<PAGE>   1

                       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
         Exchanges Act of 1934 for the quarterly period ended June 30, 1999.

[ ]      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: 0-19786

                                  PHYCOR, INC.
--------------------------------------------------------------------------------
             (Exact Name of Registrant as Specified in Its Charter)

         TENNESSEE                                              62-1344801
----------------------------------------                   -------------------
(State or Other Jurisdiction of                              (I.R.S. Employer
Incorporation or Organization)                             Identification No.)

    30 BURTON HILLS BLVD., SUITE 400
          NASHVILLE, TENNESSEE                                    37215
----------------------------------------                   -------------------
(Address of Principal Executive Offices)                        (Zip Code)

       Registrant's Telephone Number, Including Area Code: (615) 665-9066
                                                           --------------

                                 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 [ ]

         As of August 12, 1999, 76,069,497 shares of the Registrant's Common
Stock were outstanding.


<PAGE>   2


                         PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                          PHYCOR, INC. AND SUBSIDIARIES
                           Consolidated Balance Sheets
                 June 30, 1999 (unaudited) and December 31, 1998
                    (All amounts are expressed in thousands)

<TABLE>
<CAPTION>
ASSETS                                                                           1999             1998
-------                                                                       -----------      -----------
                                                                              (Unaudited)
<S>                                                                           <C>              <C>
Current assets:
     Cash and cash equivalents                                                $    74,520      $    74,314
     Accounts receivable, net                                                     342,511          378,732
     Inventories                                                                   17,567           19,852
     Prepaid expenses and other current assets                                     82,911           55,988
     Assets held for sale                                                          72,387           41,225
                                                                              -----------      -----------
                  Total current assets                                            589,896          570,111
Property and equipment, net                                                       232,162          241,824
Intangible assets, net                                                            937,166          981,537
Other assets                                                                       62,696           53,067
                                                                              -----------      -----------
                  Total assets                                                $ 1,821,920      $ 1,846,539
                                                                              ===========      ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------

Current liabilities:
     Current installments of long-term debt                                   $     4,742      $     4,810
     Current installments of obligations under capital leases                       4,107            5,687
     Accounts payable                                                              58,418           50,972
     Due to physician groups                                                       53,489           51,941
     Purchase price payable                                                        50,564           73,736
     Salaries and benefits payable                                                 37,701           37,077
     Incurred but not reported claims payable                                      51,712           59,333
     Other accrued expenses and current liabilities                               117,904           98,701
                                                                              -----------      -----------
                  Total current liabilities                                       378,637          382,257
Long-term debt, excluding current installments                                    397,834          388,644
Obligations under capital leases, excluding current installments                    4,100            6,018
Purchase price payable                                                             10,640            8,967
Deferred tax credits and other liabilities                                          2,984            8,663
Convertible subordinated notes payable to physician groups                         18,672           47,580
Convertible subordinated debentures                                               200,000          200,000
                                                                              -----------      -----------
                  Total liabilities                                             1,012,867        1,042,129
                                                                              -----------      -----------

Shareholders' equity:
     Preferred stock, no par value; 10,000 shares authorized:                          --               --
     Common stock, no par value; 250,000 shares authorized; issued
         and outstanding, 76,231 shares in 1999 and 75,824 shares in 1998         851,589          850,657
     Accumulated deficit                                                          (42,536)         (46,247)
                                                                              -----------      -----------
                  Total shareholders' equity                                      809,053          804,410
                                                                              -----------      -----------
                  Total liabilities and shareholders' equity                  $ 1,821,920      $ 1,846,539
                                                                              ===========      ===========
</TABLE>

See accompanying notes to consolidated financial statements.



                                       2
<PAGE>   3



                          PHYCOR, INC. AND SUBSIDIARIES
                      Consolidated Statements of Operations
            Three months and six months ended June 30, 1999 and 1998
     (All amounts are expressed in thousands, except for earnings per share)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                      THREE MONTHS ENDED            SIX MONTHS ENDED
                                                          JUNE 30,                       JUNE 30,
                                                   ------------------------      ------------------------
                                                     1999           1998           1999           1998
                                                   ---------      ---------      ---------      ---------
<S>                                                <C>            <C>            <C>            <C>
Net revenue                                        $ 393,488      $ 371,450      $ 810,032      $ 694,145
Operating expenses:
     Cost of provider services                        49,520         26,024        106,612         26,024
     Salaries, wages and benefits                    126,927        126,980        260,015        247,691
     Supplies                                         57,994         56,543        118,594        109,649
     Purchased medical services                        9,084          9,337         19,325         18,573
     Other expenses                                   59,811         53,657        118,043        102,559
     General corporate expenses                        7,010          7,685         15,653         15,141
     Rents and lease expense                          30,591         31,650         63,305         61,713
     Depreciation and amortization                    24,118         22,835         48,888         41,010
     Provision for asset revaluation
         and clinic restructuring                     14,375             --         23,888         22,000
     Merger expenses                                      --             --             --         14,196
                                                   ---------      ---------      ---------      ---------
     Net operating expenses                          379,430        334,711        774,323        658,556
                                                   ---------      ---------      ---------      ---------
         Earnings from operations                     14,058         36,739         35,709         35,589

Other (income) expense:
     Interest income                                  (1,089)          (747)        (2,102)        (1,492)
     Interest expense                                 10,122          9,281         19,987         16,803
                                                   ---------      ---------      ---------      ---------
         Earnings before income taxes and
              minority interest                        5,025         28,205         17,824         20,278

Income tax expense                                       554          8,993          5,791          5,738
Minority interest in earnings of
     consolidated partnerships                         3,548          3,899          8,322          6,725
                                                   ---------      ---------      ---------      ---------
         Net earnings                              $     923      $  15,313      $   3,711      $   7,815
                                                   =========      =========      =========      =========
Earnings per share:
     Basic                                         $     .01      $     .22      $     .05      $     .12
     Diluted                                             .01            .22            .05            .11
                                                   =========      =========      =========      =========
Weighted average number of shares and dilutive
     share equivalents outstanding:
         Basic                                        76,034         68,779         75,989         67,516
         Diluted                                      77,457         70,857         77,509         70,024
                                                   =========      =========      =========      =========
</TABLE>

See accompanying notes to consolidated financial statements.



                                       3
<PAGE>   4


                          PHYCOR, INC. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows
            Three months and six months ended June 30, 1999 and 1998
                    (All amounts are expressed in thousands)
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                    THREE MONTHS ENDED       SIX MONTHS ENDED
                                                                         JUNE 30,                JUNE 30,
                                                                   --------------------    ---------------------
                                                                    1999         1998        1999         1998
                                                                  --------    ---------    --------    ---------
<S>                                                               <C>         <C>          <C>         <C>
Cash flows from operating activities:
   Net earnings                                                   $    923    $  15,313    $  3,711    $   7,815
   Adjustments to reconcile net earnings to net cash
     provided by operating activities:
       Depreciation and amortization                                24,118       22,835      48,888       41,010
       Minority interests                                            3,548        3,899       8,322        6,725
       Provision for asset revaluation and clinic restructuring     14,375           --      23,888       22,000
       Merger expenses                                                  --           --          --       14,196
       Increase (decrease) in cash, net of effects
         of acquisitions, due to changes in:
           Accounts receivable                                      22,631         (991)      4,978      (22,122)
           Inventories                                                 522         (260)        737           22
           Prepaid expenses and other current assets                (5,133)      (5,731)    (17,578)      (8,811)
           Accounts payable                                          1,410       (2,107)      8,231       (2,732)
           Due to physician groups                                  (6,158)      (2,278)      3,049        5,038
           Incurred but not reported claims payable                 (6,786)      (1,555)     (4,592)         245
           Other accrued expenses and current liabilities           (7,839)       8,718      (8,153)      11,026
                                                                  --------    ---------    --------    ---------
              Net cash provided by operating activities             41,611       37,843      71,481       74,412
                                                                  --------    ---------    --------    ---------
Cash flows from investing activities:
   Payments for acquisitions, net                                   (4,607)    (105,455)    (35,500)    (139,994)
   Purchase of property and equipment                               (9,487)     (17,815)    (23,836)     (37,970)
   Payments to acquire other assets                                 (1,860)        (821)     (4,953)     (11,133)
                                                                  --------    ---------    --------    ---------
              Net cash used by investing activities                (15,954)    (124,091)    (64,289)    (189,097)
                                                                  --------    ---------    --------    ---------
Cash flows from financing activities:
   Net proceeds from issuance of stock                                 400        9,497       1,270       16,460
   Proceeds from long-term borrowings                                   --      103,000      26,000      139,000
   Repayment of long-term borrowings                               (18,799)      (2,136)    (22,030)      (9,056)
   Repayment of obligations under capital leases                    (1,667)      (1,131)     (3,813)      (1,898)
   Distributions of minority interests                              (4,613)      (3,190)     (7,628)      (4,369)
   Loan costs incurred                                                 (14)        (276)       (785)        (276)
                                                                  --------    ---------    --------    ---------
              Net cash provided (used) by financing activities     (24,693)     105,764      (6,986)     139,861
                                                                  --------    ---------    --------    ---------
Net increase in cash and cash equivalents                              964       19,516         206       25,176

Cash and cash equivalents - beginning of period                     73,556       43,820      74,314       38,160
                                                                  --------    ---------    --------    ---------
Cash and cash equivalents  - end of period                        $ 74,520    $  63,336    $ 74,520    $  63,336
                                                                  ========    =========    ========    =========
</TABLE>

See accompanying notes to consolidated financial statements.



                                       4
<PAGE>   5



                          PHYCOR, INC. AND SUBSIDIARIES
                Consolidated Statements of Cash Flows, Continued
            Three months and six months ended June 30, 1999 and 1998
                    (All amounts are expressed in thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                        THREE MONTHS ENDED        SIX MONTHS ENDED
                                                                             JUNE 30,                  JUNE 30,
                                                                       ---------------------    ---------------------
                                                                         1999         1998        1999         1998
                                                                       --------    ---------    --------    ---------
<S>                                                                    <C>         <C>          <C>         <C>
SUPPLEMENTAL SCHEDULE OF INVESTING ACTIVITIES:
Effects of acquisitions, net:
   Assets acquired, net of cash                                        $ 24,533    $ 207,365    $ 33,588    $ 292,946
   Liabilities paid (assumed), including deferred
      purchase price payments                                           (12,058)     (16,212)      9,420      (41,730)
   Issuance of convertible subordinated notes payable                        --           --          --       (1,317)
   Reduction (issuance) of common stock and warrants                         --      (84,517)        360     (105,974)
   Cash received from disposition of clinic assets                       (7,868)      (1,181)     (7,868)      (3,931)
                                                                       --------    ---------    --------    ---------
         Payments for acquisitions, net                                $  4,607    $ 105,455    $ 35,500    $ 139,994
                                                                       ========    =========    ========    =========

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Capital lease obligations incurred to acquire
   equipment                                                           $     98    $     258    $    114    $     438
                                                                       ========    =========    ========    =========
Conversion of subordinated notes payable
   to common stock                                                     $     --    $      --    $     22    $   2,000
                                                                       ========    =========    ========    =========
</TABLE>








See accompanying notes to consolidated financial statements.



                                       5
<PAGE>   6



                          PHYCOR, INC. AND SUBSIDIARIES
              Notes to Unaudited Consolidated Financial Statements
            Three months and six months ended June 30, 1999 and 1998

(1)    BASIS OF PRESENTATION

       The accompanying unaudited financial statements have been prepared in
       accordance with generally accepted accounting principles for interim
       financial reporting and in accordance with Rule 10-01 of Regulation S-X.

       In the opinion of management, the unaudited interim financial statements
       contained in this report reflect all adjustments, consisting of only
       normal recurring accruals, that are necessary for a fair presentation of
       the financial position and the results of operations for the interim
       periods presented. The results of operations for any interim period are
       not necessarily indicative of results for the full year.

       These financial statements, footnote disclosures and other information
       should be read in conjunction with the financial statements and the notes
       thereto included in the Company's Annual Report on Form 10-K for the year
       ended December 31, 1998.

(2)    ACQUISITION PRO FORMA INFORMATION

       The unaudited consolidated pro forma net revenue, net earnings and per
       share amounts of the Company assuming the PrimeCare International, Inc.
       (PrimeCare), The Morgan Health Group, Inc. (MHG), Carewise, Inc.
       (Carewise) and First Physician Care, Inc. (FPC) acquisitions had been
       consummated on January 1, 1998 are as follows (in thousands, except for
       earnings per share):

<TABLE>
<CAPTION>
                                THREE MONTHS ENDED   SIX MONTHS ENDED
                                   JUNE 30, 1998       JUNE 30, 1998
                                 -----------------   -----------------
<S>                                <C>                 <C>
       Net revenue                 $   410,571         $   819,440
       Net earnings                     13,991               4,532
       Earnings per share:
           Basic                          0.18                0.06
           Diluted                        0.18                0.06
</TABLE>

       The consolidated statements of operations include the results of the
       above businesses from the dates of their respective acquisitions.

(3)    NET REVENUE

       Net revenue of the Company is comprised of net clinic service agreement
       revenue, IPA management revenue, net hospital revenue and other operating
       revenues. Clinic service agreement revenue is equal to the net revenue of
       the clinics, less amounts retained by physician groups. Net clinic
       revenue recorded by the physician groups and net hospital revenue are
       recorded at established rates reduced by provisions for doubtful accounts
       and contractual adjustments. Contractual adjustments arise as a result of
       the terms of certain reimbursement and managed care contracts. Such
       adjustments represent the difference between charges at established rates
       and estimated recoverable amounts and are recognized in the period the
       services are rendered. Any differences between estimated contractual
       adjustments and actual final settlements under reimbursement contracts
       are recognized as contractual adjustments in the year final settlements
       are determined. With the exception of the Company's wholly owned
       subsidiary, PrimeCare, and certain clinics acquired as a part of the FPC
       acquisition, the physician groups, rather than the Company, enter into
       managed care contracts. Through calculation of its service fees, the
       Company shares indirectly in any capitation risk assumed by its
       affiliated physician groups.

                                                                     (Continued)



                                       6
<PAGE>   7


                          PHYCOR, INC. AND SUBSIDIARIES

              Notes to Unaudited Consolidated Financial Statements

       IPA management revenue is equal to the difference between the amount of
       capitation and risk pool payments payable to the IPAs managed by the
       Company less amounts retained by the IPAs. The Company has not
       historically been a party to capitated contracts entered into by the
       IPAs, but is exposed to losses to the extent of its share of deficits, if
       any, of the capitated revenue of the IPAs. Through the PrimeCare and MHG
       acquisitions, the Company became a party to certain managed care
       contracts. Accordingly, the cost of provider services for the PrimeCare
       and MHG contracts is not included as a deduction to net revenue of the
       Company but is reported as an operating expense.

       The following represent amounts included in the determination of net
       revenue (in thousands):

<TABLE>
<CAPTION>
                                                            THREE MONTHS ENDED      SIX MONTHS ENDED
                                                                JUNE 30,                JUNE 30,
                                                           -------------------   -----------------------
                                                             1999       1998         1999         1998
                                                           --------   --------   ----------   ----------

<S>                                                        <C>        <C>        <C>          <C>
       Gross physician group, hospital and other revenue   $876,812   $878,837   $1,786,481   $1,720,638
       Less:
           Provisions for doubtful accounts
                 and contractual adjustments                377,633    350,605      761,227      689,894
                                                           --------   --------   ----------   ----------
                 Net physician group, hospital
                    and other revenue                       499,179    528,232    1,025,254    1,030,744
       IPA revenue                                          279,781    181,197      548,941      300,478
                                                           --------   --------   ----------   ----------
                 Net physician group, hospital, IPA
                    and other revenue                       778,960    709,429    1,574,195    1,331,222
       Less amounts retained by physician
           groups and IPAs:
           Physician groups                                 173,692    187,030      356,316      363,063
           Clinic technical employee compensation            22,155     23,567       45,445       46,795
           IPAs                                             189,625    127,382      362,402      227,219
                                                           --------   --------   ----------   ----------
                 Net revenue                               $393,488   $371,450   $  810,032   $  694,145
                                                           ========   ========   ==========   ==========
</TABLE>


(4)    BUSINESS SEGMENTS

       The Company has two reportable segments: physician clinics and IPAs. The
       physician clinics have been subdivided into multi-specialty and group
       formation clinics for purposes of disclosure. The Company derives its
       revenues primarily from operating multi-specialty medical clinics and
       managing IPAs (See Note 3). In addition, the Company provides health care
       decision-support services and operates two hospitals that do not meet the
       quantitative thresholds for reportable segments.

                                                                     (Continued)



                                       7
<PAGE>   8


                          PHYCOR, INC. AND SUBSIDIARIES

              Notes to Unaudited Consolidated Financial Statements

       The Company evaluates performance based on earnings from operations
       before asset revaluation and clinic restructuring charges, merger
       expenses, minority interest and income taxes. The following is a
       financial summary by business segment for the periods indicated (in
       thousands):

<TABLE>
<CAPTION>
                                                                       THREE MONTHS ENDED             SIX  MONTHS ENDED
                                                                             JUNE 30,                      JUNE 30,
                                                                    --------------------------    --------------------------
                                                                        1999           1998           1999           1998
                                                                    -----------    -----------    -----------    -----------
<S>                                                                 <C>            <C>            <C>            <C>
       Multi-specialty clinics:
           Net revenue                                              $   278,951    $   281,618    $   573,369    $   551,381
           Operating expenses(1)                                        252,171        250,284        518,782        487,877
           Interest income                                                 (349)          (383)          (684)          (569)
           Interest expense                                              19,365         18,366         38,435         35,361
           Earnings before taxes and minority interest(1)                 7,764         13,351         16,836         28,712
           Depreciation and amortization                                 17,094         17,961         36,079         32,951
           Segment Assets                                             1,290,950      1,360,420      1,290,950      1,360,420

       Group formation clinics:
           Net revenue                                                   10,946         30,173         23,523         63,661
           Operating expenses(1)                                         10,075         27,732         21,454         57,317
           Interest  (income) expense                                      (280)            32           (421)            57
           Interest expense                                               1,092          3,784          2,482          7,306
           Earnings (loss) before taxes and minority interest(1)             59         (1,375)             8         (1,019)
           Depreciation and amortization                                    855          2,422          1,539          4,089
           Segment Assets                                                65,500        193,144         65,500        193,144

       IPAs:
           Net revenue                                                   90,156         53,815        186,539         73,259
           Operating expenses(1)                                         82,314         44,101        167,493         57,548
           Interest income                                                 (601)          (536)        (1,245)          (629)
           Interest expense                                               2,795          2,760          5,516          3,796
           Earnings before taxes and minority interest(1)                 5,648          7,490         14,775         12,544
           Depreciation and amortization                                  4,025          1,923          6,998          2,861
           Segment Assets                                               333,204        252,266        333,204        252,266

       Corporate and other(2):
           Net revenue                                                   13,435          5,844         26,601          5,844
           Operating expenses(1)                                         20,495         12,594         42,706         19,618
           Interest (income) expense                                        141            140            248           (351)
           Interest income                                              (13,130)       (15,629)       (26,446)       (29,660)
           Earnings before taxes and minority interest(1)                 5,929          8,739         10,093         16,237
           Depreciation and amortization                                  2,144            529          4,272          1,109
           Segment Assets                                               132,266         86,516        132,266         86,516
</TABLE>

       ----------------------------

       (1)    Amounts exclude provision for asset revaluation and clinic
              restructuring and merger expenses.

       (2)    This segment includes corporate costs and all real estate holdings
              as well as the results for CareWise and the hospitals managed by
              the Company.





                                                                     (Continued)



                                       8
<PAGE>   9


                          PHYCOR, INC. AND SUBSIDIARIES

              Notes to Unaudited Consolidated Financial Statements

 (5)   ASSET REVALUATION AND CLINIC RESTRUCTURING

       Asset revaluation charges totaling $13.7 million were recorded in the
       second quarter of 1999. These charges related to adjustments of the
       carrying value of the Company's assets at three clinics as a result of
       the sale or pending agreements to sell certain assets associated with the
       related service agreements.

       Additionally, restructuring charges totaling $675,000 were recorded in
       the second quarter of 1999 with respect to operations that are being
       sold or closed. These charges were comprised of approximately $165,000 in
       facility and lease termination costs, $383,000 in severance costs and
       $127,000 in other exit costs. During the second quarter and first six
       months of 1999, the Company paid approximately $464,000 and $704,000,
       respectively, in facility and lease termination costs, $1,233,000 and
       $1,674,000, respectively, in severance costs and $1,525,000 and
       $3,616,000, respectively, in other exit costs. At June 30, 1999, accrued
       expenses payable included remaining reserves for clinics to be
       restructured and exit costs for disposed clinic operations of
       approximately $8,299,000, which included $1,573,000 in facility and lease
       termination costs, $3,695,000 in severance costs and $3,031,000 in other
       exit costs.

       Clinic net assets expected to be disposed of during the remainder of 1999
       totaled approximately $72.4 million at June 30, 1999, and consisted of
       current assets, property and equipment, other assets and current
       liabilities which will be assumed from two clinics associated with the
       fourth quarter 1998 asset revaluation charge, one clinic associated with
       the second quarter 1999 asset revaluation charge and two additional
       clinics for which no asset revaluation charge has been taken as of June
       30, 1999.

       Net revenue and pre-tax income (losses) from the clinics and the IPA
       (MHG) disposed of or to be disposed of and included in assets held for
       sale at June 30, 1999, totaled $28.6 million and ($60,000), respectively,
       for the three months ended June 30, 1999 and $83.0 million and $100,000,
       respectively, for the first six months of 1999. Net revenue and pre-tax
       income from the clinics and the IPA disposed of or to be disposed of and
       included in assets held for sale at June 30, 1999, totaled $59.8 million
       and $1.6 million, respectively, for the three months ended June 30, 1998
       and $126.2 million and $3.1 million, respectively, for the first six
       months of 1998.



                                       9
<PAGE>   10


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS.

OVERVIEW

         PhyCor, Inc. ("PhyCor" or the "Company") is a medical network
management company that operates multi-specialty medical clinics, develops and
manages independent practice associations ("IPAs") and provides health care
decision-support services, including demand management and disease management
services, to managed care organizations, health care providers, employers and
other group associations. In connection with multi-specialty clinic operations,
the Company manages and operates two hospitals and four health maintenance
organizations. As of June 30, 1999, the Company operated 52 medical groups with
3,308 physicians in 25 states and managed IPAs with approximately 26,000
physicians in 34 markets. On such date, the Company's affiliated physicians
provided medical services under capitated contracts to approximately 1,555,000
patients, including approximately 326,000 Medicare/Medicaid eligible patients.
The Company also provided health care decision-support services to approximately
3.0 million individuals within the United States and an additional 500,000 under
foreign country license agreements.

         The Company's strategy is to position its affiliated multi-specialty
medical groups and IPAs to be the physician component of organized health care
systems. PhyCor believes that physician organizations are a critical element of
organized health care systems because physician decisions determine the cost and
quality of care.

         A substantial majority of the Company's revenue in the first six months
of 1999 and 1998 was earned under service agreements with multi-specialty
clinics. Revenue earned under substantially all of the service agreements is
equal to the net revenue of the clinics, less amounts retained by physician
groups. The service agreements contain financial incentives for the Company to
assist the physician groups in increasing clinic revenues and controlling
expenses.

         To increase clinic revenue, the Company works with the affiliated
physician groups to recruit additional physicians, merge other physicians
practicing in the area into the affiliated physician groups, negotiate contracts
with managed care organizations and provide additional ancillary services. To
reduce or control expenses, among other things, PhyCor utilizes national
purchasing contracts for key items, reviews staffing levels to make sure they
are appropriate and assists the physicians in developing more cost-effective
clinical practice patterns.

         The Company has increased its focus on the development of IPAs to
enable the Company to provide services to a broader range of physician
organizations, to enhance the operating performance of existing clinics and to
further develop physician relationships. The Company develops IPAs that include
affiliated clinic physicians to enhance the clinics' attractiveness as providers
to managed care organizations.

         The Company continues to seek additional affiliations with
multi-specialty clinics and IPAs, however, the Company anticipates that its
acquisition growth will continue to be slower than in previous years. During the
first six months of 1999, the Company affiliated with several smaller medical
practices, made deferred acquisition payments to certain physician groups
pursuant to the terms of their respective agreements and completed purchase
accounting for acquisitions consummated within the last twelve months, adding a
total of approximately $25.0 million in assets. The principal asset acquired was
service agreement rights, which is an intangible asset. The consideration for
the acquisitions consisted of approximately 53% cash and 47% liabilities
assumed. The cash portion of the aggregate purchase price was funded by a
combination of operating cash flow and borrowings under the Company's bank
credit facility.



                                       10
<PAGE>   11


         The Company has historically amortized goodwill and other intangible
assets related to its service agreements over the periods during which the
agreements are expected to be effective, ranging from 25 to 40 years. Effective
April 1, 1998, the Company adopted a maximum of 25 years as the useful life for
amortization of its intangible assets, including those acquired in prior years.
Had this policy been in effect for the first quarter of 1998, amortization
expense would have increased by approximately $3.3 million. Applying the
Company's historical tax rate, diluted earnings per share would have been
reduced by $.03 in the first quarter of 1998.

RESULTS OF OPERATIONS

         The following table shows the percentage of net revenue represented by
various expenses and other income items reflected in the Company's Consolidated
Statements of Operations:

<TABLE>
<CAPTION>
                                                 THREE MONTHS                     SIX MONTHS
                                                ENDED JUNE 30,                  ENDED JUNE 30,
                                           1999              1998           1999              1998
                                          ------            ------         ------            ------

<S>                                        <C>               <C>            <C>               <C>
Net revenue                                100.0%            100.0%         100.0%            100.0%
Operating expenses
   Cost of provider services                12.6               7.0           13.2               3.7
   Salaries, wages and benefits             32.3              34.2           32.1              35.7
   Supplies                                 14.7              15.2           14.6              15.8
   Purchased medical services                2.3               2.5            2.4               2.7
   Other expenses                           15.2              14.4           14.6              14.8
   General corporate expenses                1.8               2.1            1.9               2.2
   Rents and lease expense                   7.8               8.5            7.8               8.9
   Depreciation and amortization             6.1               6.2            6.0               5.9
   Provision for asset revaluation
       and clinic restructuring              3.6                --            3.0               3.2
   Merger expenses                            --                --             --               2.0
                                          ------            ------         ------            ------
Net operating expenses                      96.4 (A)          90.1           95.6 (A)          94.9 (A)
                                          ------            ------         ------            ------
       Earnings from operations              3.6 (A)           9.9            4.4 (A)           5.1 (A)
Interest income                             (0.3)             (0.2)          (0.3)             (0.2)
Interest expense                             2.6               2.5            2.5               2.4
                                          ------            ------         ------            ------
       Earnings before income taxes
           and minority interest             1.3 (A)           7.6            2.2 (A)           2.9 (A)
Income tax expense                           0.2 (A)           2.4            0.7 (A)           0.8 (A)
Minority interest                            0.9               1.1            1.0               1.0
                                          ------            ------         ------            ------
       Net earnings                          0.2%(A)           4.1%           0.5%(A)           1.1%(A)
                                          ======            ======         ======            ======
</TABLE>

(A) Excluding the effect of the provision for asset revaluation and clinic
restructuring and merger expenses in 1999 and 1998, net operating expenses,
earnings from operations, earnings before income taxes and minority interest,
income tax expense and net earnings, as a percentage of net revenue, would have
been 92.8%, 7.2%, 4.9%, 1.5% and 2.5%, respectively, for the three months ended
June 30, 1999, 92.6%, 7.4%, 5.2%, 1.6% and 2.6%, respectively, for the six
months ended June 30, 1999, and 89.7%, 10.3%, 8.1%, 2.6% and 4.5%, respectively,
for the six months ended June 30, 1998.

1999 Compared to 1998

         Net revenue increased $22.0 million, or 5.9%, from $371.5 million for
the second quarter of 1998 to $393.5 million for the second quarter of 1999, and
from $694.1 million for the first six months of 1998 to $810.0 million for the
first six months of 1999, an increase of 16.7%. Net revenue from multi-specialty
and group formation clinics



                                       11
<PAGE>   12

("Clinic Net Revenue") decreased in the second quarter of 1999 from the second
quarter of 1998 by $21.9 million, which was comprised of (i) a $21.5 million
decrease in service fees for reimbursement of clinic expenses incurred by the
Company and (ii) a $400,000 decrease in the Company's fees from clinic operating
income and net physician group revenue. Increases in Clinic Net Revenue of $10.0
million from clinics acquired during or subsequent to the second quarter of 1998
were offset by reductions in Clinic Net Revenue, as a result of clinic
operations disposed of in 1998 and 1999, of $31.8 million from the second
quarter of 1998 to 1999. Clinic Net Revenue decreased in the first six months of
1999 from the first six months of 1998 by $18.2 million, which was comprised of
(i) a $24.5 million decrease in service fees for reimbursement of clinic
expenses incurred by the Company and (ii) a $6.3 million increase in the
Company's fees from clinic operating income and net physician group revenue.
Increases in Clinic Net Revenue of $34.8 million from clinics acquired during
1998 were offset by reductions in Clinic Net Revenue, as a result of clinic
operations disposed of in 1998 and 1999, of $55.3 million from the first six
months of 1998 to 1999. Net revenue from IPAs increased $36.4 million, or 67.7%,
from $53.8 million for the second quarter of 1998 to $90.2 million for the
second quarter of 1999, and from $73.3 million for the first six months of 1998
to $186.5 million for the first six months of 1999, an increase of 154.4%. These
increases were driven by net revenues from the acquisitions of PrimeCare
International, Inc. ("PrimeCare") and The Morgan Health Group, Inc. ("MHG") in
1998, additional IPA markets entered into subsequent to the first quarter of
1998 and internal growth of existing IPA markets. Net revenue from the 40
service agreements (excluding clinics being restructured or related assets sold)
and 23 IPA markets in effect for the second quarter of 1999 and 1998 increased
by $19.0 million, or 7.5%, for the second quarter of 1999 and $44.5 million, or
8.6%, for the six months ended June 30, 1999, compared with the same periods in
1998. Same market growth resulted from the addition of new physicians, increases
in IPA enrollment, the expansion of ancillary services and increases in patient
volume and fees.

         During the second quarter and first six months of 1999, most categories
of operating expenses decreased as a percentage of net revenue when compared to
the same periods in 1998. The addition of cost of provider services is a result
of the acquisitions of PrimeCare and MHG in 1998. PrimeCare and MHG own and
manage IPAs, and each is a party to certain managed care contracts, resulting in
the Company presenting such revenue on a "grossed-up basis." Under this method,
the cost of provider services (payments to physicians and other providers under
compensation, sub-capitation and other reimbursement contracts) is not included
as a deduction to net revenue of the Company but is reported as an operating
expense. This revenue reporting has an impact on the Company's operating
expenses as a percentage of net revenue. Excluding the impact of PrimeCare's and
MHG's revenue reporting, supplies expense, other expenses, depreciation and
amortization and interest expense increased as a percentage of net revenue in
1999 over the same period in 1998. The increase in supplies expense is a result
of the continued increases in costs of drugs and medications. Other expenses
increased as a result of acquisitions completed during the second quarter of
1998 with higher levels of these expenses compared to the existing base of
operations. In addition, during the second quarter of 1999 the Company incurred
costs associated with information systems conversions in some of its IPA markets
that caused other expenses to increase when compared to the same period in 1998.
The increase in depreciation and amortization expense resulted from the impact
of 1998 acquisitions. Excluding the impact of PrimeCare's and MHG's revenue
reporting, rents and lease expense decreased as a percentage of net revenue in
1999 over the same period in 1998. This decrease is a result of the disposition
of certain of the Company's group formation clinics during 1998. These clinics'
rents and lease expense as a percentage of net revenue was higher than the
current base of clinics.

         In the second quarter of 1999, the Company recorded a pre-tax asset
revaluation and clinic restructuring charge of approximately $14.4 million
related to the sale or pending sale of its clinic operating assets and the
termination of its related agreements in Birmingham, Alabama, Kingsport,
Tennessee and Palm Beach, Florida, which is a First Physician Care, Inc. ("FPC")
clinic. For additional discussion, see "Liquidity and Capital Resources."

         The provision for clinic restructuring of approximately $9.5 million in
the first quarter of 1999 related to three of the Company's clinics, certain FPC
clinics and MHG that were being restructured or disposed of and included
facility and lease termination costs, severance costs and other exit costs. In
the fourth quarter of 1998, the Company recorded a pre-tax charge of $110.4
million related to asset revaluation at primarily these same clinics and MHG.
For additional discussion, see "Liquidity and Capital Resources."




                                       12
<PAGE>   13

         The provision for clinic restructuring of $22.0 million in the first
quarter of 1998 related to seven of the Company's clinics that were being
restructured or disposed of and included facility and lease termination costs,
severance and other exit costs. In the fourth quarter of 1997, the Company
recorded a pre-tax charge of $83.4 million related to asset revaluation at these
same clinics. The charges addressed operating issues that developed in four of
the Company's multi-specialty clinics that represent the Company's earliest
developments of such clinics through the formation of new groups. Three other
clinics included in the 1997 charge represent clinics disposed of during 1998
because of a variety of negative operating and market-specific issues. For
additional discussion, see "Liquidity and Capital Resources."

         Net revenue and pre-tax losses from operations disposed of as of June
30, 1999 were $1.4 million and $100,000 for the three months ended June 30,
1999, and $33.2 million and $400,000 for the three months ended June 30, 1998,
respectively. Net revenue and pre-tax losses from operations disposed of as of
June 30, 1999 were $19.0 million and $100,000 for the six months ended June 30,
1999, and $74.3 million and $300,000 for the six months ended June 30, 1998,
respectively. The Company recorded no gain or loss resulting from the
disposition of these clinics based on adjusted asset values. Net revenue and
pre-tax income from the remaining operations to be disposed of were $27.2
million and $40,000 for the three months ended June 30, 1999, and $26.6 million
and $2.0 million for the three months ended June 30, 1998, respectively. Net
revenue and pre-tax income from the remaining operations to be disposed of were
$64.0 million and $200,000 for the six months ended June 30, 1999, and $51.9
million and $3.4 million for the six months ended June 30, 1998, respectively.
For additional discussion, see "Liquidity and Capital Resources."

         The Company also recorded a pre-tax charge to earnings of approximately
$14.2 million in the first quarter of 1998 relating to the termination of its
merger agreement with MedPartners, Inc. This charge represents PhyCor's share of
investment banking, legal, travel, accounting and other expenses incurred during
the merger negotiation process.

         The Company expects an effective tax rate of approximately 37.5% in
1999 before the tax benefit of the provision for asset revaluation and clinic
restructuring discussed above as compared to a rate of 37.6% in 1998.

LIQUIDITY AND CAPITAL RESOURCES

         At June 30, 1999, the Company had $211.3 million in working capital,
compared to $187.9 million as of December 31, 1998. Also, the Company generated
$41.6 million of cash flow from operations for the second quarter of 1999
compared to $37.8 million for the second quarter of 1998 and $71.5 million for
the first six months of 1999 compared to $74.4 million for the same period in
1998. At June 30, 1999, net accounts receivable of $342.5 million amounted to 61
days of net clinic revenue compared to $378.7 million and 64 days at the end of
1998.

         In conjunction with its securities repurchase program, the Company
repurchased approximately 2.6 million shares of common stock for approximately
$12.6 million in 1998. The Company has repurchased 441,300 shares of common
stock for approximately $2.0 million to date in 1999.

         During the second quarter of 1999, the Company announced a definitive
agreement allowing for a strategic investment in the Company of up to $200.0
million by funds managed by E.M. Warburg, Pincus and Co., LLC ("Warburg,
Pincus"). Under the terms of the agreement, Warburg, Pincus will purchase zero
coupon convertible subordinated notes for $127.5 million which will accrete to a
maturity value of approximately $404.5 million on the fifteenth anniversary of
the issuance date. The Company intends to use approximately $30.0 million of the
proceeds to repurchase shares of the Company's common stock or convertible
subordinated debentures, and the remainder, net of offering costs, will be used
for repayment of indebtedness under the Company's bank credit facility. In
addition, Warburg, Pincus intends to acquire up to $72.5 million of the
Company's common stock in the open market, through privately negotiated
transactions, or otherwise depending on market conditions and subject to the



                                       13
<PAGE>   14

receipt of any required regulatory approvals. The Company has received approval
from its lenders to amend its bank credit facility to provide for the pending
issuance of the zero coupon notes and related matters. The amendment will be
effective upon completion of the Warburg, Pincus transaction, which is pending
certain state insurance regulatory approvals. The Company currently estimates it
will receive the appropriate regulatory approvals in the third quarter of 1999.

         Option exercises, other issuances of common stock and net earnings for
the first six months of 1999 resulted in an increase of $4.6 million in
shareholders' equity compared to December 31, 1998.

         Capital expenditures during the first six months of 1999 totaled $23.8
million. The Company is responsible for capital expenditures at its affiliated
clinics under the terms of its service agreements. The Company expects to make
approximately $40.0 million in additional capital expenditures during the
remainder of 1999.

         Deferred acquisition payments are payable to physician groups in the
event such physician groups attain predetermined financial targets during
established periods of time following the acquisitions. If each group satisfied
its applicable financial targets for the periods covered, the Company would be
required to pay an aggregate of approximately $48.1 million of additional
consideration over the next five years, of which a maximum of $8.4 million would
be payable during the next twelve months.

         In the fourth quarter of 1997, PhyCor recorded a pre-tax charge to
earnings of $83.4 million related to the revaluation of assets of seven of the
Company's multi-specialty clinics. In the first quarter of 1998, the Company
also recorded an additional charge of $22.0 million relating to these clinics
that are being restructured or disposed of including facility and lease
termination, severance and other exit costs. These pre-tax charges were
partially in response to issues that arose in four of the Company's
multi-specialty clinics that represented the Company's earliest developments of
such clinics through the formation of new groups. The clinics were considered to
have an impairment of certain current assets, property and equipment, other
assets and intangible assets because of certain groups of physicians within a
larger clinic terminating their relationship with the medical group affiliated
with the Company and therefore affecting future cash flows. Three other clinics
included in the charge represented clinics being disposed of because of a
variety of negative operating and market issues, including those related to
market position and clinic demographics, physician relations, physician
departure rates, declining physician incomes, physician productivity, operating
results and ongoing viability of the existing medical group. Although these
factors have been present individually from time to time in various affiliated
clinics and could occur in future clinic operations, the combined effect of the
existence of these factors at the clinics disposed of resulted in clinic
operations that made it difficult for the Company to effectively manage the
clinics. One of these clinics was sold in the first quarter of 1998 and the
second sale was completed April 1, 1998. The remaining clinic was disposed of in
July 1998. These clinics were sold below book value because of the reasons noted
above, and given such facts, a sale at a discount to carrying value was
considered more cost effective than a closure which would subject the Company to
additional costs.

         In the third quarter of 1998, the Company recorded a net pre-tax asset
revaluation charge of $92.5 million, which is comprised of a $103.3 million
charge less the reversal of certain restructuring charges recorded in the first
quarter of 1998. This charge related to deteriorating negative operating trends
for three group formation clinic operations which were included in the fourth
quarter 1997 asset revaluation charge and the corresponding decision to dispose
of those assets. Additionally, this charge provided for the disposition of
assets of two group formation clinics that were not included in the fourth
quarter 1997 asset revaluation charge and the revaluation of primarily
intangible assets at an additional group formation clinic that will be disposed.
The third quarter 1998 asset revaluation charge included current assets,
property and equipment, other assets and intangible assets of $4.2 million, $3.8
million, $6.7 million and $77.8 million, respectively. Amounts received upon the
dispositions of the assets approximated the post-charge net carrying value.




                                       14
<PAGE>   15

         In the fourth quarter of 1998, the Company recorded a pre-tax asset
revaluation charge of $110.4 million. Approximately $26.0 million of this charge
related to adjustments of the carrying value of the Company's assets at
Holt-Krock Clinic ("Holt-Krock") and Burns Clinic Medical Center ("Burns") as a
result of agreements to sell certain assets associated with these service
agreements. In addition, this charge provided for the write-off of $31.6 million
of goodwill recorded in connection with the MHG acquisition. Subsequent to the
completion of this acquisition, MHG received claims from its major payor for
costs arising before the acquisition that revealed that MHG's costs
significantly exceeded its revenues under the payor contract prior to the date
of acquisition. PhyCor continued to fund losses under this payor contract while
attempting to renegotiate payment terms with the payor to allow for this payor
contract to be economically viable. A mutually beneficial agreement could not be
reached. The payor contract terminated by mutual agreement on April 30, 1999.
PhyCor commenced closing its MHG operation effective April 30, 1999 and is
attempting to recover its investment in MHG from the sellers of MHG, but there
can be no assurance of a recovery.

         Also included in the fourth quarter 1998 pre-tax charge is $18.1
million related to certain FPC clinics that were experiencing significant
negative operating results. PhyCor recorded the asset revaluation charge
primarily to write down goodwill from the FPC acquisition to recognize the
expected decline in future cash flows of the investment. The Company is selling
certain FPC clinic assets and discontinuing the related clinic operations. The
Company completed the termination of its agreements with the FPC clinic in Fort
Worth, Texas in the second quarter of 1999. Also, the Company had invested
significantly in the operation of the Lexington Clinic to support the growth and
expansion of the Lexington Clinic and its affiliated HMO. Lexington Clinic's
financial performance has been negatively impacted by the combination of poor
financial performance at a number of satellite locations, a challenging and
extended information system conversion, a potential loss arising from a dispute
with one of the HMO's payors and the repayment of funds used to finance the
Lexington Clinic's and the HMO's growth. In light of the existing circumstances,
realization of certain of PhyCor's assets related to the Lexington Clinic was
unlikely. Accordingly, the Company recorded an asset revaluation pre-tax charge
in the fourth quarter of 1998 of approximately $34.7 million to reduce to net
realizable value its investments in numerous satellite operations and to provide
a reserve for amounts owed by Lexington Clinic based upon expected future cash
flows. There can be no assurance that the Company will realize the full carrying
value of its remaining investment in the Lexington Clinic operation of
approximately $87.7 million as of June 30, 1999. The fourth quarter 1998 asset
revaluation charge included current assets, property and equipment, other assets
and intangible assets of $3.7 million, $3.7 million, $27.0 million and $76.0
million, respectively. The pre-tax restructuring charge of approximately $9.5
million in the first quarter of 1999 related to facility and lease termination,
severance and other exit costs associated primarily with the clinics mentioned
above and MHG. Additionally, asset recoveries on clinics disposed of totaling
$1.9 million were used to revalue certain assets associated with the FPC clinics
in the first quarter of 1999.

         In the second quarter of 1999, the Company recorded a pre-tax asset
revaluation charge of $13.7 million. This charge related to the sale or pending
sale of its clinic operating assets and the termination of its related
agreements in Birmingham, Alabama, Kingsport, Tennessee and an FPC clinic in
Palm Beach, Florida. The second quarter 1999 asset revaluation charge included
current assets, property and equipment, and intangible assets of $2.0 million,
$1.5 million and $10.2 million, respectively. The pre-tax restructuring charge
of $675,000 in the second quarter of 1999 related to facility and lease
termination, severance and other exit costs associated with selling the FPC
clinic in Palm Beach, Florida and closing a small IPA.

         During the second quarter of 1999, the Company received approximately
$7.9 million related to the sale of assets associated with clinics, in addition
to certain liabilities being assumed by the purchasers. The amounts received
upon disposition of the assets approximated the post-charge net carrying value.
One of the clinics sold will continue to participate in the Company's IPA
operations.

         At June 30, 1999, the Company had a total of four group formation
clinics and one FPC clinic that have characteristics similar to group formation
clinics. The total assets of the remaining four group formation clinics and
similar FPC clinic were $46.3 million, including net intangible assets of $20.4
million at June 30, 1999. Net revenue and pre-tax income (losses) from the group
formation and similar FPC clinics were $11.5 million and ($1.1 million),
respectively, for the three months ended June 30, 1999, and $11.7 million and
$200,000, respectively, for the three



                                       15
<PAGE>   16

months ended June 30, 1998. Net revenue and pre-tax income (losses) from the
group formation and similar FPC clinics were $24.0 million and ($1.6 million),
respectively, for the six months ended June 30, 1999, and $22.9 million and
$600,000, respectively, for the six months ended June 30, 1998.

         At June 30, 1999, net assets currently expected to be sold during the
remainder of 1999 totaled approximately $72.4 million after taking into account
the charges discussed above relating to clinics with which the Company intends
to terminate its affiliation. These net assets consisted of current assets,
property and equipment, other assets and current liabilities which will be
assumed. The Company intends to recover these amounts during 1999 as the asset
sales occur. However, there can be no assurance that the Company will recover
this entire amount. Subsequent to June 30, 1999, the Company completed the sale
of two clinics and received approximately $32.8 million on those assets held for
sale, with the purchasers assuming certain liabilities. Amounts received upon
the disposition of the assets approximated the post-charge net carrying value,
with the exception of Holt-Krock. An additional $1.4 million in proceeds related
to the sale of assets to Sparks Regional Medical Center ("Sparks") is being held
in escrow pending the resolution of certain disputed matters. The Company also
intends to seek recovery of certain of its remaining assets through litigation
against several physicians formerly affiliated with Holt-Krock who did not join
Sparks.

         The Company continues to evaluate strategic options with certain
affiliated medical groups that may involve the potential sale or disposition of
certain clinic operations. These discussions are in the preliminary stages, but
depending on their outcome, the Company's financial results could be impacted.
The Company currently anticipates potential sales in the third quarter of 1999
involving up to $35.2 million in clinic operating assets related to two
additional medical groups comprised of 136 physicians as of June 30, 1999. The
Company expects to use the proceeds from these sales to repay amounts
outstanding under its bank credit facility. Depending on the form and amount of
proceeds from these sales, the expected interest savings from the use of such
proceeds may not adequately offset the current earnings contribution of these
clinic operations, and the financial results of the Company may be negatively
affected. Any gain or loss on these potential transactions or restructuring
charges, if necessary, will be recorded when an estimate of such amounts can be
determined.

         For various reasons, including legal and regulatory issues, the Company
has not been able to consummate its long-term affiliation agreement with the
Guthrie Clinic in Sayre, Pennsylvania and has been operating under an interim
agreement since 1995. The Company does not currently expect the Guthrie Clinic
to renew or extend this interim agreement beyond November 1999. As a result, the
Company believes that through existing agreements it is entitled to recover the
value of its accumulated Guthrie Clinic assets at their current carrying value
and receive repayment of loans made to the Guthrie Clinic, which aggregated
approximately $37.7 million at June 30, 1999. There can be no assurance that the
Guthrie Clinic will fully comply with the terms of its agreements with the
Company.

         There can be no assurance that in the future a similar combination of
negative characteristics will not develop at a clinic affiliated with the
Company and result in the termination of the service agreement or that in the
future additional clinics will not terminate their relationships with the
Company in a manner that may materially adversely affect the Company. For
additional discussion, see "Results of Operations - 1999 Compared to 1998".

         The Company recorded a pre-tax charge to earnings of approximately
$14.2 million in the first quarter of 1998 relating to the termination of its
merger agreement with MedPartners, Inc. This charge represented PhyCor's share
of investment banking, legal, travel, accounting and other expenses incurred
during the merger negotiation process.

         During the second quarter of 1999, the Company appears to have
favorably resolved its outstanding Internal Revenue Service ("IRS") examinations
for the years 1988-1995. The IRS had proposed adjustments relating to the timing
of recognition for tax purposes of certain revenue and deductions related to
accounts receivable, the Company's relationship with affiliated physician
groups, and various other timing differences. The tax years 1988 through 1995
have been closed, pending final IRS documents, with respect to all issues
without a material financial impact, and the Company is currently not under
examination by the IRS for any other taxable year, except for two subsidiaries
which are currently under examination for the 1995 tax year.



                                       16
<PAGE>   17

The Company acquired the stock of these subsidiaries during 1996. The Company
believes that it is indemnified by the sellers for any and all tax liabilities
resulting from such examinations and does not believe the resolution of these
examinations will have a material adverse effect on its financial condition. In
August 1999, the Company received a $13.7 million tax refund as a result of
applying the 1998 loss carryback to recover taxes paid in 1996 and 1997.

         The Company modified its bank credit facility in March 1999. The
Company's bank credit facility, as amended, provides for a five-year, $500.0
million revolving line of credit for use by the Company prior to April 2003 for
acquisitions, working capital, capital expenditures and general corporate
purposes. The total drawn cost under the facility is either (i) the applicable
eurodollar rate plus .625% to 1.50% per annum or (ii) the agent's base rate plus
 .40% to .65% per annum. The total weighted average drawn cost of outstanding
borrowings at June 30, 1999 was 6.53%. The amended bank credit facility also
provides for an increase from $25 million to $50 million for the aggregate
amount of letters of credit which may be issued by the Company relating to its
IPA operations and provides that in the event of a reduced rating by certain
rating agencies, the Company would be required to pledge as security for
repayment of the credit facility the capital stock the Company holds in certain
of its subsidiaries. The March 1999 amendment provides for acquisitions without
bank approval of up to $25 million individually or $150 million in the aggregate
during any 12-month period and limits the amount of its securities the Company
may repurchase based upon certain financial ratios.

         The Company modified its synthetic lease facility in March 1999. The
Company's synthetic lease facility, as amended, provides off-balance sheet
financing of $60 million with an option to purchase leased facilities at the end
of the lease term. The total drawn cost under the synthetic lease facility is
 .50% to 1.25% above the applicable eurodollar rate. At June 30, 1999, of the $60
million available under the synthetic lease facility, an aggregate of
approximately $26.3 million was drawn under the synthetic lease facility and
$26.0 million had been committed to lease properties associated with two of the
Company's affiliated clinics. The amended synthetic lease facility is not
project specific but is expected to be used for, among other projects, the
construction or acquisition of certain medical office buildings related to the
Company's operations.

         The Company has received approval from its lenders to amend its bank
credit facility and synthetic lease facility to provide for the pending issuance
of the zero coupon subordinated convertible notes and related matters associated
with the Warburg, Pincus transaction. The total drawn cost under the amended
bank credit facility will be either (i) the applicable eurodollar rate plus
 .875% to 1.75% per annum or (ii) the agent's base rate plus .175% to .40% per
annum. The amended bank credit facility will provide for an increase from $50
million to $75 million for the aggregate amount of letters of credit which may
be issued by the Company. The bank credit facility amendment will allow $30
million of the net proceeds from the zero coupon notes to be used for securities
repurchases, with a remaining allowance of $35 million for future securities
repurchases. The total drawn cost under the amended synthetic lease facility
will be .875% to 1.75% above the applicable eurodollar rate. These amendments
will be effective upon completion of the Warburg, Pincus transaction, which is
pending certain state insurance regulatory approvals that are expected to be
received during the third quarter of 1999.

         The Company's bank credit facility and synthetic lease facility contain
covenants which, among other things, require the Company to maintain certain
financial ratios and impose certain limitations or prohibitions on the Company
with respect to (i) the incurring of certain indebtedness, (ii) the creation of
security interests on the assets of the Company, (iii) the payment of cash
dividends on, and the redemption or repurchase of, securities of the Company,
(iv) investments and (v) acquisitions.

         At June 30, 1999, notional amounts under interest rate swap agreements
totaled $210.2 million. Fixed interest rates range from 5.14% to 5.78% relative
to the one month or three month floating LIBOR. Up to an additional $15.8
million may be fixed at 5.28% as additional amounts are drawn under the
synthetic lease facility prior to April 28, 2000. The swap agreements mature at
various dates from July 2003 to April 2005. The lender may elect to terminate
the agreement covering $100 million beginning September 2000 and another $100
million beginning October 2000. The FASB has issued Statement of Financial
Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments



                                       17
<PAGE>   18

and Hedging Activities, which will require the Company to mark certain of its
interest rate swap agreements to market due to lender optionality features
included in those swap agreements. SFAS No. 133 was amended by the issuance of
Statement of Financial Accounting Standards (SFAS) No. 137, Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133 - an amendment of FASB Statement No. 133, which defers
the required date of adoption by the Company to the first quarter of 2001. Had
the Company adopted the requirements of SFAS No. 133 for the six months ended
June 30, 1999, the Company estimates it would have recorded a pre-tax non-cash
charge to earnings of $378,000. The Company has historically not engaged in
trading activities in its interest rate swap agreements and does not intend to
do so in the future.

         At June 30, 1999, the Company had cash and cash equivalents of
approximately $74.5 million and at August 12, 1999, approximately $126.0 million
available under its current bank credit facility. In addition, proceeds from the
Warburg, Pincus transaction, net of the $30.0 million expected to be used for
securities repurchases and transaction costs, of approximately $92.5 million are
expected to be received during the third quarter of 1999. The Company believes
that these proceeds and the combination of funds available under the Company's
bank credit facility and synthetic lease facility, together with cash reserves,
cash flow from other transactions, operations and asset dispositions should be
sufficient to meet the Company's current planned acquisition, expansion, capital
expenditure and working capital needs over the next year. In addition, in order
to provide the funds necessary for the continued pursuit of the Company's
long-term acquisition and expansion strategy, the Company may continue to incur,
from time to time, additional short-term and long-term indebtedness and to issue
equity and debt securities, the availability and terms of which will depend upon
market and other conditions. There can be no assurance that such additional
financing will be available on terms acceptable to the Company. The outcome of
certain pending legal proceedings described in Part II, Item 1 hereof may have
an impact on the Company's liquidity and capital resources.

Year 2000

         The Following Material is Designated as Year 2000 Readiness Disclosure
for Purposes of the Year 2000 Information and Readiness Disclosure Act.

         PhyCor has developed a program designed to identify, assess, and
remediate potential malfunctions and failures that may result from the inability
of computers and embedded computer chips within the Company's information
systems and equipment to appropriately identify and utilize date-sensitive
information relating to periods subsequent to December 31, 1999. This issue is
commonly referred to as the "Year 2000 issue" and affects not only the Company,
but virtually all companies and organizations with which the Company does
business. The Company is dependent upon Year 2000 compliant information
technology systems and equipment in applications critical to the Company's
business. The Company's information technology systems ("IT systems") can be
broadly categorized into the following areas: (i) practice management, (ii)
managed care information, (iii) consumer decision support system that supports
the operations of CareWise, (iv) ancillary information systems, including
laboratory, radiology, pharmacy and clinical ancillary systems, and (v) other
administrative information systems including accounting, payroll, human resource
and other desktop systems and applications.

         The Company generally owns and provides to its various affiliated
multi-specialty clinics the IT systems in use at those locations, and such
systems represent a variety of vendors. In addition, the Company generally owns
and provides biomedical equipment (laboratory equipment, radiology equipment,
diagnostic equipment and medical treatment equipment) for use by its affiliated
physician groups and by its Company-owned hospitals, as well as other equipment
in use at Company-owned or leased facilities such as telephone and HVAC systems.
Such non-information technology ("Non-IT") equipment often contains embedded
computer chips that could be susceptible to failure or malfunction as a result
of the Year 2000 issue.

         To address the Year 2000 issue, the Company formed a Year 2000
committee comprised of representatives from a cross-section of the Company's
operations as well as the Company's senior management. Beginning in August



                                       18
<PAGE>   19

1997, the committee, with the assistance of outside consultants, developed a
comprehensive plan to address the Year 2000 issue within all facets of the
Company's operations. The plan includes processes to inventory, assess,
remediate or replace as necessary, and test the Company's IT and Non-IT systems
and equipment. In addition, the Company has appointed local project coordinators
at all Company-owned facilities who are responsible for overseeing and
implementing the comprehensive project management activities at the local
subsidiary level. Each project coordinator is responsible for developing a local
project plan that includes processes to inventory, assess, remediate or replace
as necessary, and test the Company's IT and Non-IT systems and equipment. Each
local project coordinator is also responsible for assessing the compliance of
the electronic trading partners and business critical vendors for that location.
However, the compliance of certain vendors providing business critical IT
systems in wide use within the Company is being addressed by the Company's
senior management.

         The Company has completed the inventory and assessment phase of
business critical IT systems and is in the process of upgrading or replacing
those business critical IT systems found not to be compliant, either internally
or through the upgrades provided by the Company's vendors. In certain cases, the
Company's plan provides for verification of Year 2000 compliance of
vendor-supplied IT systems by obtaining warranties and legal representations of
the vendors. Much of the remediation is being accomplished as a part of the
Company's normal process of standardizing various IT systems utilized by its
affiliated clinics and IPAs, although in certain cases the standardization
process is moving at an accelerated pace as a result of the Year 2000 issue. As
of June 30, 1999, management believed approximately 80% of the Company's
business critical IT systems at the Company and its subsidiaries to be Year 2000
compliant as a result of upgrades, replacements or testing. The Company
anticipates that all remediation and testing of its business critical IT systems
will be completed by November 1999.

         The Company is in the process of completing the inventory and
assessment phase of its Non-IT systems and equipment, which are comprised
primarily of medical equipment with embedded chip technology that are located
throughout the subsidiaries' facilities. The Company is relying primarily on its
local project coordinators and on the equipment vendors' representations in
order to complete the inventory and assessment phase and either remediate or
replace non-compliant equipment. As of June 30, 1999, substantially all of the
Company's subsidiaries had completed the inventory and assessment phase, and
those facilities had completed approximately 75% of the remediation and testing
of Non-IT systems and equipment. The Company estimates that substantially all of
its subsidiaries will have substantially completed remediation and testing of
Non-IT systems and medical equipment by November 1999.

         The Company is substantially dependent on a wide variety of third
parties to operate its business. These third parties include medical equipment
and IT software and hardware vendors, medical claims processors that act as
intermediaries between the Company's medical practice subsidiaries and the
payors of such claims, and the payors themselves, which includes the Health Care
Financing Administration ("HCFA"). HCFA paid to the Company Medicare claims that
comprised approximately 15% of the Company's net revenue during the first six
months of 1999. In most cases, these third party relationships originate and are
managed at the local clinic level. The Company estimates that information
concerning the Year 2000 readiness of the most significant third parties will be
received and analyzed by the Company by October 1999. Together with its trade
associations and other third parties, the Company is monitoring the status and
progress of HCFA's Year 2000 compliance. HCFA has represented that its systems
are or will soon be Year 2000 compliant. Effective April 5, 1999, HCFA began
requiring all Medicare providers that submit Medicare claims electronically to
do so in an approved Year 2000 compliant format. The process of billing and
collecting for Medicare claims involves a number of third parties that the
Company does not control, including intermediaries and HCFA independent
contractors. The Company believes that most of these third parties are able to
comply with HCFA billing requirements. The Company is in the process of
verifying the Year 2000 compliance of third parties upon which the Company
relies to process claims, including significant third party payors.

         The Company currently is working at the parent company level and with
local project coordinators in each of its subsidiary locations to develop
contingency plans for business critical IT systems and Non-IT medical equipment
to minimize business interruptions and avoid disruption to patient care as a
result of Year 2000 related issues. The



                                       19
<PAGE>   20

Company anticipates that contingency plans for non-compliant business critical
IT systems and non-compliant Non-IT medical equipment will be completed by
November 1999.

         There are a number of risks arising out of Year 2000 related failure,
any of which could have a material adverse effect on the Company's financial
condition or results of operations. These risks include (i) failures or
malfunctions in practice management applications that could prevent automated
scheduling, accounts receivable management and billing and collection on which
each of the subsidiary locations is substantially dependent, (ii) failures or
malfunctions of claims processing intermediaries or payors that may result in
substantial payment delays that could negatively impact cash flows, or (iii) the
failure of certain critical pieces of medical equipment that could result in
personal injury or misdiagnosis of patients treated at the Company's affiliated
clinics or hospitals. The Company has a number of ongoing obligations that could
be materially adversely impacted by one or more of the above described risks. If
the Company has insufficient cash flow to meet its expenses as a result of a
Year 2000 related failure, it will need to borrow available funds under its
credit lines or obtain additional financing. There can be no assurance that such
funds or any other additional financing will be available in the future when
needed.

         To date, the Company estimates that it has spent approximately $23.0
million on the development and implementation of its Year 2000 compliance plan.
The Company believes that it will need to spend an additional $5.0 million for a
total of approximately $28 million to complete all phases of its plan, which
amounts will be funded from cash flows from operations and, if necessary, with
borrowings under the Company's primary credit facility. Of those costs, an
estimated $24 million, the majority of which has already been spent, is expected
to be incurred to acquire replacement systems and equipment, including amounts
spent in connection with standardizing certain of the Company's IT systems that
it would have spent regardless of the Year 2000 initiative.

         The foregoing estimates and conclusions regarding the Company's Year
2000 plan contain forward looking statements and are based on management's best
estimates of future events. Risks to completing the Year 2000 plan include the
availability of resources, the Company's ability to discover and correct
potential Year 2000 problems that could have a serious impact on specific
systems, equipment or facilities, the ability of material third party vendors
and trading partners to achieve Year 2000 compliance, the proper functioning of
new systems and the integration of those systems and related software into the
Company's operations. Some of these risks are beyond the Company's control.

         Forward-looking statements of PhyCor included herein or incorporated by
reference including, but not limited to, those regarding future business
prospects, the acquisition of additional clinics, the development of additional
IPAs, the adequacy of PhyCor's capital resources, the adequacy of recent and
proposed asset impairment and restructuring charges, the future profitability of
capitated fee arrangements and other statements regarding trends relating to
various revenue and expense items, could be affected by a number of risks,
uncertainties, and other factors described in the Company's Annual Report on
Form 10-K for the year ended December 31, 1998.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

         During the six months ended June 30, 1999, there were no material
changes to the Company's quantitative and qualitative disclosures about the
market risks associated with financial instruments as described in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998.

                           PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

         The Company and certain of its current and former officers and
directors, Joseph C. Hutts, Derril W. Reeves, Richard D. Wright (who is no
longer with the Company), Thompson S. Dent, and John K. Crawford have been named




                                       20
<PAGE>   21

defendants in securities fraud class action lawsuits filed in state and federal
courts. The factual allegations of the complaints in all lawsuits are
substantially identical and assert that during various periods between April 22,
1997 and September 22, 1998, the defendants issued false and misleading
statements which materially misrepresented the earnings and financial condition
of the Company and its clinic operations and misrepresented and failed to
disclose various other matters concerning the Company's operations in order to
conceal the alleged failure of the Company's business model. Plaintiffs further
assert that the alleged misrepresentations caused the Company's securities to
trade at inflated levels while the individual defendants sold shares of the
Company's stock at such levels. In each of the lawsuits, the plaintiff seeks to
be certified as the representative of a class of all persons similarly situated
who were allegedly damaged by the defendants' alleged violations during the
"class period." Each of the lawsuits seeks damages in an indeterminate amount,
interest, attorneys' fees and equitable relief, including the imposition of a
trust upon the profits from the individual defendants' trades. The federal court
class action lawsuits have been consolidated in the U.S. District Court for the
Middle District of Tennessee. Defendants' motion to dismiss is pending before
that court. On June 24, 1999, a lawsuit was filed in that court on behalf of
investors in the Company's debt securities. It is anticipated that this lawsuit
will be consolidated with the shareholder suits. The state court class action
lawsuits have been consolidated in Davidson County, Tennessee. After the Court
granted the defendants' motion to dismiss, the plaintiffs filed an amended
complaint on July 20, 1999 naming KPMG LLP, the Company's certified public
accounting firm, as an additional defendant. Defendants intend to file a motion
to dismiss the amended complaint. The Company believes that it has meritorious
defenses to all of the claims, and intends to defend vigorously against these
actions. There can be no assurance, however, that such defenses will be
successful or that the lawsuits will not have a material adverse effect on the
Company. The Company's Restated Charter provides that the Company shall
indemnify the officers and directors for any liability arising from these suits
unless a final judgment establishes liability (a) for a breach of the duty of
loyalty to the Company or its shareholders, (b) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of law
or (c) for an unlawful distribution.

         On January 23, 1999, the Company and Holt-Krock Clinic, P.L.C.
("Holt-Krock") entered into a settlement agreement with Sparks Regional Medical
Center and Sparks Regional Medical Center Foundation (collectively, "Sparks") to
resolve their lawsuits and all related claims between the parties and certain
former Holt-Krock physicians. Effective as of August 1, 1999, Holt-Krock, Sparks
and PhyCor consummated the transactions contemplated in the settlement agreement
and mutually dismissed their lawsuits and related claims between the parties.
A portion of the proceeds related to the sale of assets to Sparks is being held
in escrow pending the resolution of certain disputed matters as to those
assets. The Company also intends to seek recovery of certain of its remaining
assets through litigation against several physicians formerly affiliated with
Holt-Krock who did not join Sparks.

         On February 2, 1999, Prem Reddy, M.D., the former majority shareholder
of PrimeCare International, Inc., a medical network management company acquired
by the Company in May 1998, filed suit against the Company and certain of its
current and former directors and executive officers in United States District
Court for the Central District of California. The complaint asserts fraudulent
inducement relating to the PrimeCare transaction and that the defendants issued
false and misleading statements which materially misrepresented the earnings and
financial condition of the Company and its clinic operations and misrepresented
and failed to disclose various other matters concerning the Company's operations
in order to conceal the alleged failure of the Company's business model. The
Court has recently granted a motion to dismiss the action with respect to all
the officers and directors of the Company in their individual capacities,
however, the plaintiff has leave to amend his complaint. The Company believes
that it has meritorious defenses to all of the claims and intends to vigorously
defend this suit, however, there can be no assurance that if the Company is not
successful in litigation, that this suit will not have a material adverse effect
on the Company.

         On February 6, 1999, White-Wilson Medical Center, P.A. ("White -
Wilson") filed suit against PhyCor of Fort Walton Beach, Inc., the PhyCor
subsidiary with which it is a party to a service agreement, in the United States
District Court for the Northern District of Florida. White-Wilson is seeking a
declaratory judgment regarding the enforceability of the fee arrangement in
light of an opinion of the Florida Board of Medicine and OIG Advisory Opinion
98-4. This action has been stayed pending negotiations by the parties.
Additionally, on March 17, 1999, the Clark-Holder Clinic, P.A. filed suit
against PhyCor of LaGrange, Inc., the PhyCor subsidiary with which it is a party
to a service agreement, in Georgia Superior Court for Troup County, Georgia
similarly questioning the enforceability of the fee arrangement in



                                       21
<PAGE>   22

light of OIG Advisory Opinion 98-4. On April 27, 1999, the Company filed a
motion to remove the case to the federal district court in Georgia. The terms of
the service agreements provide that the agreements shall be modified if the laws
are changed, modified or interpreted in a way that requires a change in the
agreements. PhyCor intends to vigorously defend the enforceability of the
structure of the management fee against these suits, however, there can be no
assurance that if the Company is not successful in such litigation, that these
suits will not have a material adverse effect on the Company.

         Certain litigation is pending against the physician groups affiliated
with the Company and IPAs managed by the Company. The Company has not assumed
any liability in connection with such litigation. Claims against the physician
groups and IPAs could result in substantial damage awards to the claimants that
may exceed applicable insurance coverage limits. While there can be no assurance
that the physician groups and IPAs will be successful in any such litigation,
the Company does not believe any such litigation will have a material adverse
effect on the Company. Certain other litigation is pending against the Company
and certain subsidiaries of the Company, none of which management believes would
have a material adverse effect on the Company's financial position or results of
operations on a consolidated basis.

         The U.S. Department of Labor (the "Department") is conducting an
investigation of the administration of the PhyCor, Inc. Savings and Profit
Sharing Plan (the "Plan"). The Department has not completed its investigation,
but has raised questions involving certain administrative practices of the Plan
in early 1998. The Department has not recommended enforcement action against
PhyCor, nor has it identified an amount of liability or penalty that could be
assessed against PhyCor. Based on the nature of the investigation, PhyCor
believes that its financial exposure is not material. PhyCor intends to
cooperate with the Department's investigation. There can be no assurance,
however, that PhyCor will not have a monetary penalty imposed against it.

         The Company's forward-looking statements relating to the
above-described litigation reflect management's best judgment based on the
status of the litigation to date and facts currently known to the Company and
its management and, as a result, involve a number of risks and uncertainties,
including the possible disclosure of new facts and information adverse to the
Company in the discovery process and the inherent uncertainties associated with
litigation.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

The annual meeting of shareholders of the Company was held on May 25, 1999. At
this meeting, the following matters were voted upon by the Company's
shareholders:

(A)      ADOPTION OF THE COMPANY'S 1999 INCENTIVE STOCK PLAN

The shareholders of the Company ratified the adoption of the Company's 1999
Incentive Stock Plan.

<TABLE>
<CAPTION>
             Votes Cast in Favor     Votes Cast Against       Abstentions
             -------------------     ------------------       -----------
<S>                                  <C>                      <C>
                 29,934,052               12,942,664            285,608
</TABLE>



                                       22
<PAGE>   23



(B) ELECTION OF CLASS II DIRECTORS

Sam A. Brooks, Jr., Thompson S. Dent, Dr. James A. Moncrief and Kay Coles James
were elected to serve as Class II directors of the Company. The vote was as
follows:

<TABLE>
<CAPTION>
                                         Votes Cast           Votes Cast Against
         Name                             in Favor               or Withheld
         ----                            ----------           -------------------
<S>                                      <C>                       <C>
         Sam A. Brooks, Jr.              61,425,473                1,307,110
         Thompson S. Dent                58,537,234                4,195,349
         Dr. James A. Moncrief           61,451,955                1,280,628
         Kay Coles James                 58,140,461                4,592,122
</TABLE>

(C) SELECTION OF AUDITORS

The shareholders of the Company ratified the appointment of KPMG LLP as the
Company's independent auditors for the year ended December 31, 1999, by the
following vote:

<TABLE>
<CAPTION>
              Votes Cast in Favor        Votes Cast Against        Abstentions
              -------------------        ------------------        -----------
<S>                                      <C>                       <C>
                 61,871,951                    762,842                97,790
</TABLE>

ITEM 5. OTHER INFORMATION.

 The deadline for delivering to the Company notice of shareholder proposals,
other than proposals to be included in the proxy statement, for the 2000 Annual
Meeting of Shareholders will be March 8, 2000, pursuant to Rule 14a-4. The
persons named as proxies in the proxy statement may exercise discretionary
authority to vote on any proposals received after such date.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(A)      EXHIBITS.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER    DESCRIPTION OF EXHIBITS
------    -----------------------
<S>       <C>
 3.1  --  Restated Charter of PhyCor (1)
 3.2  --  Amendment to Restated Charter of PhyCor (2)
 3.3  --  Amendment to Restated Charter of PhyCor (3)
 3.4  --  Amended Bylaws of PhyCor (1)
 4.1  --  Specimen of Common Stock Certificate (4)
 4.2  --  Shareholder Rights Agreement, dated February 18, 1994, between PhyCor
          and First Union National Bank of North Carolina (5)
10.1  --  PhyCor, Inc. 1999 Incentive Stock Plan (6)
10.2  --  Securities Purchase Agreement for Zero Coupon Convertible
          Subordinated Notes due 2014, dated as of June 15, 1999 (7)
10.3  --  Employment Agreement between PhyCor and John K. Crawford, dated as of
          April 20, 1999 (7)
27    --  Financial Data Schedule (for SEC use only)
</TABLE>

-------------
(1)  Incorporated by reference to exhibits filed PhyCor's Annual Report on Form
     10-K for the year ended December 31, 1994, Commission No. 0-19786.




                                       23
<PAGE>   24

(2)  Incorporated by reference to exhibits filed with PhyCor's Registration
     Statement on Form S-3, Registration No. 33-93018.
(3)  Incorporated by reference to exhibits filed with PhyCor's Registration
     Statement on Form S-3, Registration No. 33-98528.
(4)  Incorporated by reference to exhibits filed with PhyCor's Registration
     Statement on Form S-1, Registration No. 33-44123.
(5)  Incorporated by reference to exhibits filed with PhyCor's Current Report on
     Form 8-K dated February 18, 1994, Commission No. 0-19786.
(6)  Incorporated by reference to exhibits filed with PhyCor's Registration
     Statement on Form S-8, Registration No. 333-58709.
(7)  Filed herewith.

(B)      REPORTS ON FORM 8-K.

         No reports on Form 8-K were filed by the Company for the quarter ended
June 30, 1999.

                                   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.

                                        PHYCOR, INC.



                                        By: /s/  John K. Crawford
                                            ------------------------------------
                                            John K. Crawford
                                            Executive Vice President and
                                            Chief Financial Officer

 Date:   August 16, 1999






                                       24
<PAGE>   25



                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER    DESCRIPTION OF EXHIBITS
------    -----------------------
<S>       <C>
 3.1  --  Restated Charter of PhyCor (1)
 3.2  --  Amendment to Restated Charter of PhyCor (2)
 3.3  --  Amendment to Restated Charter of PhyCor (3)
 3.4  --  Amended Bylaws of PhyCor (1)
 4.1  --  Specimen of Common Stock Certificate (4)
 4.2  --  Shareholder Rights Agreement, dated February 18, 1994, between PhyCor
          and First Union National Bank of North Carolina (5)
10.1  --  PhyCor, Inc. 1999 Incentive Stock Plan (6)
10.2  --  Securities Purchase Agreement for Zero Coupon Convertible
          Subordinated Notes due 2014, dated as of June 15, 1999 (7)
10.3  --  Employment Agreement between PhyCor and John K. Crawford, dated as of
          April 20, 1999 (7)
27    --  Financial Data Schedule (for SEC use only)
</TABLE>
-------------
(1)  Incorporated by reference to exhibits filed with PhyCor's Annual Report on
     Form 10-K for the year ended December 31, 1994, Commission No. 0-19786.
(2)  Incorporated by reference to exhibits filed with PhyCor's Registration
     Statement on Form S-3, Registration No. 33-93018.
(3)  Incorporated by reference to exhibits filed with PhyCor's Registration
     Statement on Form S-3, Registration No. 33-98528.
(4)  Incorporated by reference to exhibits filed with PhyCor's Registration
     Statement on Form S-1, Registration No. 33-44123.
(5)  Incorporated by reference to exhibits filed with PhyCor's Current Report on
     Form 8-K dated February 18, 1994, Commission No. 0-19786.
(6)  Incorporated by reference to exhibits filed with PhyCor's Registration
     Statement on Form S-8, Registration No. 333-58709.
(7)  Filed herewith.