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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q

(Mark One)

|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|- |  | ---------------------------------------------------------------------------------------

For the quarterly period ended September 30, 2003

or

|  |  |                                                                                         
|- |  | ----------------------------------------------------------------------------------------
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________________ to ___________________

Commission File Number: 0-29818

(LIFE POINT HOSPITALS, INC. LOGO)

(Exact name of registrant as specified in its charter)


|                                                                        |  |                                                
|----------------------------------------------------------------------- |  | -----------------------------------------------
|Delaware
(State or other jurisdiction
of incorporation or organization) |  | 52-2165845
(I.R.S. Employer Identification No.)

|                                                                                          |  |                 
|----------------------------------------------------------------------------------------- |  | ----------------
|103 Powell Court, Suite 200
Brentwood, Tennessee
(Address of principal executive offices) |  | 37027
(Zip Code)

(615) 372-8500
(Registrants telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)

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 o

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

Yes x  No o

As of
October 24, 2003, the number of outstanding shares of Common Stock
of LifePoint Hospitals, Inc. was 37,690,983.





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TABLE OF CONTENTS



|                                             |                                                                                               |                                                      |  |  |  |  |  | 
|-------------------------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|PART I-FINANCIAL INFORMATION                
|                                             | Item 1. Financial Statements                                                                 
|                                             |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF INCOME         
|                                             |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS               
|                                             |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                                             |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                                             | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                             | Item 3. Quantitative and Qualitative Disclosures about Market Risk                           
|                                             | Item 4. Controls and Procedures                                                              
|PART II-OTHER INFORMATION                   
|                                             | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                                  
|EXHIBIT INDEX                               
|Ex-31.1 Section 302 Certification of the CEO
|Ex-31.2 Section 302 Certification of the CFO
|Ex-32.1 Section 906 Certification of the CEO
|Ex-32.2 Section 906 Certification of the CFO



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##### Table of Contents






PART I-FINANCIAL INFORMATION




Item 1. Financial Statements.

LIFEPOINT HOSPITALS, INC.




CONDENSED CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
(Dollars in millions, except per share amounts)

|                                                                            |            |   |                    |        |                   |   |       |        |      |   |       |        |  |   |       |        | 
|--------------------------------------------------------------------------- | ---------- | - | ------------------ | ------ | ----------------- | - | ----- | ------ | ---- | - | ----- | ------ |  | - | ----- | ------ | 
|                                                                            |            |   | Three Months Ended |        | Nine Months Ended
|                                                                            |            |   | September 30,      |        | September 30,    
|                                                                            |            |   |                    |        |                  
|                                                                            |            |   | 2003               |        | 2002              |   | 2003  |        | 2002
|                                                                            |            |   |                    |        |                   |   |       |        |     
|Revenues                                                                    |            | $ | 227.3              |        |                   | $ | 182.2 |        |      | $ | 669.8 |        |  | $ | 541.7 |       
|                                                                           
|Salaries and benefits                                                       |            |   | 90.5               |        |                   |   | 71.0  |        |      |   | 271.6 |        |  |   | 212.6 |       
|Supplies                                                                    |            |   | 29.0               |        |                   |   | 22.6  |        |      |   | 86.2  |        |  |   | 67.4  |       
|Other operating expenses                                                    |            |   | 40.3               |        |                   |   | 35.6  |        |      |   | 122.0 |        |  |   | 101.1 |       
|Provision for doubtful accounts                                             |            |   | 24.2               |        |                   |   | 12.5  |        |      |   | 58.6  |        |  |   | 38.8  |       
|Depreciation and amortization                                               |            |   | 10.8               |        |                   |   | 8.9   |        |      |   | 33.4  |        |  |   | 28.0  |       
|Interest expense, net                                                       |            |   | 3.3                |        |                   |   | 3.0   |        |      |   | 9.9   |        |  |   | 9.9   |       
|Debt retirement costs                                                       |            |   |                   |        |                   |   | 4.2   |        |      |   |      |        |  |   | 30.5  |       
|ESOP expense                                                                |            |   | 1.8                |        |                   |   | 2.2   |        |      |   | 4.9   |        |  |   | 7.4   |       
|                                                                            |            |   |                    |        |                   |   |       |        |      |   |       |        |  |   |       |       
|                                                                            |            |   | 199.9              |        |                   |   | 160.0 |        |      |   | 586.6 |        |  |   | 495.7 |       
|                                                                            |            |   |                    |        |                   |   |       |        |      |   |       |        |  |   |       |       
|Income before minority interest and income
taxes                            |            |   | 27.4               |        |                   |   | 22.2  |        |      |   | 83.2  |        |  |   | 46.0  |       
|Minority interest in earnings of consolidated entity                        |            |   | 0.3                |        |                   |   | 0.7   |        |      |   | 0.5   |        |  |   | 2.2   |       
|                                                                            |            |   |                    |        |                   |   |       |        |      |   |       |        |  |   |       |       
|Income before income taxes                                                  |            |   | 27.1               |        |                   |   | 21.5  |        |      |   | 82.7  |        |  |   | 43.8  |       
|Provision for income taxes                                                  |            |   | 10.9               |        |                   |   | 8.8   |        |      |   | 33.5  |        |  |   | 19.9  |       
|                                                                            |            |   |                    |        |                   |   |       |        |      |   |       |        |  |   |       |       
|                                                                            | Net income |   | $                  | 16.2   |                   |   | $     | 12.7   |      |   | $     | 49.2   |  |   | $     | 23.9   | 
|                                                                            |            |   |                    |        |                   |   |       |        |      |   |       |        |  |   |       |       
|Basic earnings per share                                                    |            | $ | 0.43               |        |                   | $ | 0.34  |        |      | $ | 1.31  |        |  | $ | 0.64  |       
|                                                                            |            |   |                    |        |                   |   |       |        |      |   |       |        |  |   |       |       
|Diluted earnings per share                                                  |            | $ | 0.42               |        |                   | $ | 0.33  |        |      | $ | 1.26  |        |  | $ | 0.62  |       
|                                                                            |            |   |                    |        |                   |   |       |        |      |   |       |        |  |   |       |       
|Weighted average shares and dilutive securities
outstanding (in thousands): |            |   |                    |        |                   |   |       |        |      |   |       |        |  |   |       |       
|                                                                            | Basic      |   |                    | 37,242 |                   |   |       | 37,616 |      |   |       | 37,505 |  |   |       | 37,469 | 
|                                                                            |            |   |                    |        |                   |   |       |        |      |   |       |        |  |   |       |       
|                                                                            | Diluted    |   |                    | 43,422 |                   |   |       | 38,620 |      |   |       | 43,558 |  |   |       | 38,582 | 
|                                                                            |            |   |                    |        |                   |   |       |        |      |   |       |        |  |   |       |       

See accompanying notes.

2



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LIFEPOINT HOSPITALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions, except per share amounts)

|                                                               |                                                                                                                                                                                                                               |   |               |        |              |   |       |        |  
|-------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------- | ------ | ------------ | - | ----- | ------ | -
|                                                               |                                                                                                                                                                                                                               |   | September 30, |        | December 31,
|                                                               |                                                                                                                                                                                                                               |   | 2003          |        | 2002        
|                                                               |                                                                                                                                                                                                                               |   |               |        |             
|                                                               |                                                                                                                                                                                                                               |   | (unaudited)   |        | (1)         
|ASSETS                                                         |                                                                                                                                                                                                                               |   |               |        |              |   |       |       
|Current assets:                                                |                                                                                                                                                                                                                               |   |               |        |              |   |       |       
|                                                               | Cash and cash equivalents                                                                                                                                                                                                     |   | $             | 20.1   |              |   | $     | 23.0   |  
|                                                               | Accounts receivable, less allowances for doubtful accounts of $108.7 at
September
30, 2003 and $109.1 at December 31, 2002                                                                                                    |   |               | 93.1   |              |   |       | 85.0   |  
|                                                               | Inventories                                                                                                                                                                                                                   |   |               | 21.4   |              |   |       | 20.5   |  
|                                                               | Income taxes receivable                                                                                                                                                                                                       |   |               | 9.0    |              |   |       |       |  
|                                                               | Deferred income taxes and other current assets                                                                                                                                                                                |   |               | 18.1   |              |   |       | 14.8   |  
|                                                               |                                                                                                                                                                                                                               |   |               |        |              |   |       |       
|                                                               |                                                                                                                                                                                                                               |   | 161.7         |        |              |   | 143.3 |       
|Property and equipment:                                        |                                                                                                                                                                                                                               |   |               |        |              |   |       |       
|                                                               | Land                                                                                                                                                                                                                          |   |               | 12.4   |              |   |       | 11.3   |  
|                                                               | Buildings and improvements                                                                                                                                                                                                    |   |               | 302.1  |              |   |       | 285.3  |  
|                                                               | Equipment                                                                                                                                                                                                                     |   |               | 320.1  |              |   |       | 295.5  |  
|                                                               | Construction in progress (estimated cost to complete and equip after
September 30, 2003 is $96.6)                                                                                                                             |   |               | 38.2   |              |   |       | 18.1   |  
|                                                               |                                                                                                                                                                                                                               |   |               |        |              |   |       |       
|                                                               |                                                                                                                                                                                                                               |   | 672.8         |        |              |   | 610.2 |       
|                                                               | Accumulated depreciation                                                                                                                                                                                                      |   |               | (267.1 | )            |   |       | (238.0 | )
|                                                               |                                                                                                                                                                                                                               |   |               |        |              |   |       |       
|                                                               |                                                                                                                                                                                                                               |   | 405.7         |        |              |   | 372.2 |       
|Deferred loan costs, net                                       |                                                                                                                                                                                                                               |   | 7.4           |        |              |   | 8.6   |       
|Unallocated purchase price                                     |                                                                                                                                                                                                                               |   | 131.1         |        |              |   | 136.1 |       
|Intangible assets, net                                         |                                                                                                                                                                                                                               |   | 3.3           |        |              |   | 3.8   |       
|Goodwill                                                       |                                                                                                                                                                                                                               |   | 76.2          |        |              |   | 69.2  |       
|Other                                                          |                                                                                                                                                                                                                               |   |              |        |              |   | 0.3   |       
|                                                               |                                                                                                                                                                                                                               |   |               |        |              |   |       |       
|                                                               |                                                                                                                                                                                                                               | $ | 785.4         |        |              | $ | 733.5 |       
|                                                               |                                                                                                                                                                                                                               |   |               |        |              |   |       |        |  
|LIABILITIES AND EQUITY                                         |                                                                                                                                                                                                                               |   |               |        |              |   |       |       
|Current liabilities:                                           |                                                                                                                                                                                                                               |   |               |        |              |   |       |       
|                                                               | Accounts payable                                                                                                                                                                                                              |   | $             | 36.1   |              |   | $     | 28.5   |  
|                                                               | Accrued salaries                                                                                                                                                                                                              |   |               | 23.0   |              |   |       | 24.4   |  
|                                                               | Other current liabilities                                                                                                                                                                                                     |   |               | 22.5   |              |   |       | 14.3   |  
|                                                               | Estimated third-party payor settlements                                                                                                                                                                                       |   |               | 4.1    |              |   |       | 8.2    |  
|                                                               |                                                                                                                                                                                                                               |   |               |        |              |   |       |       
|                                                               |                                                                                                                                                                                                                               |   | 85.7          |        |              |   | 75.4  |       
|                                                              
|Long-term debt                                                 |                                                                                                                                                                                                                               |   | 250.0         |        |              |   | 250.0 |       
|Deferred income taxes                                          |                                                                                                                                                                                                                               |   | 32.0          |        |              |   | 24.9  |       
|Professional and general liability risks and other liabilities |                                                                                                                                                                                                                               |   | 29.4          |        |              |   | 25.6  |       
|                                                              
|Minority interest in equity of consolidated entity             |                                                                                                                                                                                                                               |   | 1.5           |        |              |   |      |       
|                                                              
|Stockholders equity:                                          |                                                                                                                                                                                                                               |   |               |        |              |   |       |       
|                                                               | Preferred stock, $0.01 par value; 10,000,000 shares authorized; no shares issued                                                                                                                                              |   |               |       |              |   |       |       |  
|                                                               | Common stock, $0.01 par value; 90,000,000 shares authorized; 38,860,165
shares issued and 38,399,965 shares outstanding at September 30, 2003 and
39,550,540 shares issued and outstanding at December 31, 2002, respectively |   |               | 0.4    |              |   |       | 0.4    |  
|                                                               | Capital in excess of par value                                                                                                                                                                                                |   |               | 296.6  |              |   |       | 297.2  |  
|                                                               | Unearned ESOP compensation                                                                                                                                                                                                    |   |               | (16.9  | )            |   |       | (19.3  | )
|                                                               | Retained earnings                                                                                                                                                                                                             |   |               | 117.9  |              |   |       | 79.3   |  
|                                                               | Treasury stock, at cost, 460,200 shares at September 30, 2003                                                                                                                                                                 |   |               | (11.2  | )            |   |       |       |  
|                                                               |                                                                                                                                                                                                                               |   |               |        |              |   |       |       
|                                                               |                                                                                                                                                                                                                               |   | 386.8         |        |              |   | 357.6 |       
|                                                               |                                                                                                                                                                                                                               |   |               |        |              |   |       |       
|                                                               |                                                                                                                                                                                                                               | $ | 785.4         |        |              | $ | 733.5 |       
|                                                               |                                                                                                                                                                                                                               |   |               |        |              |   |       |        |  



---

|(1) |  | Derived from audited financial statements.
|--- |  | ------------------------------------------

See accompanying notes.

3



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LIFEPOINT HOSPITALS, INC.




CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(In millions)

|                                                 |                                                                                   |                                                                                                      |                                                     |       |                    |       |                   |       |      |       |      |       |      |       |       |        |      |       |  
|------------------------------------------------ | --------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------- | --------------------------------------------------- | ----- | ------------------ | ----- | ----------------- | ----- | ---- | ----- | ---- | ----- | ---- | ----- | ----- | ------ | ---- | ----- | -
|                                                 |                                                                                   |                                                                                                      |                                                     |       | Three Months Ended |       | Nine Months Ended
|                                                 |                                                                                   |                                                                                                      |                                                     |       | September 30,      |       | September 30,    
|                                                 |                                                                                   |                                                                                                      |                                                     |       |                    |       |                  
|                                                 |                                                                                   |                                                                                                      |                                                     |       | 2003               |       | 2002              |       | 2003 |       | 2002
|                                                 |                                                                                   |                                                                                                      |                                                     |       |                    |       |                   |       |      |       |     
|Cash flows from operating activities:            |                                                                                   |                                                                                                      |                                                     |       |                    |       |                   |       |      |       |      |       |      |       |       |       
|                                                 | Net income                                                                        |                                                                                                      | $                                                   | 16.2  |                    |       | $                 | 12.7  |      |       | $    | 49.2  |      |       | $     | 23.9   |     
|                                                 | Adjustments to reconcile net income to net cash
provided by operating activities: |                                                                                                      |                                                     |       |                    |       |                   |       |      |       |      |       |      |       |       |        |     
|                                                 |                                                                                   | Depreciation and amortization                                                                        |                                                     |       | 10.8               |       |                   |       | 8.9  |       |      |       | 33.4 |       |       |        | 28.0 |      
|                                                 |                                                                                   | Debt retirement costs                                                                                |                                                     |       |                   |       |                   |       | 4.2  |       |      |       |     |       |       |        | 30.5 |      
|                                                 |                                                                                   | ESOP expense                                                                                         |                                                     |       | 1.8                |       |                   |       | 2.2  |       |      |       | 4.9  |       |       |        | 7.4  |      
|                                                 |                                                                                   | Minority interest in earnings of consolidated entity                                                 |                                                     |       | 0.3                |       |                   |       | 0.7  |       |      |       | 0.5  |       |       |        | 2.2  |      
|                                                 |                                                                                   | Deferred income taxes                                                                                |                                                     |       | 5.0                |       |                   |       | 1.4  |       |      |       | 7.1  |       |       |        | 0.6  |      
|                                                 |                                                                                   | Reserve for professional and general liability risks,
net                                            |                                                     |       | (0.5               | )     |                   |       | 2.4  |       |      |       | 3.3  |       |       |        | 7.5  |      
|                                                 |                                                                                   | Tax benefit from stock option exercises                                                              |                                                     |       | 0.5                |       |                   |       | 0.3  |       |      |       | 0.7  |       |       |        | 1.3  |      
|                                                 |                                                                                   | Increase (decrease) in cash from operating assets and
liabilities, net of effects from acquisitions: |                                                     |       |                    |       |                   |       |      |       |      |       |      |       |       |        |      |      
|                                                 |                                                                                   |                                                                                                      | Accounts receivable                                 |       |                    | 1.1   |                   |       |      | 3.4   |      |       |      | (6.8  | )     |        |      | (14.8 | )
|                                                 |                                                                                   |                                                                                                      | Inventories and other current assets                |       |                    | (1.0  | )                 |       |      | 1.7   |      |       |      | (4.4  | )     |        |      | (1.4  | )
|                                                 |                                                                                   |                                                                                                      | Accounts payable and accrued expenses               |       |                    | 14.3  |                   |       |      | 7.5   |      |       |      | 16.3  |       |        |      | 11.6  |  
|                                                 |                                                                                   |                                                                                                      | Income taxes payable                                |       |                    | (4.8  | )                 |       |      | 2.4   |      |       |      | (9.1  | )     |        |      | (0.1  | )
|                                                 |                                                                                   |                                                                                                      | Estimated third-party payor settlements             |       |                    | (1.8  | )                 |       |      | (7.0  | )    |       |      | (4.1  | )     |        |      | (2.6  | )
|                                                 |                                                                                   | Other                                                                                                |                                                     |       | 0.2                |       |                   |       | 0.5  |       |      |       | 1.2  |       |       |        | (0.2 | )    
|                                                 |                                                                                   |                                                                                                      |                                                     |       |                    |       |                   |       |      |       |      |       |      |       |       |       
|                                                 |                                                                                   |                                                                                                      | Net cash provided by operating activities           |       |                    | 42.1  |                   |       |      | 41.3  |      |       |      | 92.2  |       |        |      | 93.9  |  
|                                                
|Cash flows from investing activities:            |                                                                                   |                                                                                                      |                                                     |       |                    |       |                   |       |      |       |      |       |      |       |       |       
|                                                 | Purchases of property and equipment, net                                          |                                                                                                      |                                                     | (16.2 | )                  |       |                   | (15.4 | )    |       |      | (54.2 | )    |       |       | (42.2  | )   
|                                                 | Purchases of facilities                                                           |                                                                                                      |                                                     | (15.7 | )                  |       |                   |      |      |       |      | (16.3 | )    |       |       |       |     
|                                                 | Maturities of short-term investments                                              |                                                                                                      |                                                     |      |                    |       |                   | 21.5  |      |       |      |      |      |       |       |       |     
|                                                 | Other                                                                             |                                                                                                      |                                                     |      |                    |       |                   | (0.9  | )    |       |      | 1.0   |      |       |       | (2.2   | )   
|                                                 |                                                                                   |                                                                                                      |                                                     |       |                    |       |                   |       |      |       |      |       |      |       |       |       
|                                                 |                                                                                   |                                                                                                      | Net cash (used in) provided by investing activities |       |                    | (31.9 | )                 |       |      | 5.2   |      |       |      | (69.5 | )     |        |      | (44.4 | )
|                                                
|Cash flows from financing activities:            |                                                                                   |                                                                                                      |                                                     |       |                    |       |                   |       |      |       |      |       |      |       |       |       
|                                                 | Repurchases of common stock                                                       |                                                                                                      |                                                     | (11.0 | )                  |       |                   |      |      |       |      | (28.0 | )    |       |       |       |     
|                                                 | Repurchases of senior subordinated notes                                          |                                                                                                      |                                                     |      |                    |       |                   | (22.8 | )    |       |      |      |      |       |       | (173.1 | )   
|                                                 | Proceeds from employee loans                                                      |                                                                                                      |                                                     |      |                    |       |                   | 5.2   |      |       |      |      |      |       |       | 5.2    |     
|                                                 | Proceeds from issuance of convertible notes, net                                  |                                                                                                      |                                                     |      |                    |       |                   | (0.2  | )    |       |      |      |      |       |       | 242.5  |     
|                                                 | Proceeds from exercise of stock options                                           |                                                                                                      |                                                     | 0.8   |                    |       |                   | 0.2   |      |       |      | 1.3   |      |       |       | 2.4    |     
|                                                 | Other                                                                             |                                                                                                      |                                                     | 0.6   |                    |       |                   | (0.2  | )    |       |      | 1.1   |      |       |       | 0.1    |     
|                                                 |                                                                                   |                                                                                                      |                                                     |       |                    |       |                   |       |      |       |      |       |      |       |       |       
|                                                 |                                                                                   |                                                                                                      | Net cash (used in) provided by financing activities |       |                    | (9.6  | )                 |       |      | (17.8 | )    |       |      | (25.6 | )     |        |      | 77.1  |  
|                                                
|Change in cash and cash equivalents              |                                                                                   |                                                                                                      | 0.6                                                 |       |                    |       | 28.7              |       |      |       | (2.9 | )     |      |       | 126.6 |       
|Cash and cash equivalents at beginning of period |                                                                                   |                                                                                                      | 19.5                                                |       |                    |       | 155.1             |       |      |       | 23.0 |       |      |       | 57.2  |       
|                                                 |                                                                                   |                                                                                                      |                                                     |       |                    |       |                   |       |      |       |      |       |      |       |       |       
|Cash and cash equivalents at end of period       |                                                                                   | $                                                                                                    | 20.1                                                |       |                    | $     | 183.8             |       |      | $     | 20.1 |       |      | $     | 183.8 |       
|                                                 |                                                                                   |                                                                                                      |                                                     |       |                    |       |                   |       |      |       |      |       |      |       |       |        |     
|Interest payments                                |                                                                                   | $                                                                                                    | 0.3                                                 |       |                    | $     | 0.6               |       |      | $     | 6.6  |       |      | $     | 9.0   |       
|Income taxes paid, net                           |                                                                                   | $                                                                                                    | 10.1                                                |       |                    | $     | 5.0               |       |      | $     | 34.8 |       |      | $     | 18.2  |       

See accompanying notes.

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LIFEPOINT HOSPITALS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2003
(UNAUDITED)

NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION

At September 30, 2003, LifePoint Hospitals, Inc. (the Company) was
comprised of 28 general, acute care hospitals and related healthcare entities
located in non-urban communities in the states of Alabama, Florida, Kansas,
Kentucky, Louisiana, Tennessee, Utah, West Virginia and Wyoming.

The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with accounting principles generally accepted
in the United States for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
adjustments) and disclosures considered necessary for a fair presentation have
been included. Operating results for the three months and nine months ended
September 30, 2003 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2003. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
Companys Annual Report on Form 10-K for the year ended December 31, 2002.

Certain prior year amounts have been reclassified to conform to the
current year presentation. These reclassifications have no impact on total
assets, liabilities, stockholders equity, net income or cash flows.

As of January 1, 2003, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 145, a standard that addresses the
classification of gains or losses from early retirement of debt. Prior to the
adoption of SFAS No. 145, the Company reported losses from the early retirement
of debt as extraordinary items, net of tax benefits in the consolidated
statement of income. During the three months and nine months ended September
30, 2002, the Company recorded a $2.5 million and $18.9 million extraordinary
loss, net of tax benefits of $1.7 million and $11.6 million, respectively, that
resulted from the early retirement of debt. These charges were reclassified to
comply with SFAS No. 145 by reducing previously reported income before minority
interest and income taxes by $4.2 million and $30.5 million and reducing income
taxes by $1.7 million and $11.6 million for the three months and nine months
ended September 30, 2002, respectively, in the accompanying condensed
consolidated statements of income. This reclassification had no impact on
reported net income.

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NOTE 2 - EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted
earnings per share (dollars in millions, except per share amounts, and shares
in thousands):

|                                                                              |                        |   |                    |       |                   |   |        |     |          |   |        |       |  |   |        |       | 
|----------------------------------------------------------------------------- | ---------------------- | - | ------------------ | ----- | ----------------- | - | ------ | --- | -------- | - | ------ | ----- |  | - | ------ | ----- | 
|                                                                              |                        |   | Three Months Ended |       | Nine Months Ended
|                                                                              |                        |   | September 30,      |       | September 30,    
|                                                                              |                        |   |                    |       |                  
|                                                                              |                        |   | 2003               |       | 2002 (a)          |   | 2003   |     | 2002 (b)
|                                                                              |                        |   |                    |       |                   |   |        |     |         
|Numerator:                                                                    |                        |   |                    |       |                   |   |        |     |          |   |        |       |  |   |        |      
|Numerator for basic earnings per share-net income                             |                        | $ | 16.2               |       |                   | $ | 12.7   |     |          | $ | 49.2   |       |  | $ | 23.9   |      
|Interest on convertible notes, net of taxes                                   |                        |   | 2.0                |       |                   |   |       |     |          |   | 5.9    |       |  |   |       |      
|                                                                              |                        |   |                    |       |                   |   |        |     |          |   |        |       |  |   |        |      
|Numerator for diluted earnings per share                                      |                        | $ | 18.2               |       |                   | $ | 12.7   |     |          | $ | 55.1   |       |  | $ | 23.9   |      
|                                                                              |                        |   |                    |       |                   |   |        |     |          |   |        |       |  |   |        |      
|Denominator:                                                                  |                        |   |                    |       |                   |   |        |     |          |   |        |       |  |   |        |      
|Denominator for basic earnings per share-weighted
average shares outstanding  |                        |   | 37,242             |       |                   |   | 37,616 |     |          |   | 37,505 |       |  |   | 37,469 |      
|Effect of dilutive securities:                                                |                        |   |                    |       |                   |   |        |     |          |   |        |       |  |   |        |      
|                                                                              | Employee stock options |   |                    | 846   |                   |   |        | 920 |          |   |        | 713   |  |   |        | 1,026 | 
|                                                                              | Convertible notes      |   |                    | 5,279 |                   |   |        |    |          |   |        | 5,279 |  |   |        |      | 
|                                                                              | Other                  |   |                    | 55    |                   |   |        | 84  |          |   |        | 61    |  |   |        | 87    | 
|                                                                              |                        |   |                    |       |                   |   |        |     |          |   |        |       |  |   |        |      
|Denominator for diluted earnings per share - adjusted
weighted average shares |                        |   | 43,422             |       |                   |   | 38,620 |     |          |   | 43,558 |       |  |   | 38,582 |      
|                                                                              |                        |   |                    |       |                   |   |        |     |          |   |        |       |  |   |        |      
|Basic earnings per share                                                      |                        | $ | 0.43               |       |                   | $ | 0.34   |     |          | $ | 1.31   |       |  | $ | 0.64   |      
|                                                                              |                        |   |                    |       |                   |   |        |     |          |   |        |       |  |   |        |      
|Diluted earnings per share                                                    |                        | $ | 0.42               |       |                   | $ | 0.33   |     |          | $ | 1.26   |       |  | $ | 0.62   |      
|                                                                              |                        |   |                    |       |                   |   |        |     |          |   |        |       |  |   |        |      



---

|(a) |  | The impact of the 5.3 million potential weighted average shares of
common stock, if converted, and interest expense related to the
convertible notes was not included in the computation of diluted
earnings per share because the effect would have been anti-dilutive.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | The impact of the 2.6 million potential weighted average shares of
common stock, if converted, and interest expense related to the
convertible notes was not included in the computation of diluted
earnings per share because the effect would have been anti-dilutive.

NOTE 3 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46, Consolidation of Variable Interest Entities, an
Interpretation of Accounting Research Bulletin No. 51 (FIN 46). FIN 46
requires certain variable interest entities to be consolidated by the primary
beneficiary of the entity if the equity investors in the entity do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46 is effective for all
new variable interest entities created or acquired after January 31, 2003. For
variable interest entities created or acquired prior to February 1, 2003, the
provisions of FIN 46, as amended, must be applied for the first interim or
annual period ending after December 15, 2003. The Company does not expect FIN
46 to have a material effect on its future results of operations, financial
position or liquidity.

NOTE 4  STOCK BENEFIT PLANS

The Company issues stock options and other stock-based awards to key
employees and directors. SFAS No. 123, Accounting for Stock-Based
Compensation, encourages, but does not require, companies to record
compensation cost for stock-based employee compensation plans at fair value. In
December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure, an Amendment of FASB Statement No.
123. SFAS No. 148 provides alternative methods of transition for companies
making a voluntary change to fair value-based accounting for stock-based
employee compensation. The Company continues to account for its stock-based
compensation plans under the intrinsic value recognition and measurement
principles of Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, and related Interpretations. Effective for interim
periods beginning after December 15, 2002, SFAS No. 148 also requires

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disclosure of pro-forma results on a quarterly basis as if the Company had
applied the fair value recognition provisions of SFAS No. 123.

As the exercise price of all options granted under the Companys incentive
plans was equal to the market price of the underlying common stock on the grant
date, no stock-based employee compensation is recognized in net income. The
following table illustrates the effect on net income and earnings per share if
the Company had applied the fair value recognition provisions of SFAS No. 123,
as amended, to options granted under the stock option plans. For purposes of
this pro-forma disclosure, the value of the options is estimated using a
Black-Scholes option pricing model and amortized ratably to expense over the
options vesting periods. Because the estimated value is determined as of the
date of grant, the actual value ultimately realized by the employee may be
significantly different.

|                                                                                                                           |  |                                         |      |                   |  |      |      |      |  |   |      |   |  |   |      |  
|-------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------- | ---- | ----------------- |  | ---- | ---- | ---- |  | - | ---- | - |  | - | ---- | -
|                                                                                                                           |  | Three Months Ended                      |      | Nine Months Ended
|                                                                                                                           |  | September 30,                           |      | September 30,    
|                                                                                                                           |  |                                         |      |                  
|                                                                                                                           |  | 2003                                    |      | 2002              |  | 2003 |      | 2002
|                                                                                                                           |  |                                         |      |                   |  |      |      |     
|                                                                                                                           |  | (In millions, except per share amounts)
|Net income, as
reported                                                                                                    |  | $                                       | 16.2 |                   |  | $    | 12.7 |      |  | $ | 49.2 |   |  | $ | 23.9 |  
|Less:
Stock-based
compensation
expense determined
under fair
value based method
for all awards, net
of related tax
effects |  |                                         | (2.0 | )                 |  |      | (2.1 | )    |  |   | (6.7 | ) |  |   | (5.9 | )
|                                                                                                                           |  |                                         |      |                   |  |      |      |      |  |   |      |   |  |   |      |  
|Pro-forma net
income                                                                                                       |  | $                                       | 14.2 |                   |  | $    | 10.6 |      |  | $ | 42.5 |   |  | $ | 18.0 |  
|                                                                                                                           |  |                                         |      |                   |  |      |      |      |  |   |      |   |  |   |      |  
|Earnings
per share:                                                                                                        |  |                                         |      |                   |  |      |      |      |  |   |      |   |  |   |      |  
|Basic  as
reported                                                                                                        |  | $                                       | 0.43 |                   |  | $    | 0.34 |      |  | $ | 1.31 |   |  | $ | 0.64 |  
|                                                                                                                           |  |                                         |      |                   |  |      |      |      |  |   |      |   |  |   |      |  
|Basic 
pro-forma                                                                                                          |  | $                                       | 0.38 |                   |  | $    | 0.28 |      |  | $ | 1.13 |   |  | $ | 0.48 |  
|                                                                                                                           |  |                                         |      |                   |  |      |      |      |  |   |      |   |  |   |      |  
|Diluted  as
reported                                                                                                      |  | $                                       | 0.42 |                   |  | $    | 0.33 |      |  | $ | 1.26 |   |  | $ | 0.62 |  
|                                                                                                                           |  |                                         |      |                   |  |      |      |      |  |   |      |   |  |   |      |  
|Diluted 
pro-forma                                                                                                        |  | $                                       | 0.37 |                   |  | $    | 0.28 |      |  | $ | 1.11 |   |  | $ | 0.47 |  
|                                                                                                                           |  |                                         |      |                   |  |      |      |      |  |   |      |   |  |   |      |  

The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. Option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. The
Companys employee stock options have characteristics significantly different
from those of traded options. Changes in the subjective input assumptions can
materially affect the fair value estimate. Other option valuation models may
produce significantly different fair values of the Companys employee stock
options.

The weighted average estimated value of stock options granted during the
third quarter of 2003 was $10.41 ($11.82 for the third quarter of 2002), and
for the nine months ended September 30, 2003 was $7.93 ($14.13 for the nine
months ended September 30, 2002). These options were granted with an exercise
price equal to the market price at the date of grant. These options become
exercisable beginning in part from the date of grant to three years after the
date of grant and expire 10 years after grant. The above table includes these
additional stock options for the period subsequent to their grant. The values
were estimated at the date of grant using the following weighted average
assumptions:

|                         |  |                    |      |      |                   |      |      |      |  |  |      |   |  |  |      |  
|------------------------ |  | ------------------ | ---- | ---- | ----------------- | ---- | ---- | ---- |  |  | ---- | - |  |  | ---- | -
|                         |  | Three Months Ended |      |      | Nine Months Ended
|                         |  | September 30,      |      |      | September 30,    
|                         |  |                    |      |     
|                         |  | 2003               |      | 2002 |                   | 2003 |      | 2002
|                         |  |                    |      |      |                   |      |      |     
|Expected life (in years) |  |                    | 3.0  |      |                   |      | 3.0  |      |  |  | 3.0  |   |  |  | 3.0  |  
|Risk free interest rate  |  |                    | 2.64 | %    |                   |      | 2.49 | %    |  |  | 1.88 | % |  |  | 3.58 | %
|Volatility               |  |                    | 53   | %    |                   |      | 53   | %    |  |  | 53   | % |  |  | 53   | %

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Additional information with respect to stock option plan activity is as
follows:

|                   |  |               |            |           |  |                     |           |          |  |   |       | 
|------------------ |  | ------------- | ---------- | --------- |  | ------------------- | --------- | -------- |  | - | ----- | 
|                   |  |               |            |           |  | Outstanding Options
|                   |  |               |            |           |  |                    
|                   |  | Shares        |            |           |  |                     |           | Weighted
|                   |  | Available for |            | Number of |  | Average            
|                   |  | Options       |            | Shares    |  | Exercise Price     
|                   |  |               |            |           |  |                    
|December 31, 2001  |  |               | 4,209,000  |           |  |                     | 3,439,100 |          |  | $ | 19.33 | 
|Grants             |  |               | (940,900   | )         |  |                     | 940,900   |          |  | $ | 36.11 | 
|Exercises          |  |               |           |           |  |                     | (265,000  | )        |  | $ | 11.18 | 
|Cancellations      |  |               | 98,600     |           |  |                     | (98,600   | )        |  | $ | 19.04 | 
|                   |  |               |            |           |  |                     |           |          |  |   |       | 
|December 31, 2002  |  |               | 3,366,700  |           |  |                     | 4,016,400 |          |  | $ | 23.81 | 
|Grants             |  |               | (1,031,400 | )         |  |                     | 1,031,400 |          |  | $ | 21.38 | 
|Exercises          |  |               |           |           |  |                     | (107,900  | )        |  | $ | 12.22 | 
|Cancellations      |  |               | 159,500    |           |  |                     | (159,500  | )        |  | $ | 30.26 | 
|                   |  |               |            |           |  |                     |           |          |  |   |       | 
|September 30, 2003 |  |               | 2,494,800  |           |  |                     | 4,780,400 |          |  | $ | 23.33 | 
|                   |  |               |            |           |  |                     |           |          |  |   |       | 

NOTE 5 - CONTINGENCIES

HCA Investigations, Litigation and Indemnification Rights

HCA Inc. (HCA) has been the subject of various federal and state
investigations, qui tamactions, shareholder derivative and class action suits,
patient/payor actions and general liability claims. These investigations,
actions and claims relate to HCA and its subsidiaries, including subsidiaries
that, before the Companys formation as an independent company, owned many of
the facilities that the Company now owns.

As of July 1, 2003, HCA had announced agreements with the Department of
Justice that settled all federal criminal and civil litigation brought by the
Department of Justice against HCA with respect to DRG coding, outpatient
laboratory billing, home health issues, cost reports, physician relations and
wound care issues. The settlement of these issues does not affect qui tam
actions in which the Department of Justice has not intervened. Additionally,
HCA has announced that it made payments to the Centers for Medicare and
Medicaid Services (CMS) in accordance with an agreement to resolve all
Medicare cost report, home office cost statement and appeal issues.

HCA has agreed to indemnify the Company for any losses, other than
consequential damages, arising from the governmental investigations of HCAs
business practices prior to the date of the distribution of the outstanding
shares of the Companys common stock to the stockholders of HCA and losses
arising from legal proceedings, present or future, related to the investigation
or actions engaged in before the distribution that relate to the investigation.
However, the Company could be held responsible for any claims that are not
covered by the agreements reached with the federal government or for which HCA
is not required to, or fails to, indemnify the Company.

Internal Revenue Service Examination

During 2003, the Internal Revenue Service (IRS) extended its examination
of the Companys federal income tax returns to include the calendar year ended
December 31, 2001. During the third quarter of 2003, the IRS notified the
Company regarding its findings related to the examination of the Companys tax
returns for the years ended December 31, 1999, 2000 and 2001.
Management believes the one significant finding from the IRS examination of the Companys federal tax
returns related to the timing of the Companys bad debt deduction. The IRS has disputed the
Companys computation of its tax deduction for bad debts during the years under
examination resulting in an assessment of additional taxes of
$7.4 million, which primarily represents a temporary difference.
The IRS has delayed final settlement of this assessment until
resolution of certain pending court proceedings related to the use of this bad
debt deduction method by another hospital company. Management believes that
adequate provisions have been reflected in the condensed consolidated financial
statements to satisfy final resolution of the remaining disputed issue based
upon current facts and circumstances.

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Americans with Disabilities Act Claim

On January 12, 2001, Access Now, Inc., a disability rights organization,
filed a class action lawsuit against each of the Companys hospitals alleging
non-compliance with the accessibility guidelines under the Americans with
Disabilities Act (the ADA). The lawsuit, filed in the United States District
Court for the Eastern District of Tennessee, seeks injunctive relief requiring
facility modification, where necessary, to meet the Americans with Disabilities
Act guidelines, along with attorneys fees and costs. In January 2002, the
District Court certified the class action and issued a scheduling order that
requires the parties to complete discovery and inspection for approximately six
facilities per year. The Company intends to vigorously defend the lawsuit,
recognizing the Companys obligation to correct any deficiencies in order to
comply with the ADA.

Corporate Integrity Agreement

In December 2000, the Company entered into a corporate integrity agreement
with the Office of Inspector General and agreed to maintain its compliance
program in accordance with the corporate integrity agreement. This agreement
was amended in April 2002. Complying with the compliance measures and reporting
and auditing requirements of the corporate integrity agreement will require
additional efforts and costs. Failure to comply with the terms of the corporate
integrity agreement could subject the Company to significant monetary
penalties.

General Liability Claims

The Company is, from time to time, subject to claims and suits arising in
the ordinary course of business, including claims for damages for personal
injuries, medical malpractice, breach of contracts, wrongful restriction of or
interference with physicians staff privileges and employment related claims.
In certain of these actions, plaintiffs request punitive or other damages
against the Company which may not be covered by insurance. The Company is
currently not a party to any proceeding which, in managements opinion, would
have a material adverse effect on the Companys business, financial condition
or results of operations.

Physician Commitments

The Company has committed to provide certain financial assistance pursuant
to recruiting agreements with various physicians practicing in the communities
it serves. In consideration for a physician relocating to one of the Companys
communities and agreeing to engage in private practice for the benefit of the
respective community, the Company may loan certain amounts of money to a
physician, normally over a period of one year, to assist in establishing his or
her practice. The Company had committed to advance a maximum amount of
approximately $27.9 million at September 30, 2003. The actual amount of such
commitments to be subsequently advanced to physicians often depends upon the
financial results of a physicians private practice during the guaranteed
period. Generally, amounts advanced under the recruiting agreements may be
forgiven pro rata over a period of 48 months, contingent upon the physician
continuing to practice in the respective community.

Capital Expenditure Commitments

The Company is reconfiguring some of its facilities to accommodate more
effectively inpatient and outpatient services and restructuring existing
surgical capacity in some of its hospitals to permit additional patient volume
and a greater variety of services. The Company had incurred approximately $38.2
million in uncompleted projects as of September 30, 2003, which is included in
construction in progress in its accompanying condensed consolidated balance
sheet. At September 30, 2003, the Company had projects under construction with
an estimated additional cost to complete and equip of approximately $96.6
million.

Pursuant to the asset purchase agreement for Ville Platte Medical Center,
the Company has agreed to make certain capital improvements, the cost of which,
together with the initial cash payment, defeasement of certain bonds and
liabilities assumed, is not required to exceed $25.0 million. The capital
improvements must be completed by December 1, 2004. The initial cash payment
and liabilities assumed totaled $15.1 million, which leaves $9.9 million
required for capital improvements. The Company had incurred approximately $3.0
million of the required capital improvements as of September 30, 2003.

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Pursuant to the asset purchase agreement for Logan Regional Medical
Center, the Company has agreed to expend, regardless of the results of the
hospitals operations, at least $20.0 million in the aggregate for capital
expenditures and improvements during the ten-year period following the date of
acquisition of December 1, 2002. The Company had incurred
approximately $1.3
million of the required capital improvements as of September 30, 2003.

Prior Period Cost Report Settlements

Hospitals participating in the Medicare and some Medicaid programs,
whether paid on a reasonable cost basis or under a prospective payment system,
are required to meet certain financial reporting requirements. Federal and,
where applicable, state regulations require submission of annual cost reports
identifying medical costs and expenses associated with the services provided by
each hospital to Medicare beneficiaries and Medicaid recipients. The Company
is current in filing its Medicare cost reports.

Net adjustments to estimated third-party payor settlements resulted in an
increase to the Companys revenues of $6.2 million for the nine months ended
September 30, 2003 compared to $7.9 million for the same period last year. The
Company had net adjustments to estimated third-party payor settlements that
increased revenues by $1.9 million and $5.8 million during the three months
ended September 30, 2003 and 2002, respectively. The adjustments had a
favorable diluted earnings per share effect of $0.08 and $0.11 for the nine
months ended September 30, 2003 and 2002, respectively. The adjustments had a
favorable diluted earnings per share effect of $0.03 and $0.09 for the three
months ended September 30, 2003 and 2002, respectively.

Acquisitions

The Company has acquired and will continue to acquire businesses with
prior operating histories. Acquired companies may have unknown or contingent
liabilities, including liabilities for failure to comply with healthcare laws
and regulations, such as billing and reimbursement, fraud and abuse and similar
anti-referral laws. Although the Company institutes policies designed to
conform practices to its standards following completion of acquisitions, there
can be no assurance that the Company will not become liable for past activities
that may later be asserted to be improper by private plaintiffs or government
agencies. Although the Company generally seeks to obtain indemnification from
sellers covering such matters, there can be no assurance that any such matter
will be covered by indemnification, or if covered, that such indemnification
will be adequate to cover potential losses and fines.

NOTE 6  GOODWILL AND INTANGIBLE ASSETS

The changes in the carrying amount of goodwill for the nine months ended
September 30, 2003, are as follows (in millions):

|                                                                                                                                      |  |   |      | 
|------------------------------------------------------------------------------------------------------------------------------------- |  | - | ---- | 
|Balance as of December 31, 2002                                                                                                       |  | $ | 69.2 | 
|Consideration adjustments and finalization of purchase price allocation for acquisition completed prior to 2003-Russellville Hospital |  |   | 7.0  | 
|                                                                                                                                      |  |   |      | 
|Balance as of September 30, 2003                                                                                                      |  | $ | 76.2 | 
|                                                                                                                                      |  |   |      | 

The gross carrying amount of the Companys intangible assets was $4.2
million as of September 30, 2003 and December 31, 2002, and the net carrying
amount was $3.3 million and $3.8 million as of September 30, 2003 and December
31, 2002, respectively. Amortization expense on intangible assets during the
three and nine months ended September 30, 2003 was $0.2 million and $0.6
million, respectively.

NOTE 7  PROFESSIONAL AND GENERAL LIABILITY RESERVES

The Company is subject to medical malpractice lawsuits and other claims as
part of providing healthcare services. To mitigate a portion of this risk, the
Company maintained insurance for individual malpractice claims exceeding $1.0
million for the years ended December 31, 2000 and 2001. For 2002, the Company
increased its deductible to $10.0 million on individual malpractice claims. The
Company lowered its deductible to $5.0 million on individual malpractice claims
effective January 1, 2003. The Companys reserves for professional and general

10



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liability risks are based upon
independent actuarial calculations, which
consider historical claims data, demographic considerations, severity factors
and other actuarial assumptions in the determination of reserve estimates.
Reserve estimates are discounted to present value using a 5.0% discount rate
and are revised twice each year by the Companys independent actuaries. The
estimated reserve for professional and general liability claims will be
significantly affected if current and future claims differ from historical
trends. While management monitors reported claims closely and considers
potential outcomes as estimated by its actuaries when determining its
professional and general liability reserves, the complexity of the claims, the
extended period of time to settle the claims and the wide range of potential
outcomes complicates the estimation process.

The
Company implemented enhanced processes in monitoring claims and
managing losses in high risk areas during 2002 and 2003 to attempt to
reduce loss levels and appropriately manage risk. During the first
quarter of 2003, the Company improved its estimation process for
determining its reserves for professional and general liability risks
by expanding from using one actuary to using multiple actuaries. The
Company uses the calculations of each actuary by factoring each
actuarys results into the determination of the Companys
recorded reserve levels. This process results in a refined estimation
approach that management believes produces a more reliable estimate
of ultimate losses. Based upon the actuarial valuations performed
using June 30, 2003 loss information and the results of the
enhanced processes described above, the change in the estimation
process decreased the Companys projected
reserves. During the three and nine months
ended September 30, 2003, the Company estimates it recognized approximately $1.2 million, or $0.02 per diluted
share, and $4.1 million, or $0.06 per diluted share,
respectively, of this reduction in projected reserves as pretax lower
insurance cost, which assumes that the actuarial calculations remain unchanged for the remainder of 2003. The Companys
reserve levels are monitored throughout the year and will be
reassessed at year-end based upon updated actuarial estimates. The
Companys actual year-end reserve levels will be established
based upon the year-end actuarial calculations and will likely change
from the Companys current estimates.

The reserve for professional and general liability risks was $28.8 million
and $25.1 million at September 30, 2003 and December 31, 2002, respectively.
The total cost of professional and general liability coverage for the three
months ended September 30, 2003 and 2002 was approximately $1.4 million and
$3.3 million, respectively. The total cost of professional and general
liability coverage for the nine months ended September 30, 2003 and 2002 was
approximately $8.9 million and $9.7 million, respectively.

NOTE 8  ACQUISITION OF SPRING VIEW HOSPITAL

Effective October 1, 2003, the Company acquired the 75-bed Spring View
Hospital in Lebanon, Kentucky from Norton Healthcare for approximately $15.5
million, including working capital, which is included in unallocated purchase
price on the Companys accompanying balance sheet. The Company did not acquire the
patient accounts receivable related to this hospital. The acquisition also
included Spring View Nursing Home and Spring View Pediatrics. The Company used
its available cash to pay for this acquisition on September 30,
2003. The combined annual revenues for this
hospital and nursing home is approximately $21.3 million.

NOTE 9  STOCK REPURCHASE PROGRAM

On April 28, 2003, the Company announced that its Board of Directors
authorized the repurchase of up to $100 million of its outstanding shares
of common stock either in the open market or through privately negotiated
transactions, subject to market conditions, regulatory constraints and
other factors. The Company, which had approximately 38.4 million shares of
common stock outstanding as of September 30, 2003, is not obligated to
repurchase any specific number of shares under the program. The Company
expects its purchases to be funded with a portion of the Companys
available cash and funds available under the Companys amended and restated
credit facility.

As of September 30, 2003, the Company had used its available cash to
purchase 1,323,800 shares for an aggregate purchase price of approximately
$28.0 million, which repurchased shares are designated by the Company as
treasury stock. The Company records treasury stock purchases at cost. The
Company retired 863,600 of its 1,323,800 treasury shares.

As of
October 24, 2003, the Company had purchased an additional 710,000
shares for an aggregate purchase price of approximately $17.0 million
subsequent to September 30, 2003.

11



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##### Table of Contents






Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.

We recommend that you read this discussion together with our unaudited
condensed consolidated financial statements and related notes included
elsewhere in this report.

Overview

At September 30, 2003, we operated 28 general, acute care hospitals and
related healthcare entities located in non-urban communities in the states of
Alabama, Florida, Kansas, Kentucky, Louisiana, Tennessee, Utah, West Virginia
and Wyoming.

Forward-Looking Statements

This report and other materials we have filed or may file with the
Securities and Exchange Commission, as well as information included in oral
statements or other written statements made, or to be made, by us, contain, or
will contain, disclosures which are forward-looking statements.
Forward-looking statements include all statements that do not relate solely to
historical or current facts and can be identified by the use of words such as
may, believe, will, expect, project, estimate, anticipate, plan
or continue. These forward-looking statements are based on the current plans
and expectations of our management and are subject to a number of uncertainties
and risks that could significantly affect our current plans and expectations
and future financial condition, results of operations and cash flows. These
factors include, but are not limited to:



| |  |  | reduction in payments to healthcare providers by government and
commercial third-party payors, as well as cost-containment efforts of
insurers and other payors;                                                                                                                                                         
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the collectibility of uninsured accounts and deductible and co-payment amounts;                                                                                                                                                                                                                                          
|
| |  |  | failure to comply, or allegations of lack of compliance with, applicable laws and regulations;                                                                                                                                                                                                                           
|
| |  |  | the possibility of adverse changes in federal, state or local
regulations affecting the healthcare industry, including the uncertain
impact on payment for services and supplies by the Medicare program
contained in the Prescription Drug Bill presently being considered by
the House and Senate Conference Committee;
|
| |  |  | our ability to manage healthcare risks resulting from the delivery of
patient care, claims and legal actions relating to professional
liabilities and the lack of state and federal tort reform;                                                                                                                         
|
| |  |  | uncertainty associated with compliance with the Health Insurance
Portability and Accountability Act of 1996 regulations;                                                                                                                                                                                                 
|
| |  |  | the ability to enter into and renew payor arrangements on acceptable
terms;                                                                                                                                                                                                                                              
|
| |  |  | the ability to maintain and increase patient volumes and control the
costs of providing services and supply costs;                                                                                                                                                                                                       
|
| |  |  | the availability, cost and terms of insurance coverage for us, our
hospitals and physicians who practice at our hospitals;                                                                                                                                                                                               
|
| |  |  | the highly competitive nature of the healthcare business, including
competition to recruit and retain general and specialized physicians, as
well as competition from other specialized providers and competing
services rendered in physician offices;                                                                  
|
| |  |  | the ability to attract and retain qualified management and personnel,
including physicians, nurses and clinical support personnel, consistent
with our expectations and targets;                                                                                                                                         
|
| |  |  | the geographic concentration of our operations;                                                                                                                                                                                                                                                                          

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| |  |  | our ability to acquire hospitals on favorable terms and to complete
budgeted capital improvements of our existing facilities successfully;                                                                                                                                                                                                                                                                                                       
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | our ability to integrate newly acquired facilities successfully;                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  |  | the availability and terms of capital to fund our business strategy;                                                                                                                                                                                                                                                                                                                                                                             
|
| |  |  | the potential adverse impact of government investigations and
litigation involving the business practices of HCA (to the extent
relating to periods prior to our formation) and of other healthcare
providers (to the extent such investigations and litigation may affect
us or our industry segment);                                                                                                                                          
|
| |  |  | the financial viability of third-party payors;                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  |  | our ongoing efforts to monitor, maintain and comply with applicable
laws, regulations, policies and procedures including those required by
the corporate integrity agreement that we entered into with the
government in December 2000, and amended in April 2002, and those that,
if violated, could cause any of our facilities to lose its state license
or its ability to receive payments under the Medicare, Medicaid and
TRICARE programs;
|
| |  |  | our reliance on information technology systems developed and
maintained by HCA;                                                                                                                                                                                                                                                                                                                                                                  
|
| |  |  | successful development or license of software and management
information systems used for effective claims processing;                                                                                                                                                                                                                                                                                                                           
|
| |  |  | changes in accounting practices as required under generally accepted
accounting principles in the United States;                                                                                                                                                                                                                                                                                                                                 
|
| |  |  | volatility in the market value of our common stock and resulting
costs to us to administer our Employee Stock Ownership Plan (ESOP);                                                                                                                                                                                                                                                                                                           
|
| |  |  | our ability to complete and the impact of our share repurchase
program;                                                                                                                                                                                                                                                                                                                                                                          
|
| |  |  | changes in general economic conditions in the markets where our
facilities are located, including decreases in employment and Medicaid
coverage;                                                                                                                                                                                                                                                                                                 
|
| |  |  | changes in the manner in which employers provide healthcare coverage
to their employees, including cost-shifting to employees through higher
co-payments;                                                                                                                                                                                                                                                                                        
|
| |  |  | inflationary pressures;                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  |  | changes in our liquidity or indebtedness; and                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  |  | other risk factors described in this report.                                                                                                                                                                                                                                                                                                                                                                                                     

As a consequence, current plans, anticipated actions and future financial
conditions and results may differ from those expressed in any forward-looking
statements made by or on behalf of our company. We undertake no obligation to
publicly update or revise any forward-looking statements, whether as a result
of new information, future events or otherwise. You are cautioned not to rely
unduly on such forward-looking statements when evaluating the information
presented in this report.

Results of Operations

The key metrics we use internally to evaluate our revenues are equivalent
admissions, which equates to volume, and revenues per equivalent admission,
which relates to pricing and acuity. The growth in outpatient revenues lowers
our growth in revenues per equivalent admission, as revenues from outpatient
services are generally lower than inpatient revenues. We continue to receive
pressures from payors to shift to more outpatient procedures.

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Revenue/Volume Trends

We anticipate that our patient volumes and related revenues will increase
as a result of the following factors:



| |  |  | Expanding Service Offerings. We believe our efforts to improve the
quality and broaden the scope of healthcare services available at our
facilities will lead to increased patient volumes. Recruiting and
retaining both primary care physicians and specialists for our non-urban
communities is a key to the success of these efforts. Between January 1,
1998 and September 30, 2003, we recruited 435 physicians, of which 309
have been retained by us. Adding new physicians should help increase
both inpatient and outpatient volumes which, in turn, should increase
revenues. Approximately 56% of our retained physicians are specialists.
Continuing to add specialists should also allow us to grow by offering
new services. In addition, increases in capital expenditures at our
hospitals should increase local market share and help persuade patients
to obtain healthcare services within their communities.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Medicare Rate Increases. On August 1, 2003, the CMS issued its
updated rules for 2004 affecting Medicare payments to acute-care
hospitals, rehabilitation hospitals and units, and skilled nursing
facilities. The updated rules include a 3.4% increase in payment rates
for inpatient acute care, beginning October 1, 2003. Also, under the
new rule, the outlier threshold will decrease from $33,560 to $31,000.
The rules update other payment factors, as well, including the wage
index, diagnosis-related-group weights, expansion of the
diagnosis-related-group transfer rule from ten diagnosis-related-groups
to 29, and other factors that influence prospective payments.
Consequently, the percentage increases described above may not be fully
realized in the final payments. Other changes in the overall inpatient
system rule have less significant positive and negative effects.                         

Although we anticipate our patient volumes to increase, the resulting
revenues will likely be offset in part by the following factors:



| |  |  | Discounts Received by Medicare, Medicaid and Managed Care Plans. We
derive a significant portion of our business from Medicare, Medicaid and
managed care plans. Admissions related to Medicare, Medicaid and managed
care plan patients were 91.8% and 92.2% of total admissions for the nine
months ended September 30, 2003 and 2002, respectively. These payors
receive significant discounts.                                                                                                                                                                                                                                                                                                                                                  
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Reductions in Medicaid Payments. Many of the states in which we
operate are experiencing serious budgetary problems and have implemented
or proposed new legislation that could significantly reduce the payments
they make to hospitals under their Medicaid programs. These pending
actions could have a material adverse effect on our financial condition
and results of operations.                                                                                                                                                                                                                                                                                                                                                            
|
| |  |  | Efforts to Reduce Payments. Other third-party payors also negotiate
discounted fees rather than paying standard prices. An increasing
proportion of our services are reimbursed under predetermined payment
amounts regardless of the cost incurred. In addition, employers are
cost-shifting to employees through higher co-payments.                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  |  | Growth in Outpatient Services. We anticipate that the growth trend in
outpatient services will continue. A number of procedures once performed
only on an inpatient basis have been, and will likely continue to be,
converted to outpatient procedures. This conversion has occurred through
continuing advances in pharmaceutical and medical technologies and as a
result of efforts made by payors to control costs. Generally, the
payments we receive for outpatient procedures are less than those for
similar procedures performed in an inpatient setting. Net outpatient
revenues as a percentage of total revenues increased from 50.1% in the
nine months ended September 30, 2002 to 50.8% in the nine months ended
September 30, 2003.

Cost Containment

We seek to control costs by, among other things, reducing labor costs by
improving labor productivity and attempting to decrease the use of contract
labor, when appropriate, controlling supply expenses through the use of a group
purchasing organization and reducing uncollectible revenues. We have
implemented cost control initiatives such as adjusting staffing levels
according to patient volumes, modifying supply purchases according to usage
patterns and providing training to hospital staff in more efficient billing and
collection processes. We believe that as

14



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##### Table of Contents



our company grows, we will likely benefit from our ability to spread fixed
administrative costs over a larger base of operations.

There is no assurance that we can contain certain costs in the future. As
a result of the general shortage of nurses and medical technicians in the
healthcare industry, we may experience an increase in salaries and benefits
expense if we are forced to hire additional contract health professionals or
increase salaries to attract and retain our clinical employees.

Pressure on payment levels, the increase in outpatient services and the
large number of our patients who participate in discounted plans will present
ongoing challenges for us. These challenges are intensified by our inability to
control these trends and the associated risks. To maintain or improve operating
margins in the future, we must, among other things, increase patient volumes
while controlling the costs of providing services.

Impact of Acquisitions

Because of the relatively small number of hospitals we own, each hospital
acquisition can materially affect our overall operating margin. We typically
take a number of steps to lower operating costs when we acquire a hospital. The
impact of our actions may be offset by other cost increases to expand services,
strengthen medical staff and attract additional patients to our facilities. The
benefits of our investments and of other activities to improve operating
margins generally do not occur immediately. Consequently, the financial
performance of a newly acquired hospital may adversely affect our overall
operating margin in the short term. As we acquire additional hospitals, this
effect may be mitigated by the expanded financial base of our existing
hospitals and the allocation of corporate overhead among a larger number of
hospitals.

Effective October 1, 2003, we acquired the 75-bed Spring View Hospital in
Lebanon, Kentucky from Norton Healthcare for approximately $15.5 million,
including working capital. We did not acquire the patient accounts receivable
related to this hospital. The acquisition also included Spring View Nursing
Home and Spring View Pediatrics. We used our available cash to pay for this
acquisition. The combined annual revenues for this hospital and
nursing home is approximately $21.3 million.

15



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##### Table of Contents



Operating Results Summary

The following is a summary of results of operations for the three months
and nine months ended September 30, 2003 and 2002 (dollars in millions, except
for revenues per equivalent admission):

|                                                     |  |                                  |       |          |  |        |       |          |  |   |       |      |  |  |       |  
|---------------------------------------------------- |  | -------------------------------- | ----- | -------- |  | ------ | ----- | -------- |  | - | ----- | ---- |  |  | ----- | -
|                                                     |  | Three Months Ended September 30,
|                                                     |  |                                 
|                                                     |  | 2003                             |       | 2002    
|                                                     |  |                                  |       |         
|                                                     |  |                                  |       |          |  | % of   |       |          |  |   |       | % of
|                                                     |  | Amount                           |       | Revenues |  | Amount |       | Revenues
|                                                     |  |                                  |       |          |  |        |       |         
|Revenues                                             |  | $                                | 227.3 |          |  |        | 100.0 | %        |  | $ | 182.2 |      |  |  | 100.0 | %
|Salaries and benefits (a)                            |  |                                  | 90.5  |          |  |        | 39.8  |          |  |   | 71.0  |      |  |  | 39.0  |  
|Supplies (b)                                         |  |                                  | 29.0  |          |  |        | 12.7  |          |  |   | 22.6  |      |  |  | 12.4  |  
|Other operating expenses (c)                         |  |                                  | 40.3  |          |  |        | 17.9  |          |  |   | 35.6  |      |  |  | 19.5  |  
|Provision for doubtful accounts                      |  |                                  | 24.2  |          |  |        | 10.6  |          |  |   | 12.5  |      |  |  | 6.9   |  
|Depreciation and amortization                        |  |                                  | 10.8  |          |  |        | 4.8   |          |  |   | 8.9   |      |  |  | 4.8   |  
|Interest expense, net                                |  |                                  | 3.3   |          |  |        | 1.4   |          |  |   | 3.0   |      |  |  | 1.7   |  
|Debt retirement costs                                |  |                                  |      |          |  |        |      |          |  |   | 4.2   |      |  |  | 2.3   |  
|ESOP expense                                         |  |                                  | 1.8   |          |  |        | 0.8   |          |  |   | 2.2   |      |  |  | 1.2   |  
|                                                     |  |                                  |       |          |  |        |       |          |  |   |       |      |  |  |       |  
|                                                     |  |                                  | 199.9 |          |  |        | 88.0  |          |  |   | 160.0 |      |  |  | 87.8  |  
|                                                     |  |                                  |       |          |  |        |       |          |  |   |       |      |  |  |       |  
|Income before minority interest and income taxes     |  |                                  | 27.4  |          |  |        | 12.0  |          |  |   | 22.2  |      |  |  | 12.2  |  
|Minority interest in earnings of consolidated
entity |  |                                  | 0.3   |          |  |        | 0.1   |          |  |   | 0.7   |      |  |  | 0.4   |  
|                                                     |  |                                  |       |          |  |        |       |          |  |   |       |      |  |  |       |  
|Income before income taxes                           |  |                                  | 27.1  |          |  |        | 11.9  |          |  |   | 21.5  |      |  |  | 11.8  |  
|Provision for income taxes                           |  |                                  | 10.9  |          |  |        | 4.8   |          |  |   | 8.8   |      |  |  | 4.8   |  
|                                                     |  |                                  |       |          |  |        |       |          |  |   |       |      |  |  |       |  
|Net income                                           |  | $                                | 16.2  |          |  |        | 7.1   | %        |  | $ | 12.7  |      |  |  | 7.0   | %
|                                                     |  |                                  |       |          |  |        |       |          |  |   |       |      |  |  |       |  

|                                                        |  |                                  |         |        |  |                 |        |   |  |  |      |  
|------------------------------------------------------- |  | -------------------------------- | ------- | ------ |  | --------------- | ------ | - |  |  | ---- | -
|                                                        |  | Three Months Ended September 30,
|                                                        |  |                                 
|                                                        |  | 2003                             |         | 2002   |  | % Changes      
|                                                        |  | Amount                           |         | Amount |  | From Prior Year
|                                                        |  |                                  |         |        |  |                
|Consolidated:                                           |  |                                  |         |        |  |                 |        |   |  |  |      |  
|Revenues                                                |  | $                                | 227.3   |        |  | $               | 182.2  |   |  |  | 24.7 | %
|Number of hospitals at end of period                    |  |                                  | 28      |        |  |                 | 23     |   |  |  | 21.7 |  
|Admissions (d)                                          |  |                                  | 21,681  |        |  |                 | 18,297 |   |  |  | 18.5 |  
|Equivalent admissions (e)                               |  |                                  | 44,344  |        |  |                 | 36,097 |   |  |  | 22.8 |  
|Revenues per equivalent admission                       |  | $                                | 5,126   |        |  | $               | 5,049  |   |  |  | 1.5  |  
|Outpatient factor (e)                                   |  |                                  | 2.04    |        |  |                 | 1.97   |   |  |  | 3.6  |  
|Emergency room visits (f)                               |  |                                  | 110,546 |        |  |                 | 89,841 |   |  |  | 23.0 |  
|Inpatient surgeries                                     |  |                                  | 6,896   |        |  |                 | 5,513  |   |  |  | 25.1 |  
|Outpatient surgeries (g)                                |  |                                  | 20,834  |        |  |                 | 16,233 |   |  |  | 28.3 |  
|Total surgeries                                         |  |                                  | 27,730  |        |  |                 | 21,746 |   |  |  | 27.5 |  
|Licensed beds at end of period                          |  |                                  | 2,624   |        |  |                 | 2,196  |   |  |  | 19.5 |  
|Weighted average licensed beds                          |  |                                  | 2,624   |        |  |                 | 2,191  |   |  |  | 19.8 |  
|Average daily census                                    |  |                                  | 930     |        |  |                 | 799    |   |  |  | 16.4 |  
|Average length of stay (days)                           |  |                                  | 3.9     |        |  |                 | 4.0    |   |  |  | (2.5 | )
|Medicare case mix index                                 |  |                                  | 1.16    |        |  |                 | 1.14   |   |  |  | 1.8  |  
|Net outpatient revenues as a percentage of net
revenues |  |                                  | 51.2    | %      |  |                 | 51.4   | % |  |  | N/A  |  
|Same Hospital (h):                                      |  |                                  |         |        |  |                 |        |   |  |  |      |  
|Revenues                                                |  | $                                | 192.6   |        |  | $               | 182.2  |   |  |  | 5.7  | %
|Number of hospitals at end of period                    |  |                                  | 23      |        |  |                 | 23     |   |  |  |     |  
|Admissions (d)                                          |  |                                  | 18,205  |        |  |                 | 18,297 |   |  |  | (0.5 | )
|Equivalent admissions (e)                               |  |                                  | 36,602  |        |  |                 | 36,097 |   |  |  | 1.4  |  
|Revenues per equivalent admission                       |  | $                                | 5,261   |        |  | $               | 5,048  |   |  |  | 4.2  |  
|Outpatient factor (e)                                   |  |                                  | 2.01    |        |  |                 | 1.97   |   |  |  | 1.8  |  
|Emergency room visits (f)                               |  |                                  | 89,079  |        |  |                 | 89,841 |   |  |  | (0.8 | )
|Inpatient surgeries                                     |  |                                  | 5,883   |        |  |                 | 5,513  |   |  |  | 6.7  |  
|Outpatient surgeries (g)                                |  |                                  | 16,850  |        |  |                 | 16,233 |   |  |  | 3.8  |  
|Total surgeries                                         |  |                                  | 22,733  |        |  |                 | 21,746 |   |  |  | 4.5  |  
|Licensed beds at end of period                          |  |                                  | 2,203   |        |  |                 | 2,196  |   |  |  | 0.3  |  
|Weighted average licensed beds                          |  |                                  | 2,203   |        |  |                 | 2,191  |   |  |  | 0.5  |  
|Average daily census                                    |  |                                  | 786     |        |  |                 | 799    |   |  |  | (1.6 | )
|Average length of stay (days)                           |  |                                  | 4.0     |        |  |                 | 4.0    |   |  |  |     |  
|Medicare case mix index                                 |  |                                  | 1.17    |        |  |                 | 1.14   |   |  |  | 2.6  |  
|Net outpatient revenues as a percentage of net
revenues |  |                                  | 51.4    | %      |  |                 | 51.4   | % |  |  | N/A  |  

16



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##### Table of Contents



|                                                     |  |                                 |       |          |  |        |       |          |  |   |       |      |  |  |       |  
|---------------------------------------------------- |  | ------------------------------- | ----- | -------- |  | ------ | ----- | -------- |  | - | ----- | ---- |  |  | ----- | -
|                                                     |  | Nine Months Ended September 30,
|                                                     |  |                                
|                                                     |  | 2003                            |       | 2002    
|                                                     |  |                                 |       |         
|                                                     |  |                                 |       |          |  | % of   |       |          |  |   |       | % of
|                                                     |  | Amount                          |       | Revenues |  | Amount |       | Revenues
|                                                     |  |                                 |       |          |  |        |       |         
|Revenues                                             |  | $                               | 669.8 |          |  |        | 100.0 | %        |  | $ | 541.7 |      |  |  | 100.0 | %
|Salaries and benefits (a)                            |  |                                 | 271.6 |          |  |        | 40.6  |          |  |   | 212.6 |      |  |  | 39.3  |  
|Supplies (b)                                         |  |                                 | 86.2  |          |  |        | 12.9  |          |  |   | 67.4  |      |  |  | 12.4  |  
|Other operating expenses (c)                         |  |                                 | 122.0 |          |  |        | 18.2  |          |  |   | 101.1 |      |  |  | 18.6  |  
|Provision for doubtful accounts                      |  |                                 | 58.6  |          |  |        | 8.7   |          |  |   | 38.8  |      |  |  | 7.2   |  
|Depreciation and amortization                        |  |                                 | 33.4  |          |  |        | 5.0   |          |  |   | 28.0  |      |  |  | 5.2   |  
|Interest expense, net                                |  |                                 | 9.9   |          |  |        | 1.5   |          |  |   | 9.9   |      |  |  | 1.8   |  
|Debt retirement costs                                |  |                                 |      |          |  |        |      |          |  |   | 30.5  |      |  |  | 5.6   |  
|ESOP expense                                         |  |                                 | 4.9   |          |  |        | 0.7   |          |  |   | 7.4   |      |  |  | 1.4   |  
|                                                     |  |                                 |       |          |  |        |       |          |  |   |       |      |  |  |       |  
|                                                     |  |                                 | 586.6 |          |  |        | 87.6  |          |  |   | 495.7 |      |  |  | 91.5  |  
|                                                     |  |                                 |       |          |  |        |       |          |  |   |       |      |  |  |       |  
|Income before minority interest and income taxes     |  |                                 | 83.2  |          |  |        | 12.4  |          |  |   | 46.0  |      |  |  | 8.5   |  
|Minority interest in earnings of consolidated entity |  |                                 | 0.5   |          |  |        | 0.1   |          |  |   | 2.2   |      |  |  | 0.4   |  
|                                                     |  |                                 |       |          |  |        |       |          |  |   |       |      |  |  |       |  
|Income before income taxes                           |  |                                 | 82.7  |          |  |        | 12.3  |          |  |   | 43.8  |      |  |  | 8.1   |  
|Provision for income taxes                           |  |                                 | 33.5  |          |  |        | 5.0   |          |  |   | 19.9  |      |  |  | 3.7   |  
|                                                     |  |                                 |       |          |  |        |       |          |  |   |       |      |  |  |       |  
|Net income                                           |  | $                               | 49.2  |          |  |        | 7.3   | %        |  | $ | 23.9  |      |  |  | 4.4   | %
|                                                     |  |                                 |       |          |  |        |       |          |  |   |       |      |  |  |       |  

|                                                        |  |                                 |         |        |  |                 |         |   |  |  |      |  
|------------------------------------------------------- |  | ------------------------------- | ------- | ------ |  | --------------- | ------- | - |  |  | ---- | -
|                                                        |  | Nine Months Ended September 30,
|                                                        |  |                                
|                                                        |  | 2003                            |         | 2002   |  | % Changes      
|                                                        |  | Amount                          |         | Amount |  | From Prior Year
|                                                        |  |                                 |         |        |  |                
|Consolidated:                                           |  |                                 |         |        |  |                 |         |   |  |  |      |  
|Revenues                                                |  | $                               | 669.8   |        |  | $               | 541.7   |   |  |  | 23.6 | %
|Number of hospitals at end of period                    |  |                                 | 28      |        |  |                 | 23      |   |  |  | 21.7 |  
|Admissions (d)                                          |  |                                 | 67,495  |        |  |                 | 57,396  |   |  |  | 17.6 |  
|Equivalent admissions (e)                               |  |                                 | 133,910 |        |  |                 | 109,799 |   |  |  | 22.0 |  
|Revenues per equivalent admission                       |  | $                               | 5,002   |        |  | $               | 4,934   |   |  |  | 1.4  |  
|Outpatient factor (e)                                   |  |                                 | 1.98    |        |  |                 | 1.91    |   |  |  | 3.7  |  
|Emergency room visits (f)                               |  |                                 | 316,589 |        |  |                 | 262,931 |   |  |  | 20.4 |  
|Inpatient surgeries                                     |  |                                 | 20,250  |        |  |                 | 16,897  |   |  |  | 19.8 |  
|Outpatient surgeries (g)                                |  |                                 | 58,918  |        |  |                 | 48,478  |   |  |  | 21.5 |  
|Total surgeries                                         |  |                                 | 79,168  |        |  |                 | 65,375  |   |  |  | 21.1 |  
|Licensed beds at end of period                          |  |                                 | 2,624   |        |  |                 | 2,196   |   |  |  | 19.5 |  
|Weighted average licensed beds                          |  |                                 | 2,622   |        |  |                 | 2,195   |   |  |  | 19.5 |  
|Average daily census                                    |  |                                 | 994     |        |  |                 | 853     |   |  |  | 16.5 |  
|Average length of stay (days)                           |  |                                 | 4.0     |        |  |                 | 4.1     |   |  |  | (2.4 | )
|Medicare case mix index                                 |  |                                 | 1.14    |        |  |                 | 1.15    |   |  |  | (0.9 | )
|Net outpatient revenues as a percentage of net
revenues |  |                                 | 50.8    | %      |  |                 | 50.1    | % |  |  | N/A  |  
|Same Hospital (h):                                      |  |                                 |         |        |  |                 |         |   |  |  |      |  
|Revenues                                                |  | $                               | 565.9   |        |  | $               | 541.7   |   |  |  | 4.5  | %
|Number of hospitals at end of period                    |  |                                 | 23      |        |  |                 | 23      |   |  |  |     |  
|Admissions (d)                                          |  |                                 | 56,233  |        |  |                 | 57,396  |   |  |  | (2.0 | )
|Equivalent admissions (e)                               |  |                                 | 109,654 |        |  |                 | 109,799 |   |  |  | (0.1 | )
|Revenues per equivalent admission                       |  | $                               | 5,161   |        |  | $               | 4,933   |   |  |  | 4.6  |  
|Outpatient factor (e)                                   |  |                                 | 1.95    |        |  |                 | 1.91    |   |  |  | 1.9  |  
|Emergency room visits (f)                               |  |                                 | 259,732 |        |  |                 | 262,931 |   |  |  | (1.2 | )
|Inpatient surgeries                                     |  |                                 | 17,232  |        |  |                 | 16,897  |   |  |  | 2.0  |  
|Outpatient surgeries (g)                                |  |                                 | 48,998  |        |  |                 | 48,478  |   |  |  | 1.1  |  
|Total surgeries                                         |  |                                 | 66,230  |        |  |                 | 65,375  |   |  |  | 1.3  |  
|Licensed beds at end of period                          |  |                                 | 2,203   |        |  |                 | 2,196   |   |  |  | 0.3  |  
|Weighted average licensed beds                          |  |                                 | 2,201   |        |  |                 | 2,195   |   |  |  | 0.3  |  
|Average daily census                                    |  |                                 | 836     |        |  |                 | 853     |   |  |  | (2.0 | )
|Average length of stay (days)                           |  |                                 | 4.1     |        |  |                 | 4.1     |   |  |  |     |  
|Medicare case mix index                                 |  |                                 | 1.19    |        |  |                 | 1.15    |   |  |  | 3.5  |  
|Net outpatient revenues as a percentage of net
revenues |  |                                 | 50.3    | %      |  |                 | 50.1    | % |  |  | N/A  |  

17



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|(a) |  | Represents our cost of salaries and benefits, including employee health
benefits and workers compensation insurance, for all hospital and
corporate employees and contract labor.                                                                                                                                                                                                                                                                                                                                                                   
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | Includes our hospitals costs for pharmaceuticals, blood, surgical
instruments and all general supply items, including the cost of freight.                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|(c) |  | Consists primarily of contract services, physician recruitment,
professional fees, repairs and maintenance, rents and leases, utilities,
insurance, marketing and non-income taxes.                                                                                                                                                                                                                                                                                                                                                                 
|   
|(d) |  | Represents the total number of patients admitted (in the facility for a
period in excess of 23 hours) to our hospitals and is used by management
and investors as a general measure of inpatient volume.                                                                                                                                                                                                                                                                                                                                            
|   
|(e) |  | Management and investors use equivalent admissions as a general measure
of combined inpatient and outpatient volume. We compute equivalent
admissions by multiplying admissions (inpatient volume) by the outpatient
factor (the sum of gross inpatient revenue and gross outpatient revenue
divided by gross inpatient revenue). The equivalent admissions computation
equates outpatient revenue to the volume measure (admissions) used to
measure inpatient volume resulting in a general measure of combined
inpatient and outpatient volume.
|   
|(f) |  | Represents the total number of hospital-based emergency room visits.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|(g) |  | Outpatient surgeries are those surgeries that do not require admission to
our hospitals.                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|(h) |  | Same hospital information excludes the operations of hospitals which we
acquired during the periods presented. The costs of corporate overhead are
included in same hospital information.                                                                                                                                                                                                                                                                                                                                                           

For the Three Months Ended September 30, 2003 and 2002

Revenues increased 24.7% to $227.3 million for the three months ended
September 30, 2003 compared to $182.2 million for the three months ended
September 30, 2002. Of this increase, $34.7 million, or 19.0%, was from our
fourth quarter 2002 acquisitions and $10.4 million, or 5.7%, was from
same-hospital revenues. Net adjustments to estimated third-party payor
settlements (prior year contractuals) resulted in an increase to revenues of
$1.9 million for the three months ended September 30, 2003 compared to $5.8
million for the same period last year.

On a same-hospital basis, outpatient revenues grew 5.6% from $93.7 million
to $98.9 million, and inpatient revenues increased 6.7% from $85.4 million to
$91.2 million, for the three months ended September 30, 2003 compared to the
same period in 2002. On a same-hospital basis, admissions during the three
months ended September 30, 2003 remained relatively unchanged, with 92 fewer
admissions over the same period in 2002. Same-hospital inpatient surgeries
increased by 370 surgeries, or 6.7%, over the same period in 2002. Our
same-hospital Medicare case mix increased from 1.14 for the three months ended
September 30, 2002 to 1.17 for the three months ended September 30, 2003. A
primary driver in the case mix increase was our open-heart program at Lake
Cumberland Regional Hospital that opened in the fourth quarter of 2002.

As it relates to our same-hospital outpatient revenues, our outpatient
surgeries for the three months ended September 30, 2003 were up 617 surgeries,
or 3.8% higher than last years third quarter. We experienced increases in
revenues related to radiology, surgery, lab and emergency services. Our
same-hospital outpatient revenues were unchanged at approximately 51.4% of our
total revenues for the three months ended September 30, 2003 and 2002.

After factoring all of the above, our equivalent admissions for the three
months ended September 30, 2003 increased 1.4% on a same-hospital basis over
the same period in 2002. As it relates to pricing and acuity, our
same-hospital revenues per equivalent admission for the three months ended
September 30, 2003 were up 4.2%, or $213 per equivalent admission, over the
same period in 2002. Revenues per equivalent admission on our 2002
acquisitions were approximately $799 less than our same-hospital revenues per
equivalent admission during the three months ended September 30, 2003.

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Excluding the effect of the prior year contractuals of $1.9 million and
$5.8 million for the three months ended September 30, 2003 and 2002,
respectively, revenues increased 27.8% and revenues per equivalent admission
increased 4.0%. Excluding the prior year contractuals, same-hospital revenues
increased 8.1% and same hospital revenues per equivalent admission increased
6.6%.

Our breakdown of revenues by payor class, on a consolidated basis, is as
follows:

|                        |  |                    |      |      |  |  |      |  
|----------------------- |  | ------------------ | ---- | ---- |  |  | ---- | -
|                        |  | Three Months Ended
|                        |  | September 30,     
|                        |  |                   
|                        |  | 2003               |      | 2002
|                        |  |                    |      |     
|Medicare                |  |                    | 36.0 | %    |  |  | 33.6 | %
|Medicaid                |  |                    | 14.4 | %    |  |  | 19.2 | %
|Discount and Commercial |  |                    | 35.4 | %    |  |  | 37.4 | %
|Self
Pay and Other      |  |                    | 14.2 | %    |  |  | 9.8  | %

Our breakdown of revenues by payor class, on a same-hospital basis, is as
follows:

|                        |  |                    |      |      |  |  |      |  
|----------------------- |  | ------------------ | ---- | ---- |  |  | ---- | -
|                        |  | Three Months Ended
|                        |  | September 30,     
|                        |  |                   
|                        |  | 2003               |      | 2002
|                        |  |                    |      |     
|Medicare                |  |                    | 34.4 | %    |  |  | 33.6 | %
|Medicaid                |  |                    | 15.8 | %    |  |  | 19.2 | %
|Discount and Commercial |  |                    | 38.1 | %    |  |  | 37.4 | %
|Self
Pay and Other      |  |                    | 11.7 | %    |  |  | 9.8  | %

The above tables include prior year contractuals, including a $5.0 million
increase in Medicaid revenues for
the three months ended September 30, 2002 related to a Kentucky
Medicaid rate appeal.

Salaries and benefits increased as a percentage of revenues to 39.8% for
the three months ended September 30, 2003 from 39.0% for the three months ended
September 30, 2002, primarily as a result of the hospitals acquired during the
fourth quarter of 2002 which had higher than average salaries and benefits as a
percentage of our revenues. For the three months ended September 30, 2003,
salaries and benefits were approximately 46.1% as a percentage of revenues for
our hospitals acquired in 2002. On a same-hospital basis, salaries and
benefits decreased as a percentage of revenues to 38.7% for the three months
ended September 30, 2003 compared to 39.0% for the same period in 2002. In
addition, on a same-hospital basis, salaries and benefits per man-hour
increased 6.2% while man-hours per equivalent admission decreased 2.7% during
the three months ended September 30, 2003 as compared to the same period in
2002. On a same-hospital basis, our salaries and benefits per equivalent
admission increased 3.5% for the three months ended September 30, 2003 compared
to the same period in 2002.

Supply costs as a percentage of revenues increased to 12.7% for the three
months ended September 30, 2003 from 12.4% for the three months ended September
30, 2002. Supply costs as a percentage of revenues for the hospitals acquired
in 2002 was 13.2%. On a same-hospital basis, supply costs increased as a
percentage of revenues to 12.7% for the three months ended September 30, 2003
from 12.4% over the same period in 2002 primarily as a result of our new
open-heart unit at Lake Cumberland Regional Hospital, which opened during the
fourth quarter of 2002, and increases in surgical supply costs related to
increased surgical volumes.

Other operating expenses decreased as a percentage of revenues to 17.9%
for the three months ended September 30, 2003 from 19.5% for the three months
ended September 30, 2002. For the three months ended September 30, 2003, other
operating expenses as a percentage of revenues for the hospitals acquired in
2002 was approximately 17.8%. On a same-hospital basis, other operating
expenses decreased as a percentage of revenues to 17.7% for the three months
ended September 30, 2003 from 19.4% for the three months ended September 30,
2002, primarily as a result of lower professional and general
liability insurance expense and lower contract services expense. Our professional and general
liability insurance expense was $0.8 million, on a same-hospital
basis, in the third quarter of
2003 as compared to $3.3 million in the
same period in 2002. This decrease relates to favorable loss experience as estimated by our
external actuaries and our 2003 change to using
multiple actuaries under the self-insured portion of our insurance
program, as further discussed in Note 7 of our condensed
consolidated financial statements included elsewhere herein.
Physician recruiting costs increased $2.4 million for the three months ended
September 30,

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2003 as compared to the same period in
2002 as a result of our
increased number of recruited physicians. Contract services expense
decreased by $0.6 million for the three months ended September 30,
2003 as compared to the same period last year, on a same-hospital
basis. Included in other operating expenses for the three months
ended September 30, 2002 were non-recurring fees of $0.9 million
related to the Kentucky Medicaid rate appeal.

Provision for doubtful accounts increased as a percentage of revenues to
10.6% for the three months ended September 30, 2003 from 6.9% for the three
months ended September 30, 2002, primarily as a result of increased self-pay
revenues. In addition, provision for doubtful accounts as a percentage of
revenues for the hospitals acquired in 2002 was 16.9% for the three months
ended September 30, 2003. On a same-hospital basis, the provision for doubtful
accounts increased as a percentage of revenues to 9.5% for the three months
ended September 30, 2003 from 6.9% over the same period in 2002, primarily as a
result of increased self-pay revenues. On a same-hospital basis, self-pay
revenues increased sequentially from $15.0 million in the three months ended
June 30, 2003 to $17.7 million in the three months ended September 30, 2003.
In addition, same-hospital self-pay revenues were $14.5 million in the three
months ended September 30, 2002.

Depreciation and amortization expense increased to $10.8 million for the
three months ended September 30, 2003 from $8.9 million for the three months
ended September 30, 2002, primarily as a result of the hospitals acquired in
2002 and depreciation associated with capital improvements at our facilities.
Depreciation expense associated with the hospitals acquired in 2002 was $1.2
million for the three months ended September 30, 2003. Same-hospital
depreciation and amortization expense was $9.6 million for the three months
ended September 30, 2003.

Net interest expense increased to $3.3 million for the three months ended
September 30, 2003 from $3.0 million for the three months ended September 30,
2002 because of lower interest income earned on invested cash and cash
equivalents.

During the three months ended September 30, 2002, we repurchased $19.1
million of our $150.0 million 10 3/4% Senior Subordinated Notes due 2009. In
connection with these repurchases, we incurred debt retirement costs of $4.2
million which consisted of $3.6 million in premiums, commissions and fees paid
for the repurchases and $0.6 million in non-cash net deferred loan cost
write-offs.

ESOP expense decreased to $1.8 million for the three months ended
September 30, 2003 from $2.2 million for the three months ended September 30,
2002. This decrease was a result of a lower average fair market value of our
common stock during the three months ended September 30, 2003 compared to the
same period in 2002. We recognize ESOP expense based on the average fair market
value of the shares committed to be released during the period.

Minority interest in earnings of consolidated entity was $0.3 million for
the three months ended September 30, 2003 compared to $0.7 million for the
three months ended September 30, 2002. We purchased the 30% limited partnership
interest in Dodge City Healthcare Group, L.P., the entity that owns and
operates the 110-bed Western Plains Regional Hospital and affiliated surgery
center in Dodge City, Kansas, for $25 million in October 2002. Minority
interest in earnings of consolidated entity related solely to this entity in
2002. Minority interest in earnings of consolidated entity in 2003 relates to
a minority equity interest owned by physicians in an ambulatory surgery center,
which was syndicated during the second quarter of 2003. The physician partners
contributed approximately $1.0 million and have a 43% minority interest in the
surgery center. Although the syndication of surgery centers or hospitals is
not a part of our core strategy, we will review these opportunities on a
case-by-case basis.

The provision for income taxes increased to $10.9 million for the three
months ended September 30, 2003 compared to $8.8 million for the three months
ended September 30, 2002. The income tax provision reflects an effective income
tax rate of 40.3% for the three months ended September 30, 2003 as compared to
an effective income tax rate of 41.0% for the three months ended September 30,
2002. The provision for income taxes for the three months ended September 30,
2002 was reduced by an income tax benefit of $1.7 million as a result of the
debt retirement costs incurred in the same period.

For the Nine Months Ended September 30, 2003 and 2002

Revenues increased 23.6% to $669.8 million for the nine months ended
September 30, 2003 compared to $541.7 million for the nine months ended
September 30, 2002. Of this increase, $103.9 million, or 19.1%, was from our
acquisitions during the fourth quarter of 2002 and $24.2 million, or 4.5%, was
from same-hospital revenues. Prior year contractuals resulted in an increase
to revenues of $6.2 million for the nine months ended September 30, 2003
compared to an increase to revenues of $7.9 for the nine months ended September
30, 2002.

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On a same-hospital basis, outpatient revenues grew 4.8% from $271.3
million to $284.4 million, and inpatient revenues increased 5.0% from $261.1
million to $274.2 million, for the nine months ended September 30, 2003
compared to the same period in 2002. On a same-hospital basis, admissions
decreased 2.0% for the nine months ended September 30, 2003 compared to the
nine months ended September 30, 2002. Same-hospital inpatient surgeries
increased 335 surgeries, or 2.0%, over the same period in 2002. Our
same-hospital Medicare case mix increased from 1.15 for the nine months ended
September 30, 2002 to 1.19 for the nine months ended September 30, 2003. A
primary driver in the case mix increase was our open-heart program at Lake
Cumberland Regional Hospital that opened in the fourth quarter of 2002.

As it relates to our same-hospital outpatient revenues, our outpatient
surgeries for the nine months ended September 30, 2003 increased 520 surgeries,
or 1.1%, as compared to the same period in 2002. Our same-hospital outpatient
revenues for the nine months ended September 30, 2003 were approximately 50.3%
of our total revenues compared to 50.1% in the same period in 2002. The
increase in the percentage from the prior year was partially offset by the
increase in inpatient intensity as a result of the open-heart program at Lake
Cumberland Regional Hospital mentioned above.

After factoring all of the above, our equivalent admissions decreased by
0.1% on a same-hospital basis during the first nine months of 2003 as compared
to the same period in 2002. As it relates to pricing and acuity, our
same-hospital revenues per equivalent admission for the nine months ended
September 30, 2003 were up 4.6%, or $228 per equivalent admission, over the
same period in 2002. Revenues per equivalent admission on our 2002
acquisitions were approximately $913 less than our same-hospital revenues per
equivalent admission during the nine months ended September 30, 2003.

Excluding the effect of the prior year contractuals of $6.2 million and
$7.9 million for the nine months ended September 30, 2003 and 2002,
respectively, revenues increased 24.3% and revenues per equivalent admission
increased 1.9%. Excluding the prior year contractuals, same-hospital revenues
increased 4.9% and same hospital revenues per equivalent admission increased
5.0%.

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##### Table of Contents



Our breakdown of revenues by payor class, on a consolidated basis, is as
follows:

|                        |  |                   |      |      |  |  |      |  
|----------------------- |  | ----------------- | ---- | ---- |  |  | ---- | -
|                        |  | Nine Months Ended
|                        |  | September 30,    
|                        |  |                  
|                        |  | 2003              |      | 2002
|                        |  |                   |      |     
|Medicare                |  |                   | 36.4 | %    |  |  | 34.3 | %
|Medicaid                |  |                   | 14.6 | %    |  |  | 16.9 | %
|Discount and Commercial |  |                   | 36.0 | %    |  |  | 38.2 | %
|Self
Pay and Other      |  |                   | 13.0 | %    |  |  | 10.6 | %

Our breakdown of revenues by payor class, on a same-hospital basis, is as
follows:

|                        |  |                   |      |      |  |  |      |  
|----------------------- |  | ----------------- | ---- | ---- |  |  | ---- | -
|                        |  | Nine Months Ended
|                        |  | September 30,    
|                        |  |                  
|                        |  | 2003              |      | 2002
|                        |  |                   |      |     
|Medicare                |  |                   | 35.9 | %    |  |  | 34.2 | %
|Medicaid                |  |                   | 16.0 | %    |  |  | 16.9 | %
|Discount and Commercial |  |                   | 37.4 | %    |  |  | 38.2 | %
|Self
Pay and Other      |  |                   | 10.7 | %    |  |  | 10.7 | %

The above tables include prior year contractuals,
including a $5.0 million
increase in Medicaid revenues for
the nine months ended September 30, 2002 related to a Kentucky Medicaid rate appeal.

Salaries and benefits increased as a percentage of revenues to 40.6% for
the nine months ended September 30, 2003 from 39.3% for the nine months ended
September 30, 2002, primarily as a result of our hospitals acquired during the
fourth quarter of 2002 which had higher than average salaries and benefits as a
percentage of our revenues. For the nine months ended September 30, 2003,
salaries and benefits were approximately 46.6% as a percentage of revenues for
our hospitals acquired in 2002. On a same-hospital basis, salaries and benefits
increased as a percentage of revenues to 39.5% for the nine months ended
September 30, 2003 compared to 39.3% for the same period in 2002. In addition,
on a same-hospital basis, salaries and benefits per man-hour increased 5.4%
while man-hours per equivalent admission decreased 0.3% during the nine months
ended September 30, 2003 as compared to the same period in 2002. On a
same-hospital basis, salaries and benefits per equivalent admission grew 5.1%
for the nine months ended September 30, 2003 compared to the same period in
2002.

Supply costs as a percentage of revenues increased to 12.9% for the nine
months ended September 30, 2003 from 12.4% for the nine months ended September
30, 2002. Outfitting the hospitals acquired in 2002 primarily accounted for
this increase, as supply costs as a percentage of revenues for our hospitals
acquired in 2002 was approximately 14.2%. On a same-hospital basis, supply
costs increased as a percentage of revenues to 12.6% for the nine months ended
September 30, 2003 from 12.4% over the same period in 2002.

Other operating expenses decreased as a percentage of revenues to 18.2%
for the nine months ended September 30, 2003 from 18.6% for the nine months
ended September 30, 2002. For the nine months ended September 30, 2003, other
operating expenses as a percentage of revenues for the hospitals acquired in
2002 was approximately 19.0%. On a same-hospital basis, other operating
expenses decreased as a percentage of revenues to 18.1% for the nine months
ended September 30, 2003 from 18.6% for the nine months ended September 30,
2002 primarily as a result of lower professional and general
liability insurance expense and lower professional fees in the nine months ended
September 30, 2003. Our professional and general liability
insurance expense was $6.8 million, on a same-hospital basis, during the nine months ended
September 30, 2003 as compared to $9.7 million in the same
period in 2002. This decrease relates to favorable loss experience as estimated by
our external actuaries and our 2003 change to using
multiple actuaries under the self-insured portion of our insurance
program, as further discussed in Note 7 of our condensed
consolidated financial statements included elsewhere herein. Our
physician recruiting costs increased from $4.5 million for the
nine months ended September 30, 2002 to $9.3 million for
the nine months ended September 30, 2003 as a result of our
increased number of recruited physicians. Professional fees decreased
by $0.7 million for the nine months ended September 30, 2003 as
compared to the same period in 2002, on a same-hospital basis.
Included in other operating expenses for the nine months ended
September 30, 2002 were non-recurring fees of $0.9 million related to
the Kentucky Medicaid rate appeal.

Provision for doubtful accounts increased as a percentage of revenues to
8.7% for the nine months ended September 30, 2003 from 7.2% for the nine months
ended September 30, 2002, primarily as a result of the hospitals acquired in
2002 which have a higher than average provision for doubtful accounts as a
percentage of our revenues. Provision for doubtful accounts as a percentage of
revenues for our hospitals acquired in 2002 was 14.2% for the nine months ended
September 30, 2003. On a same-hospital basis, the provision for doubtful
accounts increased as a percentage of revenues to 7.7% for the nine months
ended September 30, 2003 from 7.2% over the same period in 2002. On a
same-hospital basis, self-pay revenues increased from $46.5 million in the nine
months ended September 30, 2002 to $47.6 million in the nine months ended
September 30, 2003.

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Depreciation and amortization expense increased to $33.4 million for the
nine months ended September 30, 2003 from $28.0 million for the nine months
ended September 30, 2002, primarily as a result of the hospitals acquired in
2002 and depreciation associated with capital improvements at our
facilities. Depreciation expense associated with the hospitals acquired in 2002 was
$3.5 million for the nine months ended September 30, 2003. Same-hospital
depreciation and amortization expense was $29.9 million for the nine months
ended September 30, 2003.

Net interest expense remained unchanged at $9.9 million for the nine
months ended September 30, 2003 as compared to the nine months ended September
30, 2002.

During the nine months ended September 30, 2002, we repurchased
$147.1 million of our $150.0 million 10 3/4% Senior Subordinated Notes due 2009.
In connection with these repurchases, we incurred debt retirement costs of
$30.5 million in the nine months ended September 30, 2002 which consisted of
$26.0 million in premiums, commissions and fees paid for the repurchases and
$4.5 million in non-cash net deferred loan cost write-offs.

ESOP expense decreased to $4.9 million for the nine months ended September
30, 2003 from $7.4 million for the nine months ended September 30, 2002. This
decrease was a result of a lower average fair market value of our common stock
during the nine months ended September 30, 2003 compared to the same period in
2002. We recognize ESOP expense based on the average fair market value of the
shares committed to be released during the period.

Minority interest in earnings of consolidated entity was $0.5 million for
the nine months ended September 30, 2003 compared to $2.2 million for the nine
months ended September 30, 2002. We purchased the 30% limited partnership
interest in Dodge City Healthcare Group, L.P., the entity that owns and
operates the 110-bed Western Plains Regional Hospital and affiliated surgery
center in Dodge City, Kansas, for $25 million in October 2002. Minority
interest in earnings of consolidated entity related solely to this entity in
2002. Minority interest in earnings of consolidated entity in 2003 relates to
a minority equity interest owned by physicians in an ambulatory surgery center,
which was syndicated during the second quarter of 2003. The physician partners
contributed approximately $1.0 million and have a 43% minority interest in the
surgery center. Although the syndication of surgery centers or hospitals is
not a part of our core strategy, we will review these opportunities on a
case-by-case basis.

The provision for income taxes increased to $33.5 million for the nine
months ended September 30, 2003 compared to $19.9 million for the nine months
ended September 30, 2002. These income tax provisions reflect effective income
tax rates of 40.5% for the nine months ended September 30, 2003 compared to
45.5% for the nine months ended September 30, 2002. The provision for income
taxes for the nine months ended September 30, 2002 was reduced by an income tax
benefit of $11.6 million as a result of the debt retirement costs incurred in
the same period.

Liquidity and Capital Resources

Our primary sources of liquidity are cash flow provided by our operations
and our revolving credit facility. Our liquidity for the nine-month period
ended September 30, 2003 was derived primarily from net cash provided by
operating activities. In the nine months ended September 30, 2003, our
operations provided approximately $92.2 million in cash flows compared to $93.9
million in the same period of 2002.

Our revolving credit facility is guaranteed by substantially all of our
current and future subsidiaries and is secured by substantially all of our
assets. The facility requires that we comply with certain financial covenants,
including:

|                                                       |  |                 |  |                |  |                        |  | 
|------------------------------------------------------ |  | --------------- |  | -------------- |  | ---------------------- |  | 
|                                                       |  |                 |  |                |  | Level at September 30,
|                                                       |  | Requirement     |  | 2003          
|                                                       |  |                 |  |               
|Maximum permitted consolidated leverage ratio          |  | <3.50 to 1.00   |  | 1.58 to 1.00  
|Maximum permitted consolidated senior leverage ratio   |  | <2.50 to 1.00   |  | 0.17 to 1.00  
|Minimum permitted consolidated interest coverage ratio |  | >3.50 to 1.00   |  | 12.40 to 1.00 
|Minimum permitted consolidated net worth               |  | >$260.2 million |  | $386.8 million
|Maximum capital expenditures  last twelve months      |  | <$130.8 million |  | $72.7 million 

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The credit facility also requires that we comply with various other
covenants, including, but not limited to, restrictions on new indebtedness, the
ability to merge or consolidate, asset sales, capital expenditures,
acquisitions and dividends, with which we were in compliance as of September
30, 2003. As of September 30, 2003, we had letters of credit in the aggregate
amount of $29.9 million outstanding, which reduced the amount available under
our revolving credit facility to $170.1 million.

Our revolving credit facility does not contain provisions that would
accelerate the maturity dates of our debt upon a downgrade in our credit
rating. However, a downgrade in our credit rating could adversely affect our
ability to renew our existing credit facility or obtain access to new credit
facilities in the future and could increase the cost of such facilities. We do
not have any relationships with unconsolidated entities or financial
partnerships, such as entities often referred to as structured finance, special
purpose or variable interest entities, established for the purpose of
facilitating off-balance sheet arrangements or other contractually narrow or
limited purposes. Accordingly, we are not materially exposed to any financing,
liquidity, market or credit risk that could arise if we had engaged in such
relationships. We believe that future cash provided by operating activities and
amounts available under our revolving credit facility will provide sufficient
liquidity for the next twelve months.

On May 22, 2002, we sold 4 1/2% Convertible Subordinated Notes due 2009 in
the aggregate principal amount of $250 million (the Convertible Notes). The
net proceeds of approximately $242.5 million were used for acquisitions,
capital improvements at our existing facilities, repurchases of our 10 3/4%
Senior Subordinated Notes, working capital and general corporate purposes. The
Convertible Notes bear interest at the rate of 4 1/2% per year, payable
semi-annually on June 1 and December 1. The Convertible Notes are convertible
at the option of the holder at any time on or prior to maturity into shares of
our common stock at a conversion price of $47.36 per share. The conversion
price is subject to adjustment in certain circumstances. We may redeem all or a
portion of the Convertible Notes on or after June 3, 2005, at the then current
redemption prices, plus accrued and unpaid interest. Holders of the Convertible
Notes may require us to repurchase all of the holders Convertible Notes at
100% of their principal amount plus accrued and unpaid interest in some
circumstances involving a change of control. The Convertible Notes are
unsecured and subordinated to our existing and future senior indebtedness and
senior subordinated indebtedness. The Convertible Notes rank junior to our
other liabilities. The indenture governing the Convertible Notes does not
contain any financial covenants. A total of 5,278,825 shares of common stock
have been reserved for issuance upon conversion of the Convertible Notes.

Our capital expenditures were $54.2 million in the nine months ended
September 30, 2003, compared to $42.2 million in the corresponding period in
2002. Capital expenditures for the twelve months ended September 30, 2003 were
$72.7 million. We expect the level of capital expenditures in the next twelve
months to be somewhat higher. We have some large projects in process at a
number of our facilities. We are reconfiguring some of our hospitals to
accommodate more effectively inpatient and outpatient services and
restructuring existing surgical capacity in some of our hospitals to permit
additional patient volume and a greater variety of services. At September 30,
2003, we had projects under construction with an estimated additional cost to
complete and equip of approximately $96.6 million. This increased from $45.7
million as of June 30, 2003 because management approved various construction
projects during the third quarter of 2003. We anticipate that these projects will be
completed over the next three years. We anticipate funding these expenditures through cash provided by
operating activities, available cash and borrowings under our revolving credit
facility.

Our business strategy contemplates the acquisition of additional
hospitals, and we regularly review potential acquisitions. These acquisitions
may, however, require additional financing. We regularly evaluate opportunities
to sell additional equity or debt securities, obtain credit facilities from
lenders or restructure our long-term debt or equity for strategic reasons or to
further strengthen our financial position. The sale of additional equity or
convertible debt securities could result in additional dilution to our
stockholders. Effective October 1, 2003, we acquired the 75-bed Spring View
Hospital in Lebanon, Kentucky from Norton Healthcare for approximately $15.5
million, including working capital. We did not acquire the patient accounts
receivable related to this hospital. The acquisition also included Spring View
Nursing and Spring View Pediatrics. We used our available cash to pay for this
acquisition.

We have never declared or paid dividends on our common stock. We intend to
retain future earnings to finance the growth and development of our business
and, accordingly, do not currently intend to declare or pay any

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dividends on our common stock. Our board of directors will evaluate our future
earnings, results of operations, financial condition and capital requirements
in determining whether to declare or pay cash dividends. Delaware law prohibits
us from paying any dividends unless we have capital surplus or net profits
available for this purpose. In addition, our credit facilities impose
restrictions on our ability to pay dividends.

On April 28, 2003, we announced that our Board of Directors authorized the
repurchase of up to $100 million of our outstanding shares of common stock
either in the open market or through privately negotiated transactions, subject
to market conditions, regulatory constraints and other factors, to enable us to
take advantage of opportunistic market conditions. We had approximately 38.4
million shares of common stock outstanding as of September 30, 2003. We are
not obligated to repurchase any specific number of shares under the program.
As of September 30, 2003, we had used our available cash to purchase 1,323,800
shares for an aggregate of approximately $28.0 million, which repurchased
shares are designated by us as treasury stock. We retired 863,600 of our
1,323,800 treasury shares.

As of
October 24, 2003, we had purchased an additional 710,000 shares for
an aggregate purchase price of approximately $17.0 million subsequent to
September 30, 2003.

Impact of Recently Issued Accounting Pronouncements

Please refer to Note 3 of our condensed consolidated financial statements
included elsewhere herein for a discussion of the impact of recently issued
accounting pronouncements.

Contingencies

Please refer to Note 5 of our condensed consolidated financial statements
included elsewhere herein for a discussion of our material financial
contingencies, including:



| |  |  | HCA investigations, litigation and indemnification rights;
| | - |  | ----------------------------------------------------------
|
| |  |  | Internal Revenue Service examinations;                    
|
| |  |  | An Americans with Disabilities Act claim;                 
|
| |  |  | Our Corporate Integrity Agreement;                        
|
| |  |  | General liability claims;                                 
|
| |  |  | Physician commitments;                                    
|
| |  |  | Capital expenditure commitments;                          
|
| |  |  | Prior period cost report settlements; and                 
|
| |  |  | Acquisitions.                                             

Inflation

The healthcare industry is labor intensive. Wages and other expenses
increase during periods of inflation and when labor shortages in marketplaces
occur. In addition, suppliers and insurers pass along rising costs to us in the
form of higher prices. Our ability to pass on these increased costs is limited
because of increasing regulatory and competitive pressures, as discussed above.
Accordingly, inflationary pressures could have a material adverse effect on our
results of operations.

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##### Table of Contents



Healthcare Reform

In recent years, an increasing number of legislative proposals have been
introduced or proposed to Congress and in some state legislatures. While we are
unable to predict which, if any, proposals for healthcare reform will be
adopted, there can be no assurance that proposals adverse to our business will
not be adopted.




Item 3. Quantitative and Qualitative Disclosures about Market Risk.

During the nine months ended September 30, 2003, there were no material
changes in the quantitative and qualitative disclosures about market risks
presented in our Annual Report on Form 10-K for the year ended December 31,
2002.




Item 4. Controls and Procedures.

We carried out an evaluation, under the supervision and with the
participation of management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures as of the end of the period covered by this
report pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were effective in ensuring that information
required to be disclosed by us (including our consolidated subsidiaries) in
reports that we file or submit under the Securities Exchange Act of 1934, as
amended, is recorded, processed, summarized and reported in a timely basis.
There has been no change in our internal control over financial reporting that
has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.

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##### Table of Contents






PART II-OTHER INFORMATION




Item 6. Exhibits and Reports on Form 8-K.

(a)  List of Exhibits:

|               |  |                                                                                                                                                                                                                                                                                                   
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT NUMBER |  | DESCRIPTION                                                                                                                                                                                                                                                                                       
|               |  |                                                                                                                                                                                                                                                                                                   
|3.1            |  | Certificate of Incorporation (a)                                                                                                                                                                                                                                                                  
|               |  |                                                                                                                                                                                                                                                                                                   
|3.2            |  | Bylaws (a)                                                                                                                                                                                                                                                                                        
|               |  |                                                                                                                                                                                                                                                                                                   
|4.1            |  | Form of Specimen Stock Certificate (b)                                                                                                                                                                                                                                                            
|               |  |                                                                                                                                                                                                                                                                                                   
|4.2            |  | Rights Agreement dated as of May 11, 1999 between LifePoint Hospitals, Inc. and
National City Bank as Rights Agent (a)                                                                                                                                                                            
|               |  |                                                                                                                                                                                                                                                                                                   
|4.3            |  | Indenture, dated as of May 22, 2002, between LifePoint Hospitals, Inc. and National
City Bank, as trustee, relating to the 4 1/2% Convertible Subordinated Notes due 2009
(c)                                                                                                                     
|               |  |                                                                                                                                                                                                                                                                                                   
|4.4            |  | Registration Rights Agreement, dated as of May 22, 2002, among LifePoint Hospitals,
Inc., UBS Warburg LLC, Credit Suisse First Boston Corporation, Deutsche Bank
Securities, Inc., Lehman Brothers Inc., Salomon Smith Barney Inc., Banc of America
Securities LLC, and Fleet Securities, Inc. (c)
|               |  |                                                                                                                                                                                                                                                                                                   
|4.5            |  | Form of 4 1/2% Convertible Subordinated Note due 2009 of LifePoint Hospitals, Inc. (c)                                                                                                                                                                                                            
|               |  |                                                                                                                                                                                                                                                                                                   
|31.1           |  | Certification of the Chief Executive Officer of LifePoint Hospitals, Inc. Pursuant to
Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                     
|               |  |                                                                                                                                                                                                                                                                                                   
|31.2           |  | Certification of the Chief Financial Officer of LifePoint Hospitals, Inc. Pursuant to
Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                     
|               |  |                                                                                                                                                                                                                                                                                                   
|32.1           |  | Certification of the Chief Executive Officer of LifePoint Hospitals, Inc. Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002                                                                                                                
|               |  |                                                                                                                                                                                                                                                                                                   
|32.2           |  | Certification of the Chief Financial Officer of LifePoint Hospitals, Inc. Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002                                                                                                                



---

|(a) |  | Incorporated by reference from the LifePoint Hospitals, Inc. Quarterly
Report on Form 10-Q for the quarter ended March 31, 1999, File Number
0-29818.                        
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | Incorporated by reference from exhibits to LifePoint Hospitals
Registration Statement on Form 10 under the Securities Exchange Act of
1934, as amended, File Number 0-29818.
|   
|(c) |  | Incorporated by reference from exhibits to LifePoint Hospitals
Registration Statement on Form S-3 under the Securities Act of 1933, as
amended, File Number 333-90536.      
|   
|(b) |  | Reports on Form 8-K filed during the three months ended September 30, 2003:                                                                                                  

On July 28, 2003, we furnished pursuant to Item 12 of Form 8-K a copy of
our press release issued on July 28, 2003, containing our 2003 second quarter
earnings results.

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##### Table of Contents






SIGNATURES

Pursuant to the requirements 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.

|                       |  |                           |  |                                                  
|---------------------- |  | ------------------------- |  | -------------------------------------------------
|Date: October 29, 2003 |  | LifePoint Hospitals, Inc.
|                       |  |                           |  |                                                  
|                       |  | By:                       |  | /s/ Michael J. Culotta                           
|                       |  |                           |  |                                                  
|                       |  |                           |  | Michael J. Culotta                               
|                       |  |                           |  | Senior Vice President and Chief Financial Officer
|                       |  |                           |  | (Principal Financial and Accounting Officer)     

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##### Table of Contents






EXHIBIT INDEX

|               |      |             |  |                                                                                                                                                                                                                                                                                                   
|-------------- | ---- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT NUMBER |      | DESCRIPTION
|               |      |            
|               | 3.1  |             |  | Certificate of Incorporation (a)                                                                                                                                                                                                                                                                  
|               |      |             |  |                                                                                                                                                                                                                                                                                                   
|               | 3.2  |             |  | Bylaws (a)                                                                                                                                                                                                                                                                                        
|               |      |             |  |                                                                                                                                                                                                                                                                                                   
|               | 4.1  |             |  | Form of Specimen Stock Certificate (b)                                                                                                                                                                                                                                                            
|               |      |             |  |                                                                                                                                                                                                                                                                                                   
|               | 4.2  |             |  | Rights Agreement dated as of May 11, 1999 between LifePoint Hospitals, Inc. and
National City Bank as Rights Agent (a)                                                                                                                                                                            
|               |      |             |  |                                                                                                                                                                                                                                                                                                   
|               | 4.3  |             |  | Indenture, dated as of May 22, 2002, between LifePoint Hospitals, Inc. and National
City Bank, as trustee, relating to the 4 1/2% Convertible Subordinated Notes due 2009
(c)                                                                                                                     
|               |      |             |  |                                                                                                                                                                                                                                                                                                   
|               | 4.4  |             |  | Registration Rights Agreement, dated as of May 22, 2002, among LifePoint Hospitals,
Inc., UBS Warburg LLC, Credit Suisse First Boston Corporation, Deutsche Bank
Securities, Inc., Lehman Brothers Inc., Salomon Smith Barney Inc., Banc of America
Securities LLC, and Fleet Securities, Inc. (c)
|               |      |             |  |                                                                                                                                                                                                                                                                                                   
|               | 4.5  |             |  | Form of 4 1/2% Convertible Subordinated Note due 2009 of LifePoint Hospitals, Inc. (c)                                                                                                                                                                                                            
|               |      |             |  |                                                                                                                                                                                                                                                                                                   
|               | 31.1 |             |  | Certification of the Chief Executive Officer of LifePoint Hospitals, Inc. Pursuant to
Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                     
|               |      |             |  |                                                                                                                                                                                                                                                                                                   
|               | 31.2 |             |  | Certification of the Chief Financial Officer of LifePoint Hospitals, Inc. Pursuant to
Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                     
|               |      |             |  |                                                                                                                                                                                                                                                                                                   
|               | 32.1 |             |  | Certification of the Chief Executive Officer of LifePoint Hospitals, Inc. Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002                                                                                                                
|               |      |             |  |                                                                                                                                                                                                                                                                                                   
|               | 32.2 |             |  | Certification of the Chief Financial Officer of LifePoint Hospitals, Inc. Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002                                                                                                                



---

|(a) |  | Incorporated by reference from the LifePoint Hospitals, Inc. Quarterly
Report on Form 10-Q for the quarter ended March 31, 1999, File Number
0-29818.                        
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | Incorporated by reference from exhibits to LifePoint Hospitals
Registration Statement on Form 10 under the Securities Exchange Act of
1934, as amended, File Number 0-29818.
|   
|(c) |  | Incorporated by reference from exhibits to LifePoint Hospitals
Registration Statement on Form S-3 under the Securities Act of 1933, as
amended, File Number 333-90536.      

29