debt service  coverage and interest coverage. At September 30, 2002,
the Company was in  compliance with these covenants.


41
HEALTH MANAGEMENT ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


3. Long-term debt
(Continued)


b.
Subordinated Convertible Debentures and Notes


On
August 16, 2000, the Company sold $488.8 million face value of Zero-Coupon  Subordinated
Convertible Debentures due 2020 (the Debentures) for  gross proceeds of
$287.7 million. The Debentures mature on August 16, 2020  unless converted or redeemed
earlier. The Debentures are convertible into the  Companys common stock at a
conversion rate of 29.5623 shares of common  stock for each $1,000 principal amount of
the Debentures (equivalent to a  conversion price of $19.9125 per share). Interest on the
Debentures is payable  semiannually in arrears on August 16 and February 16 of each year
at a rate of  .25% per year on the principal amount at maturity. The rate of cash
interest and  accrual of original issue discount represent a yield to maturity of 3% per
year  calculated from August 16, 2000.


Holders
may require the Company to purchase all or a portion of their Debentures on  August 16,
2003, August 16, 2008 and August 16, 2013 for a purchase price per  Debenture of $635.88,
$724.58 and $827.53, respectively, plus accrued and unpaid  interest to each purchase
date. The Company may choose to pay the purchase price  in cash or common stock or a
combination of cash and common stock. In addition,  upon a change in control of the
Company occurring on or before August 16, 2003,  each holder may require the Company to
repurchase all or a portion of such  holders Debentures. The Company may redeem all
or a portion of the  Debentures at any time on or after August 16, 2003.


On
January 28, 2002, the Company sold $330.00 million in face value of Zero-Coupon
Convertible Senior Subordinated Notes due 2022 (the Notes) for gross
proceeds of approximately $277.0 million. The Notes are the Companys  general
unsecured obligations and are subordinated in right of payment to the  Companys
existing and future indebtedness that is not, by its terms,  expressly subordinated or
pari passu in right of payment to the Notes. The  Debentures rank pari passu with the
Notes. The Notes mature on January 28, 2022,  unless converted or redeemed earlier. Upon
the occurrence of certain events, the  Notes are convertible into the Companys
common stock at a conversion rate  of 32.1644 shares of common stock for each $1,000
principal amount of the Notes  (equivalent to a conversion price of $26.11 per share).
The equivalent number of  shares associated with the conversion of the Notes become
dilutive (and thus  would be included in the Companys earnings per share
calculation) when the  Companys common stock attains a level of $31.33 for at least
20 trading  days of the 30 trading days prior to the conversion or the Notes otherwise
become convertible. The accrual of the original issue discount represents a  yield to
maturity of 0.875% per year calculated from January 28, 2002, excluding  any contingent
interest which could be payable under the terms of the Notes.


Holders
may require the Company to purchase all or a portion of their Notes on January  28, 2005,
January 28, 2007, January 28, 2012 and January 28, 2017 for a purchase  price per note of
$862.07, $877.25, $916.40 and $957.29, respectively, plus  accrued and unpaid interest to
each purchase date. The Company will pay cash for  all Notes so purchased on January 28,
2005. The Company may choose to pay the  purchase price in cash or common stock or a
combination of cash and common stock  for purchases on or after January 28, 2007. In
addition, upon a change in  control of the Company occurring on or before January 28,
2007, each holder may  require the Company to purchase all or a portion of such holders
Notes.  The Company may redeem all or a portion of the Notes at any time on or after
January 28, 2007.


c.
Mortgage Notes


The
Company has four mortgage notes at September 30, 2002 and six mortgage notes at
September 30, 2001 which are secured by all the real and personal property  related to
facilities with a net book value of $64.5 million and $96.3 million  at September 30,
2002 and 2001, respectively. The notes are payable in various  installments with maturity
dates ranging from 2002 through 2007 and carry  interest rates ranging from prime (4.75%
and 6.0% at September 30, 2002 and  2001, respectively) to 11.5%.


As
of September 30, 2002 and 2001, the quoted market price for the Debentures was
approximately $335.4 million and $340.3 million, respectively. As of September  30, 2002,
the quoted market price for the Notes was approximately $287.9  million. The fair value
of the other debt included above, based on available  market information, approximates
its carrying value.


42
HEALTH
MANAGEMENT ASSOCIATES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


3. Long-term debt
(Continued)


Maturities
of long-term debt and capital leases for the next five fiscal years and  thereafter, are
as follows (in thousands):
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | 2003       |  |  | $ | 7,609   |  |  |  | 
| |  |  | ---------- |  |  | - | ------- |  |  |  | 
| |  |  | 2004       |  |  |   | 8,100   |  |  |  | 
| |  |  | 2005       |  |  |   | 7,708   |  |  |  | 
| |  |  | 2006       |  |  |   | 6,742   |  |  |  | 
| |  |  | 2007       |  |  |   | 14,936  |  |  |  | 
| |  |  | Thereafter |  |  | $ | 612,673 |  |  |  | 

|The
Company paid interest of $7.4 million, $14.9 million and $31.1 million for the years
ended September 30, 2002, 2001 and 2000, respectively. There was no capitalized  interest
for the years ended September 30, 2002 and 2001. Capitalized interest  totaled $3.1
million for the year ended September 30, 2000.


4. Leases


The
Company  leases real estate  properties,  equipment  and vehicles  under  cancelable  and
non-cancelable leases. Future minimum operating and capital lease payments, including
amounts relating to leased hospitals, are as follows at September 30, 2002 (in
thousands):
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                        | Operating |  | Capital |       
|--------------------------------------- | --------- |  | ------- | ------
|
|2003                                    |           |  | $       | 6,469 
|2004                                    |           |  |         | 5,800 
|2005                                    |           |  |         | 5,432 
|2006                                    |           |  |         | 4,589 
|2007                                    |           |  |         | 3,869 
|Thereafter                              |           |  |         | 19,479
|                                        |           |  |         |       
|                                       
|Total minimum payments                  |           |  | $       | 45,638
|                                        |           |  |         |       
|                                       
|Less amounts representing interest      |           |  |         |       
|                                       
|Present value of minimum lease payments |           |  |         |       

|The
following summarizes amounts related to assets leased by the Company under capital leases
(in thousands):
|-------------------------------------------------------------------------------------------------------------

| | September 30, | 
| | ------------- | 
|
| |               | 
| |               | 
| |               | 
| |               | 
| |               | 

|The
Company entered into capitalized leases for equipment of $8.7 million, $4.0 million  and
$.2 million for the years ended September 30, 2002, 2001 and 2000, respectively.


43
HEALTH MANAGEMENT ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


5. Income taxes


The
significant components of the provision for income taxes are as follows (in thousands):
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|              | Year ended September 30, | 
|------------- | ------------------------ | 
|
|Federal:      |                          | 
|Current       |                          | 
|Deferred      |                          | 
|              |                          | 
|Total Federal |                          | 
|State:        |                          | 
|Current       |                          | 
|Deferred      |                          | 
|              |                          | 
|Total State   |                          | 
|             
|Total         |                          | 
|              |                          | 

|An
analysis of the Companys effective income tax rates is as follows:
|----------------------------------------------------------------------

|                                                | Year ended September 30, | 
|----------------------------------------------- | ------------------------ | 
|
|Statutory income tax rate                       |                          | 
|                                               
|State income taxes, net of Federal benefit      |                          | 
|                                               
|Other items (each less than 5% of computed tax) |                          | 
|                                                |                          | 
|                                               
|Total                                           |                          | 
|                                                |                          | 

|The
tax effects of temporary differences that give rise to significant portions of the Federal
and state deferred income tax assets and liabilities are comprised of the
following:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | September 30, | 
| | ------------- | 
|
|
| |               | 
| |               | 
| |               | 
| |               | 
| |               | 
| |               | 
| |               | 
| |               | 
| |               | 
| |               | 
| |               | 
| |               | 
| |               | 
| |               | 
| |               | 
| |               | 
| |               | 

|44
HEALTH
MANAGEMENT ASSOCIATES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


5. Income taxes (continued)


SFAS
No. 109 requires a valuation allowance to reduce the deferred tax assets
reported if, based on the weight of the evidence, it is more likely than not
that some portion or all of the deferred tax assets will not be realized. After
consideration of all the evidence, both positive and negative, management has
determined that a valuation allowance is not necessary as of September 30, 2002
and 2001, respectively.


Income
taxes paid (net of refunds) amounted to $139.7 million, $126.1 million, and
$123.6 million for the years ended September 30, 2002, 2001 and 2000,
respectively.


6. Retirement plans


The
Company has a defined contribution retirement plan which covers substantially
all eligible employees at its hospitals and the corporate office. This plan
includes a provision for the Company to match a portion of employee
contributions. Total retirement program expense under this plan was $6.0
million, $4.5 million and $4.0 million for the years ended September 30, 2002,
2001 and 2000 respectively.


In
addition, the Company maintains a supplemental retirement plan for certain
Company executives which provides for predetermined annual payments to these
executives after the attainment of age 62, if still employed by the Company at
that time. These payments generally continue for the remainder of the
executives life (see Note 10).


7. Earnings per share


The following table sets
forth the computation of basic and diluted earnings per share (in thousands,
except per share data):
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Year ended September 30, | 
| | ------------------------ | 
|
| |                          | 
| |                          | 
| |                          | 
| |                          | 
| |                          | 
| |                          | 
| |                          | 
| |                          | 
| |                          | 
| |                          | 
| |                          | 
| |                          | 
| |                          | 
| |                          | 
| |                          | 
| |                          | 
| |                          | 
| |                          | 
| |                          | 
| |                          | 
| |                          | 
| |                          | 
| |                          | 

|Outstanding
options to purchase 2.8 million, 1.2 million, and 1.4 million shares of the
Companys common stock were not included in the computation of earnings per
share for the years ended September 30, 2002, 2001, and 2000, respectively,
because the options exercise prices were greater than the average market
price of the Companys common stock.


45
HEALTH
MANAGEMENT ASSOCIATES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


8. Stockholders equity


The
Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25). Under APB
25, since the exercise price of the Companys employee stock options equals
the market price of the underlying stock on the date of grant, no compensation
expense is recognized. Pro forma disclosure of alternative fair value accounting
is then required under SFAS No. 123, Accounting for Stock-Based
Compensation, utilizing an option valuation model.


The
Company has a 1991 Stock Option Plan, a 1993 Stock Option Plan and a 1996
Executive Incentive Compensation Plan for the granting of options to key
employees of the Company. All options granted have 10 year terms and vest and
become fully exercisable at the end of either 3 or 4 years of continued
employment.


Pertinent
information covering the plans is summarized below:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Shares |  | PriceRange                        |  | WeightedAverage Price | 
| | ------ |  | --------------------------------- |  | --------------------- | 
|
|
| |        |  | Balance at September 30, 1999     |  |                       | 
|
| |        |  | Granted                           |  |                       | 
| |        |  | Exercised                         |  |                       | 
| |        |  | Terminated                        |  |                       | 
| |        | 
|
| |        |  | Balance at September 30, 2000     |  |                       | 
| |        |  | Granted                           |  |                       | 
| |        |  | Exercised                         |  |                       | 
| |        |  | Terminated                        |  |                       | 
| |        | 
|
| |        |  | Balance at September 30, 2001     |  |                       | 
| |        |  | Granted                           |  |                       | 
| |        |  | Exercised                         |  |                       | 
| |        |  | Terminated                        |  |                       | 
| |        | 
|
| |        |  | Balance at September 30, 2002     |  |                       | 
| |        | 
|
| |        |  | Exercisable at September 30, 2002 |  |                       | 
| |        | 

|The
following table summarizes information concerning currently outstanding and exercisable
options:
|----------------------------------------------------------------------------------------------------

| | Options Outstanding |  | Options Exercisable | 
| | ------------------- |  | ------------------- | 
|
| |                     |  | $  2.07 - $  8.33   | 
| |                     |  | $10.33 - $13.00     | 
| |                     |  | $14.50 - $21.63     | 

|46
HEALTH MANAGEMENT
ASSOCIATES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


8. Stockholders equity (continued)


Pro
forma information regarding net income and earnings per share is required by
SFAS No.123, which also requires that the information be determined as if the
Company has accounted for its employee stock options granted subsequent to
December 31, 1995 under the fair value method of SFAS No.123. The fair value for
these options was estimated at the date of grant using the Black-Scholes option
pricing model with the following weighted-average assumptions for 2002, 2001 and
2000: risk-free interest rate of 4.60%, 5.51%, and 6.56%; no dividend yields;
volatility factor of the expected market price of the Companys common
stock of .536, .489 and .486; and weighted average expected lives of the options
of 5, 7 and 7 years.


The
Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Companys employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
managements opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock options.


For
purposes of pro forma disclosures, the estimated fair value of the options is
amortized to expense over the options vesting period. The Companys
pro forma information follows (in thousands, except per share data):
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2002 |  | 2001                          |  | 2000 |  
| | ---- |  | ----------------------------- |  | ---- | -
| |      |  | Pro forma net income          |  |      | $
| |      |  | Pro forma earnings per share: |  |      |  
| |      |  | Basic                         |  |      | $
| |      |  | Diluted                       |  |      | $

|At
September 30, 2002, there were approximately 13.1 million shares of common stock
reserved for future issuance under the plans. In addition, the Company has
granted options for shares of Class A Common Stock to seven non-employee
directors. At September 30, 2002, there were approximately 196,000 options
outstanding at $4.49 to $21.63 per share, expiring in 2004 through 2012.


The
Company also has a Stock Incentive Plan for corporate officers and management
staff. This plan provides for the awarding of additional compensation to key
personnel in the form of Company stock. The stock will be issued to the grantee
four years after the date of grant, provided the individual is still an employee
of the Company. At September 30, 2002, there were approximately 450,000 shares
reserved under the plan, for which the Company has recorded $2.9 million, $2.0
million and $1.5 million of compensation expense for the years ended September
30, 2002, 2001 and 2000, respectively.


In
September 1999, the Board of Directors approved a stock repurchase program of up
to 25 million shares of common stock. On October 14, 1999 the Company executed a
share repurchase agreement with an independent third party, whereby the third
party agreed to sell short 5 million shares of the Companys
common stock to the Company. As of October 19, 1999 the 5 million shares were
delivered to the Company and became treasury stock. From October 15, 1999 to
December 15, 1999, a period of 60 days, the third party covered the short
sale by buying shares on the open market. On December 15, 1999 the Company
reimbursed the third party $42,399,000, which represented the cost of the common
stock purchased plus a commission plus interest (at LIBOR) on the outstanding
balance of funds used to purchase the common stock.


In
September 2001, the Board of Directors approved a stock repurchase program to
repurchase up to 5,000,000 shares of the Companys common stock. On January
29, 2002, the Company announced that it had completed the stock repurchase
program by purchasing a total of 5,000,000 shares of its common stock at an
average purchase price of $19.29 per share.


In
February 2002, the Board of Directors approved a stock repurchase program to
repurchase up to 5,000,000 shares of the Companys common stock. On August
8, 2002, the Company announced that it had completed the stock repurchase
program by purchasing a total of 5,000,000 shares at an average purchase price
of $18.54 per share.


At
September 30, 2002 and 2001, there were approximately 14.5 million shares of
common stock reserved for future issuance upon the conversion of the
Companys Debentures.At September 30, 2002, there were
approximately 10.6 million shares of common stock reserved for future issuance
upon the conversion of the Companys Notes.


47
HEALTH
MANAGEMENT ASSOCIATES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


9. Professional liability risks


Through
September 30, 2002, the Company insured for its professional liability risks
under a claims-made basis policy, whereby each claim is covered up
to $1 million per occurrence, subject to a $100,000 deductible (with an annual
deductible cap of $6.1 million). Liabilities in excess of these amounts are
covered through a combination of limits provided by commercial insurance
companies and a self-insurance program.


Accruals
for self-insured professional liability risks are determined using asserted and
unasserted claims identified by the Companys incident reporting system and
actuarially determined estimates based on Company and industry historical loss
payment patterns and have been discounted to their present value using a
discount rate of 6.0%. Although the ultimate settlement of these accruals may
vary from these estimates, management believes that the amounts provided in the
Companys consolidated financial statements are adequate. If actual
payments of claims exceed projected estimates of claims, the Companys
insurance accruals could be materially adversely affected.


Effective
October 1, 2002, in response to difficulty in obtaining primary insurance from
commercial companies at reasonable rates, the Company formed a wholly owned
insurance subsidiary in order to self-insure a greater portion of its primary
professional and general liability risk. The captive subsidiary reinsures risk
up to $1 million per claim and $3 million in the aggregate per hospital, and
further acts as an excess insurer for all hospitals in combination with three
commercial insurance companies.


10. Non-cash charge


The
non-cash charge for retirement benefits and write down of assets held for sale
in 2001 represents (1) the present value of the future costs of retirement
benefits granted to the Companys chairman pursuant to an employment
agreement which became effective January 2, 2001, and (2) the write down of two
hospital assets held for sale in conjunction with their respective replacement.


11. Commitments


The
Company has a number of hospital renovation/expansion projects underway at
September 30, 2002. None of these projects are individually significant nor do
they represent a significant commitment in total at September 30, 2002. In
addition, the Company plans to replace three of its existing hospitals and build
one new hospital over the next four years. Regulatory approval to begin
construction on one replacement facility has been granted while the remaining
planned projects are awaiting regulatory approval by the appropriate agencies.
Included in these planned projects is the Companys obligation to construct
a new facility at its Carlisle, Pennsylvania location.


12. Subsequent events


On
October 29, 2002, the Company initiated a quarterly cash dividend policy and
declared its first cash dividend of $0.02 per share of the Companys common
stock payable on December 2, 2002 to stockholders of record at the close of
business on November 8, 2002.


48
HEALTH
MANAGEMENT ASSOCIATES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


13. Quarterly data (unaudited)
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                   | Years ended September 30, 2002 and 2001(in thousands, except per share data) | 
|---------------------------------- | ---------------------------------------------------------------------------- | 
|
|
|
|2002                               |                                                                              | 
|                                   |                                                                              | 
|Net patient service revenue        |                                                                              | 
|Income before income taxes         |                                                                              | 
|Net income                         |                                                                              | 
|Net income per share:              |                                                                              | 
|Basic                              |                                                                              | 
|Diluted                            |                                                                              | 
|Weighted average number of shares: |                                                                              | 
|Basic                              |                                                                              | 
|Diluted                            |                                                                              | 
|                                   |                                                                              | 
|2001                               |                                                                              | 
|                                   |                                                                              | 
|Net patient service revenue        |                                                                              | 
|Income before income taxes         |                                                                              | 
|Net income                         |                                                                              | 
|Net income per share:              |                                                                              | 
|Basic                              |                                                                              | 
|Diluted                            |                                                                              | 
|Weighted average number of shares: |                                                                              | 
|Basic                              |                                                                              | 
|Diluted                            |                                                                              | 

|49



Item 9. Changes in
and Disagreements with Accountants on Accounting and Financial Disclosure


None




PART III


Item 10. Directors and Executive Officers of the Registrant


The
information required by this Item 10 is (i) incorporated herein by reference to
the Companys proxy statement to be issued in connection with the Annual
Meeting of Stockholders of the Company to be held on February 18, 2003 under
Election of Directors, which proxy statement will be filed within
120 days after the end of Fiscal 2002 and (ii) set forth under Executive
Officers of the Registrant in Part I, Item 4 of this form 10-K.




Item 11. Executive Compensation


The
information required by this Item 11 is incorporated herein by reference to the
Companys proxy statement to be issued in connection with the Annual
Meeting of the Stockholders of the Company to be held on February 18, 2003 under
Executive Compensation, which proxy statement will be filed within
120 days after the end of Fiscal 2002.




Item 12. Security Ownership of Certain Beneficial Owners and Management


The
information required by this Item 12 is incorporated herein by reference to the
Companys proxy statement to be issued in connection with the Annual
Meeting of Stockholders of the Company to be held on February 18, 2003 under
Security Ownership of Certain Beneficial Owners and Management,
which proxy statement will be filed within 120 days after the end of Fiscal
2002.




Item 13. Certain Relationships and Related Transactions


The
information required by this Item 13 is incorporated herein by reference to the
Companys proxy statement to be issued in connection with the Annual
Meeting of Stockholders of the Company to be held on February 18, 2003 under
Certain Transactions, which proxy statement will be filed within 120
days after the end of Fiscal 2002.




PART IV


Item 14. Controls and Procedures
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(a) |  | Explanation
Of Disclosure Controls And Procedures. The  Companys President and
Chief Executive Officer (principal executive  officer) and Senior Vice President and
Chief Financial Officer (principal  financial officer), after evaluating the
effectiveness of the Companys  disclosure controls and procedures (as defined in
Securities Exchange Act Rules  13a-14(c) and 15d-14(c)) as of a date within 90 days of
the filing date of this  Form 10-K (the Evaluation Date), have concluded that
as of the  Evaluation Date the Companys disclosure controls and procedures were
adequate and effective to ensure that material information relating to the  Company would
be made known to such officers by others within the Company,  particularly during the
period in which this Form 10-K was being prepared.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) |  | Changes
In Internal Controls. There were no significant  changes in the Companys
internal controls or in other factors that could  significantly affect the Companys
disclosure controls and procedures  subsequent to the Evaluation Date, nor were there any
significant deficiencies  or material weaknesses in such disclosure controls and
procedures requiring  corrective action. As a result, no corrective action was taken.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|50



Item 15. Exhibits, Financial Statement Schedule, and Reports on Form 8-K


Item 15(a)(1), 15(a)(2)
and 15(d):


The
Company has filed its consolidated financial statements in Part II, Item 8 of
this form 10-K. In addition, the following financial statement schedule is filed
as part of this form 10-K at page 51 hereof:


Schedule II - Valuation and Qualifying Accounts


All
other schedules are omitted since the required information is not present or is
not present in amounts sufficient to require submission of the schedule, or
because the information required is included in the consolidated financial
statements and notes thereto.


Item 15(a)(3) and 15(c):  See Index to Exhibits.


Item 15(b):


Reports on Form 8-K:


Form 8-K - Reporting Date August 13, 2002
     Item Reported - Item 9.  Regulation FD Disclosure


HEALTH
MANAGEMENT ASSOCIATES, INC.SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                | Balance atBeginning ofPeriod |  | AcquisitionsandDispositions |         | Charges toOperations(a) |   | Chargedto otherAccounts |  | Deductions(b) |         | Balance atEnd ofPeriod |  
|------------------------------- | ---------------------------- |  | --------------------------- | ------- | ----------------------- | - | ----------------------- |  | ------------- | ------- | ---------------------- | -
|Year ended September 30, 2000   |                              |  |                             |         |                         |   |                         |  |               |         |                        |  
|Allowance for doubtful accounts |                              |  | $                           | 114,792 |                         | $ |                        |  | $             | 169,712 |                        | $
|                                |                              |  |                             |         |                         |   |                         |  |               |         |                        |  
|                                |                              | 
|Year ended September 30, 2001   |                              | 
|Allowance for doubtful accounts |                              |  | $                           | 118,602 |                         | $ | 5,482                   |  | $             | 154,114 |                        | $
|                                |                              |  |                             |         |                         |   |                         |  |               |         |                        |  
|                                |                              | 
|Year ended September 30, 2002   |                              | 
|Allowance for doubtful accounts |                              |  | $                           | 116,785 |                         | $ | 33,143                  |  | $             | 179,347 |                        | $
|                                |                              |  |                             |         |                         |   |                         |  |               |         |                        |  

| | (a) |  | Charges
to operations include amounts related to provisions for doubtful accounts, before
recoveries.
| | --- |  | -----------------------------------------------------------------------------------------------------

| | (b) |  | Includes
amounts written-off as uncollectible.
| | --- |  | ----------------------------------------------

|51
SIGNATURES


Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.


HEALTH MANAGEMENT ASSOCIATES, INC.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|By /s/ Joseph V. Vumbacco
Joseph V. Vumbacco |  | President and Chief Executive Officer |  | December 4, 2002
|---------------------------------------------------------- |  | ------------------------------------- |  | ----------------

|Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant in the capacities and on
the dates indicated:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|/s/ William J. Schoen
William J. Schoen |  | Chairman of the Board of Directors |  | December 4, 2002
|----------------------------------------------------- |  | ---------------------------------- |  | ----------------

|/s/ Joseph V. Vumbacco
Joseph V. Vumbacco |  | President, Chief Executive Officer, and Director (Principal Executive Officer) |  | December 4, 2002
|------------------------------------------------------- |  | ------------------------------------------------------------------------------ |  | ----------------

|/s/ Robert E. Farnham
Robert E. Farnham |  | Senior Vice President and Chief Financial Officer (Principal  Financial Officer and Principal  Accounting Officer) |  | December 4, 2002
|----------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------ |  | ----------------

|/s/ Kent P. Dauten
Kent P. Dauten |  | Director |  | December 4, 2002
|----------------------------------------------- |  | -------- |  | ----------------

|/s/ Robert A. Knox
Robert A. Knox |  | Director |  | December 4, 2002
|----------------------------------------------- |  | -------- |  | ----------------

|/s/ Kenneth D. Lewis
Kenneth D. Lewis |  | Director |  | December 4, 2002
|--------------------------------------------------- |  | -------- |  | ----------------

|/s/ William E. Mayberry
William E. Mayberry, M.D. |  | Director |  | December 4, 2002
|--------------------------------------------------------------- |  | -------- |  | ----------------

|/s/ Randolph W. Westerfield
Randolph W. Westerfield, Ph.D. |  | Director |  | December 4, 2002
|------------------------------------------------------------------------ |  | -------- |  | ----------------

|/s/ Donald E. Kiernan
Donald E. Kiernan |  | Director |  | December 4, 2002
|----------------------------------------------------- |  | -------- |  | ----------------

|52
Certification of Principal Executive Officer


I, Joseph V. Vumbacco, certify that:


1.  I have reviewed this annual
report on Form 10-K of Health Management Associates, Inc.;


2.  Based on my knowledge,  this
annual report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the  circumstances
under which such statements  were made, not misleading with respect to the period covered
by this annual report;


      3. Based on my knowledge,
        the financial statements, and other financial information included in
        this annual report, fairly present in all material respects the financial
        condition, results of operations and cash flows of the registrant as of,
        and for, the periods presented in this annual report;


4.  The registrants other
certifying officers and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and have:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a)
designed such disclosure  controls and procedures to ensure that material  information
relating to the registrant,  including its  consolidated  subsidiaries,  is made known to
us by others within those entities,  particularly during the period in which this annual
report is being prepared;
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b)
evaluated the effectiveness of the registrants disclosure controls and procedures
as of  a date within 90 days prior to the filing date of this annual report (the  "Evaluation
Date"); and
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c)
presented in this annual report our conclusions about the effectiveness of the disclosure
controls and procedures based on our evaluation as of the Evaluation Date;
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5.  The registrants other
certifying  officers and I have disclosed,  based on our most recent evaluation,  to the
registrants  auditors and the audit committee of registrants board of directors (or
persons performing the equivalent  functions):
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a)
all significant  deficiencies in the design or operation of internal controls which could
adversely affect the registrants ability to record,  process,  summarize and report
financial data and have identified for  the registrants auditors any material
weaknesses  in internal controls; and
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b)
any fraud, whether or not material, that involves management or other employees who have
a significant role in the registrants internal controls; and
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|6.  The registrants other
certifying officers and I have indicated in this annual report whether there were
significant  changes in internal controls or in other factors that could significantly
affect internal controls subsequent to  the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material weaknesses.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Date: December 4, 2002 |  | /s/ Joseph V. Vumbacco
Joseph V. Vumbacco,
President and Chief Executive Officer
|---------------------- |  | ----------------------------------------------------------------------------------------------

|53
Certification of Principal Financial Officer


I, Robert E. Farnham, certify that:


      1. I have reviewed
        this annual report on Form 10-K of Health Management Associates, Inc.;


2.  Based on my knowledge,  this
annual report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the  circumstances
under which such statements  were made, not misleading with respect to the period covered
by this annual report;


3.  Based on my knowledge,  the
financial  statements,  and other  financial  information  included in this annual
report,  fairly present in all material  respects the financial  condition,  results of
operations and cash flows of the  registrant as of, and for, the periods presented in
this annual report;


4.  The registrants other
certifying officers and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and have:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a)
designed such disclosure  controls and procedures to ensure that material  information
relating to the registrant,  including its  consolidated  subsidiaries,  is made known to
us by others within those entities,  particularly during the period in which this annual
report is being prepared;
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b)
evaluated the effectiveness of the registrants disclosure controls and procedures
as of  a date within 90 days prior to the filing date of this annual report (the  "Evaluation
Date"); and
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | c)
presented in this annual report our conclusions about the effectiveness of the disclosure
controls and procedures based on our evaluation as of the Evaluation Date;
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5.  The registrants other
certifying  officers and I have disclosed,  based on our most recent evaluation,  to the
registrants  auditors and the audit committee of registrants board of directors (or
persons performing the equivalent  functions):
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | a)
all significant  deficiencies in the design or operation of internal controls which could
adversely affect the registrants ability to record,  process,  summarize and report
financial data and have identified for  the registrants auditors any material
weaknesses  in internal controls; and
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | b)
any fraud, whether or not material, that involves management or other employees who have
a significant role in the registrants internal controls; and
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|6.  The registrants other
certifying officers and I have indicated in this annual report whether there were
significant  changes in internal controls or in other factors that could significantly
affect internal controls subsequent to  the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material weaknesses.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Date: December 4, 2002 |  | /s/ Robert E. Farnham
Robert E. Farnham
Senior Vice President and Chief Financial Officer
|---------------------- |  | -------------------------------------------------------------------------------------------------------

|54
INDEX TO EXHIBITS
|--------------------

|(2) |  | Plan
of acquisition, reorganization, arrangement, liquidation or succession
|--- |  | ---------------------------------------------------------------------------

| | Not
applicable.
| | ---------------

|(3) |  | (i) |  | Articles of Incorporation
|--- |  | --- |  | -------------------------

|3.1(i) |  | Fifth
Restated Certificate of Incorporation. (Exhibit 3.1)
|------ |  | ----------------------------------------------------------

|3.2(r) |  | Certificate
of Amendment to Fifth Restated Certificate of Incorporation. (Exhibit 3.2)
|------ |  | --------------------------------------------------------------------------------------

| | (ii) |  | By-laws
| | ---- |  | -------

|3.3(w) |  | By-laws,
as amended. (Exhibit 3.3)
|------ |  | ----------------------------------

|(4) |  | Instruments
defining rights of security holders, including indentures
|--- |  | ---------------------------------------------------------------------

| | The
Exhibits referenced under (3) of this Index to Exhibits are incorporated herein by
reference.
| | -------------------------------------------------------------------------------------------------

|4.1(f) |  | Specimen
Stock Certificate. (Exhibit 4.11)
|------ |  | ------------------------------------------

|4.5(r) |  | Credit
Agreement by and among Health Management Associates, Inc., as Borrower, Bank of  America,
N.A., as Administrative Agent and as Lender, First Union National Bank, as  Syndication
Agent and as Lender, and the Chase Manhattan Bank, as Syndication Agent and as  Lender,
and The Lenders Party Thereto From Time To Time, dated November 30, 1999. (Exhibit  4.5)
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.6(s) |  | Credit
Agreement dated March 23, 2000 between First Union National Bank and Health  Management
Associates, Inc. pertaining to a $15 million working capital and cash  management line of
credit. (Exhibit 4.1)
|------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.7(x) |  | Indenture
      dated as of August 16, 2000 between Health Management Associates, Inc. and
      First Union National Bank, as Trustee, pertaining to the $488.7 million
      face value of Convertible Senior Subordinated Debentures due 2020 (includes
      form of Convertible Senior Subordinated Debenture due 2020). (Exhibit 4.1(1))
|------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4.8(y) |  | Indenture
      dated as of January 28, 2002, by and between Health Management Associates,
      Inc. and First Union National Bank, as Trustee, pertaining to the $330.0
      million face value of Zero-Coupon Convertible Senior Subordinated Notes
      due 2022 (includes form of Zero-Coupon Convertible Senior Subordinated Note
      due 2022). (Exhibit 4(a))
|------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(9) |  | Voting
Trust Agreement
|--- |  | ----------------------

| | Not
applicable.
| | ---------------

|55
|--

|(10) |  | Material
Contracts
|---- |  | ------------------

| | The
Exhibits referenced under (4) of this Index to Exhibits are incorporated herein by
reference.
| | -------------------------------------------------------------------------------------------------

|10.1(i) |  | First
Amended and Restated Lease Agreement, dated as of January 1, 1995 between The Board of
Commissioners of the Highlands County Hospital District and Sebring Hospital Management
Associates, Inc. (Exhibit 10.1)
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.2(c) |  | Lease
dated as of July 1, 1986 between Fishermens Hospital, Inc. and Marathon H.M.A., Inc.
(Exhibit 28.1)
|------- |  | ----------------------------------------------------------------------------------------------------------

|10.3(e) |  | First
Amendment of the July 1, 1986 Lease Agreement by and between Fishermens Hospital, Inc.
and Marathon H.M.A., Inc. dated December 18, 1991. (Exhibit 28.1)
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.4(a) |  | Lease
Agreement dated January 12, 1990 between Biloxi Regional Medical Center, Inc. and Biloxi
H.M.A., Inc. (Exhibit 10.54)
|------- |  | ---------------------------------------------------------------------------------------------------------------------------

|10.5(g) |  | Lease
Agreement between Heart of Florida Hospital Association, Inc., Haines City HMA, Inc. and
the Company, dated April 30, 1993. (Exhibit 10.49)
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------

|10.6(d) |  | Health
Management Associates, Inc. Stock Incentive Plan for Corporate Officers and Management
Staff. (Exhibit 10.56)
|------- |  | --------------------------------------------------------------------------------------------------------------------

|10.7(i) |  | Amendment
No. 1 to the Health Management Associates, Inc. Stock Incentive Plan for Corporate
Officers and Management Staff. (Exhibit 10.2)
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------

|10.8(g) |  | Health
Management Associates, Inc. Supplemental Executive Retirement Plan, dated July 12, 1990.
(Exhibit 10.22)
|------- |  | ---------------------------------------------------------------------------------------------------------------

|10.9(h) |  | First
Amendment to the Health Management Associates, Inc. Supplemental Executive Retirement
Plan, dated January 1, 1994. (Exhibit 10.51)
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------

|10.10(a) |  | Registration
Agreement dated September 2, 1988 between HMA Holding Corp., First Chicago Investment
Corporation,  Madison Dearborn Partners IV, Prudential Venture Partners,  Prudential
Venture Partners II, William  J. Schoen, Kelly E. Curry, Stephen M. Ray, Robb L. Smith,
George A. Taylor and Earl P. Holland. (Exhibit 10.23)
|-------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.11(b) |  | Health
Management Associates, Inc. 1991 Non-Statutory Stock Option Plan.  (Exhibit 10.67)
|-------- |  | -----------------------------------------------------------------------------------------

|10.12(f) |  | Amendment
No. 1 and Amendment No. 2 to the Health Management Associates, Inc. 1991 Non-Statutory
Stock Option Plan. (Exhibit 10.44)
|-------- |  | -----------------------------------------------------------------------------------------------------------------------------------

|10.13(f) |  | Health
Management Associates, Inc. 1993 Non-Statutory Stock Option Plan. (Exhibit 10.45)
|-------- |  | ----------------------------------------------------------------------------------------

|10.14(i) |  | Health
Management Associates, Inc. Stock Option Plan for Outside Directors. (Exhibit 10.5)
|-------- |  | ------------------------------------------------------------------------------------------

|10.15(h) |  | Stock
Option Agreement dated May 17, 1994, between the Company and Kenneth D. Lewis. (Exhibit
10.53)
|-------- |  | ----------------------------------------------------------------------------------------------------

|10.16(j) |  | Amendment
No. 5 to the Health Management Associates, Inc. 1991 Non-Statutory Stock Option Plan.
(Exhibit 10.57)
|-------- |  | ---------------------------------------------------------------------------------------------------------------

|10.17(j) |  | Amendment
No. 3 to the Health Management Associates, Inc. 1993 Non-Statutory Stock Option Plan.
(Exhibit 10.58)
|-------- |  | ---------------------------------------------------------------------------------------------------------------

|10.18(j) |  | Amendment
No. 1 to the Health Management Associates, Inc. Stock Option Plan for Outside Directors.
(Exhibit 10.59)
|-------- |  | ------------------------------------------------------------------------------------------------------------------

|56
|--

|10.19(l) |  | Lease
Agreement dated as of December 28, 1995 among Coahoma County, Mississippi, Clarksdale
HMA, Inc. and the Company. (Exhibit 10.1)
|-------- |  | -------------------------------------------------------------------------------------------------------------------------------------

|10.20(n) |  | Lease
Agreement dated May 21, 1996 among Midwest City Memorial Hospital Authority, an Oklahoma
Public Trust, and Midwest City HMA, Inc. and Health Management Associates, Inc. (Exhibit
2.1)
|-------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.21(l) |  | Amendment
No. 6 to the Health Management Associates, Inc. 1991 Non-Statutory Stock Option Plan.
(Exhibit 10.2)
|-------- |  | --------------------------------------------------------------------------------------------------------------

|10.22(l) |  | Amendment
No. 7 to the Health Management Associates, Inc. 1991 Non-Statutory Stock Option Plan.
(Exhibit 10.3)
|-------- |  | --------------------------------------------------------------------------------------------------------------

|10.23(l) |  | Amendment
No. 4 to the Health Management Associates, Inc. 1993 Non-Statutory Stock Option Plan.
(Exhibit 10.4)
|-------- |  | --------------------------------------------------------------------------------------------------------------

|10.24(l) |  | Amendment
No. 5 to the Health Management Associates, Inc. 1993 Non-Statutory Stock Option Plan.
(Exhibit 10.5)
|-------- |  | --------------------------------------------------------------------------------------------------------------

|10.25(k) |  | Health
Management Associates, Inc. 1996 Executive Incentive Compensation Plan. (Exhibit 99.15)
|-------- |  | ----------------------------------------------------------------------------------------------

|10.26(m) |  | Amendment
No. 1 to the Health Management Associates, Inc. 1996 Executive Incentive Compensation
Plan. (Exhibit 10.1)
|-------- |  | --------------------------------------------------------------------------------------------------------------------

|10.27(o) |  | Second
Amendment to the Health Management Associates, Inc. Supplemental Executive Retirement
Plan, dated September 17, 1996. (Exhibit 10.64)
|-------- |  | --------------------------------------------------------------------------------------------------------------------------------------------

|10.28(p) |  | Hospital
Management Agreement by and between Anniston HMA, Inc. and the Trust created under the
last will and testament of Susie P. Stringfellow, entered into on January 24, 1997.
(Exhibit 10.1)
|-------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.29(q) |  | Lease
Agreement made as of June 1, 1998 between Hernando County, Florida and Hernando HMA, Inc.
(Exhibit 10.2)
|-------- |  | --------------------------------------------------------------------------------------------------------------

|10.30(t) |  | Amendment
No. 5 to the Health Management Associates, Inc. 1996 Executive Incentive Compensation
Plan.  (Exhibit 10.1)
|-------- |  | ---------------------------------------------------------------------------------------------------------------------

|10.31(t) |  | Amendment
No. 6 to the Health Management Associates, Inc. 1996 Executive Incentive  Compensation
Plan. (Exhibit 10.2)
|-------- |  | ---------------------------------------------------------------------------------------------------------------------

|10.32(u) |  | Amendment
No. 10 to the Health Management Associates, Inc. 1991 Non-Statutory Stock Option Plan.
(Exhibit 10.37)
|-------- |  | ----------------------------------------------------------------------------------------------------------------

|10.33(u) |  | Amendment
No. 8 to the Health Management Associates, Inc. 1993 Non-Statutory Stock Option Plan.
(Exhibit 10.38)
|-------- |  | ---------------------------------------------------------------------------------------------------------------

|10.34(u) |  | Amendment
to Stock Option Agreements between Health Management Associates, Inc. and William J.
Schoen dated as of December 5, 2000.  (Exhibit 10.39)
|-------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------

|10.35(u) |  | Third
Amendment to the Health Management Associates, Inc. Supplemental Retirement Plan.
(Exhibit 10.40)
|-------- |  | -------------------------------------------------------------------------------------------------------

|10.36(v) |  | Employment
Agreement for William J. Schoen made as of January 2, 2001.  (Exhibit 99.2)
|-------- |  | --------------------------------------------------------------------------------------

|57
|--

|10.37(z) |  | Amendment
      No. 8 to the Health Management Associates, Inc. Stock Option Plan for Outside
      Directors. (Exhibit 10.1)
|-------- |  | -----------------------------------------------------------------------------------------------------------------------------

|10.38 |  | Amendment
      No. 9 to the Health Management Associates, Inc. Stock Option Plan for Outside
      Directors is filed as part of this Report as Exhibit 10.38.
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

|(11) |  | Statement
re computation of per share earnings
|---- |  | ----------------------------------------------

| | Not
applicable.
| | ---------------

|(12) |  | Statements
re computation of ratios
|---- |  | -----------------------------------

| | Not
applicable.
| | ---------------

|(13) |  | Annual
report to security holders, Form 10-Q or quarterly report to security holders
|---- |  | ------------------------------------------------------------------------------------

| | Not
applicable.
| | ---------------

|(16) |  | Letter
re change in certifying accountant
|---- |  | -----------------------------------------

| | Not
applicable.
| | ---------------

|(18) |  | Letter re change in accounting principles
|---- |  | -----------------------------------------

| | Not
applicable.
| | ---------------

|(21) |  | Subsidiaries
of the registrant
|---- |  | ------------------------------

|21.1 |  | Subsidiaries
of the Registrant are listed on Exhibit 21.1.
|---- |  | ----------------------------------------------------------

|(22) |  | Published
report regarding matters submitted to vote of security holders
|---- |  | ------------------------------------------------------------------------

| | None.
| | -----

|(23) |  | Consents
of experts and counsel
|---- |  | -------------------------------

|23.1 |  | Consent
of Ernst & Young LLP is filed as part of this Report as Exhibit 23.1.
|---- |  | -----------------------------------------------------------------------------

|(24) |  | Power
of Attorney
|---- |  | -----------------

| | Not
applicable.
| | ---------------

|(99) |  | Additional
Exhibits
|---- |  | -------------------

| | 99.1
Principal Executive Officer Certification pursuant to Section 1350 of Chapter 63 of Title
18 of the  United States Code.
| | -----------------------------------------------------------------------------------------------------------------------------

| | 99.2
Principal Financial Officer Certification pursuant to Section 1350 of Chapter 63 of Title
18 of the  United States Code.
| | -----------------------------------------------------------------------------------------------------------------------------

|58
|--

|(a) |  | Exhibit
previously filed as part of and is incorporated herein by reference to the Companys
Registration Statement on Form S-1 (Registration No. 33-36406). The exhibit number
contained in parenthesis refers to the exhibit number in such Registration Statement.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) |  | Exhibit
previously filed as part of and is incorporated herein by reference to the Companys
Registration Statement on Form S-1 (Registration No. 33-43193). The exhibit number
contained in parenthesis refers to the exhibit number in such Registration Statement.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(c) |  | Exhibit
      previously filed as part of and is incorporated herein by reference to the
      Companys Current Report on Form 8-K dated July 1, 1986 (SEC File No.
      1-9182). The exhibit number contained in parenthesis refers to the exhibit
      number in such Form 8-K.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(d) |  | Exhibit previously filed as part of and is incorporated herein by reference to
the Companys Quarterly Report on Form 10-Q for the quarter ended June 30,
1991 (SEC File No. 000-18799). The exhibit number contained in parenthesis
refers to the exhibit number in such Form 10-Q.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(e) |  | Exhibit previously filed as part of and is incorporated herein by reference to
the Companys Quarterly Report on Form 10-Q for the quarter ended December
31, 1991 (SEC File No. 000-18799). The exhibit number contained in parenthesis
refers to the exhibit number in such Form 10-Q.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(f) |  | Exhibit previously filed as part of and is incorporated herein by reference to
the Companys Annual Report on Form 10-K for the fiscal year ended
September 30, 1992 (SEC File No. 000-18799). The exhibit number contained in
parenthesis refers to the exhibit number in such Form 10-K.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(g) |  | Exhibit previously filed as part of and is incorporated herein by reference to
the Companys Annual Report on Form 10-K for the fiscal year ended
September 30, 1993 (SEC File No. 000-18799). The exhibit number contained in
parenthesis refers to the exhibit number in such Form 10-K.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(h) |  | Exhibit previously filed as part of and is incorporated herein by reference to
the Companys Annual Report on Form 10-K for the fiscal year ended
September 30, 1994 (SEC File No. 000-18799). The exhibit number contained in
parenthesis refers to the exhibit number in such Form 10-K.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(i) |  | Exhibit previously filed as part of and is incorporated herein by reference to
the Companys Quarterly Report on Form 10-Q for the quarter ended March 31,
1995 (SEC File No. 000-18799). The exhibit number contained in parenthesis
refers to the exhibit number in such Form 10-Q.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(j) |  | Exhibit previously filed as part of and is incorporated herein by reference to
the Companys Annual Report on Form 10-K for the fiscal year ended
September 30, 1995 (SEC File No. 000-18799). The exhibit number contained in
parenthesis refers to the exhibit number in such Form 10-K.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(k) |  | Exhibit
previously filed as part of and is incorporated herein by reference to the Companys
Registration Statement on Form S-8 (Registration No. 33-80433). The exhibit number
contained in parenthesis refers to the exhibit number in such Registration Statement.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(l) |  | Exhibit previously filed as part of and is incorporated herein by reference to
the Companys Quarterly Report on Form 10-Q for the quarter ended December
31, 1995 (SEC File No. 000-18799). The exhibit number contained in parenthesis
refers to the exhibit number in such Form 10-Q.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(m) |  | Exhibit previously filed as part of and is incorporated herein by reference to
the Companys Quarterly Report on Form 10-Q for the quarter ended March 31,
1996. The exhibit number contained in parenthesis refers to the exhibit number
in such Form 10-Q.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(n) |  | Exhibit
previously  filed as part of and is incorporated herein by reference to the Companys
Current Report on Form 8-K dated June 10, 1996. The exhibit number contained in
parenthesis refers to the exhibit number in such Form 8-K.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(o) |  | Exhibit previously filed as part of and is incorporated herein by reference to
the Companys Annual Report on Form 10-K for the fiscal year ended
September 30, 1996. The exhibit number contained in parenthesis refers to the
exhibit number in such Form 10-K.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|59
|--

|(p) |  | Exhibit previously filed as part of and is incorporated herein by reference to
the Companys Quarterly Report on Form 10-Q for the quarter ended December
31, 1996. The exhibit number contained in parenthesis refers to the exhibit
number in such Form 10-Q.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(q) |  | Exhibit previously filed as part of and is incorporated herein by reference to
the Companys Quarterly Report on Form 10-Q for the quarter ended June 30,
1998. The exhibit number contained in parenthesis refers to the exhibit number
in such Form 10-Q.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(r) |  | Exhibit previously filed as part of and is incorporated herein by reference to
the Companys Annual Report on Form 10-K for the fiscal year ended
September 30, 1999. The exhibit number contained in parenthesis refers to the
exhibit number in such Form 10-K.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(s) |  | Exhibit previously filed as part of and is incorporated herein by reference to
the Companys Quarterly Report on Form 10-Q for the quarter year ended
March 31, 2000. The exhibit number contained in parenthesis refers to the
exhibit number in such Form 10-Q.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(t) |  | Exhibit previously filed as part of and is incorporated herein by reference to
the Companys Quarterly Report on Form 10-Q for the quarter year ended June
30, 2000. The exhibit number contained in parenthesis refers to the exhibit
number in such Form 10-Q.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(u) |  | Exhibit previously filed as part of and is incorporated herein by reference to
the Companys Annual Report on Form 10-K for the fiscal year ended
September 30, 2000. The exhibit number contained in parenthesis refers to the
exhibit number in such Form 10-K.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(v) |  | Exhibit previously filed as part of and is incorporated herein by reference to
the Companys Registration Statement on Form S-8 (Registration No.
333-53602) filed on January 12, 2001. The exhibit contained in parenthesis
refers to the exhibit number in such Registration statement.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(w) |  | Exhibit previously filed as part of and is incorporated herein by reference to
the Companys Quarterly Report on Form 10-Q for the quarter ended March 31,
2000. The exhibit number contained in parenthesis refers to the exhibit number
in such Form 10-Q.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(x) |  | Exhibit previously filed as part of and is incorporated by reference herein by
reference to the Companys Registration Statement on Form S-3 (Registration
No. 333-48820) filed on October 27, 2000. The exhibit number contained in
parenthesis refers to the exhibit number in such Registration Statement.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(y) |  | Exhibit previously filed as part of and is incorporated by reference herein by
reference to the Companys Current Report on Form 8-K dated February 13,
2002. The exhibit number contained in parenthesis refers to the exhibit number
in such Form 8-K.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(z) |  | Exhibit previously filed as part of and is incorporated by reference herein by
reference to the Companys Quarterly Report on Form 10-Q for the quarter
ended December 31, 2001. The exhibit number contained in parenthesis refers to
the exhibit number in such Form 10-Q.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|60
|--