<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   ----------

                                    FORM 10-Q

[X]      Quarterly report pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934 
         For the quarterly period ended March 31, 1998

                                       OR

[ ]      Transition report pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934
         For the transition period from       to
                                        -----    -----

                                   ----------

                        Commission file number 33-31717-A

                                   ----------

                            QUORUM HEALTH GROUP, INC.
             (Exact name of registrant as specified in its charter)

              DELAWARE                               62-1406040
     (State of incorporation)             (IRS Employer Identification No.)

                103 CONTINENTAL PLACE, BRENTWOOD, TENNESSEE 37027
               (Address of principal executive offices) (Zip Code)

                                 (615) 371-7979
              (Registrant's telephone number, including area code)

                                 NOT APPLICABLE
              (Former name, former address and former fiscal year,
                          if changed since last report)


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

         Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.

Class                                                 Outstanding at May 8, 1998
-----                                                 --------------------------
Common Stock, $.01 Par Value                               75,362,713 Shares


--------------------------------------------------------------------------------
<PAGE>   2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS


                   QUORUM HEALTH GROUP, INC. AND SUBSIDIARIES
             CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                          THREE MONTHS
                                                         ENDED MARCH 31
                                                  ---------------------------
                                                    1998              1997
                                                  ---------          --------
<S>                                               <C>                <C>
Revenue:
  Net patient service revenue                     $ 361,630          $340,958
  Hospital management/professional services          19,852            20,125
  Reimbursable expenses                              16,838            16,013
                                                  ---------          --------
Net operating revenue                               398,320           377,096

Salaries and benefits                               159,485           146,491
Reimbursable expenses                                16,838            16,013
Supplies                                             52,925            53,926
Fees                                                 35,585            32,848
Other operating expenses                             31,837            31,769
Provision for doubtful accounts                      24,670            25,010
Equity in earnings of affiliates                     (2,038)               --
Depreciation and amortization                        21,792            19,003
Interest                                              9,211            11,794
Minority interest                                       769               301
Write-down of assets                                 22,850                --
                                                  ---------          --------
Income before income taxes                           24,396            39,941
Provision for income taxes                           10,759            15,857
                                                  ---------          --------
Net income                                        $  13,637          $ 24,084
                                                  =========          ========

Net income per common share:
  Basic                                           $    0.18          $   0.33
                                                  =========          ========
  Diluted                                         $    0.18          $   0.32
                                                  =========          ========

Weighted average common shares :
  Basic                                              74,933            73,568
                                                  =========          ========
  Diluted                                            77,241            75,920
                                                  =========          ========
</TABLE>


                             See accompanying notes.



                                        2



<PAGE>   3

                   QUORUM HEALTH GROUP, INC. AND SUBSIDIARIES
             CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                           NINE MONTHS
                                                         ENDED MARCH 31
                                                  ---------------------------
                                                    1998              1997
                                                  ---------          --------
<S>                                               <C>               <C>
Revenue:
  Net patient service revenue                    $1,092,250        $  931,814
  Hospital management/professional services          59,291            58,317
  Reimbursable expenses                              48,495            45,103
                                                  ---------         ---------
Net operating revenue                             1,200,036         1,035,234

Salaries and benefits                               478,028           408,377
Reimbursable expenses                                48,495            45,103
Supplies                                            162,935           145,126
Fees                                                107,451            91,738
Other operating expenses                             98,419            86,058
Provision for doubtful accounts                      84,555            66,589
Equity in earnings of affiliates                     (2,038)               --
Depreciation and amortization                        65,853            55,111
Interest                                             30,439            34,222
Minority interest                                     2,746               558
Write-down of assets                                 22,850                --
                                                  ---------         ---------
Income before income taxes                          100,303           102,352
Provision for income taxes                           40,894            40,634
                                                  ---------         ---------
Net income                                        $  59,409         $  61,718
                                                  =========         =========

Net income per common share:
  Basic                                           $    0.80         $    0.84
                                                  =========         =========
  Diluted                                         $    0.77         $    0.82
                                                  =========         =========

Weighted average common shares:
  Basic                                              74,514            73,251
                                                  =========         =========
  Diluted                                            76,895            75,449
                                                  =========         =========

</TABLE>

                             See accompanying notes.



                                        3


<PAGE>   4

                   QUORUM HEALTH GROUP, INC. AND SUBSIDIARIES
                CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                            MARCH 31           JUNE 30
                                                              1998               1997
                                                           ----------         ----------
<S>                                                      <C>                <C>
ASSETS

Current assets:
  Cash and cash equivalents                                $    6,039         $   19,008
  Accounts receivable, less allowance for doubtful
    accounts of $67,397 at March 31, 1998
    and $55,360 at June 30, 1997                              283,077            248,732
  Supplies                                                     31,456             31,622
  Other                                                        59,624             31,739
                                                           ----------         ----------
    Total current assets                                      380,196            331,101

Property, plant and equipment, at cost:
  Land                                                         69,466             62,109
  Buildings and improvements                                  314,334            324,450
  Equipment                                                   483,022            462,726
  Construction in progress                                     65,281             21,192
                                                           ----------         ----------
                                                              932,103            870,477
  Less accumulated depreciation                               220,335            183,705
                                                           ----------         ----------
                                                              711,768            686,772

Cost in excess of net assets acquired, net                    138,388            185,932
Unallocated purchase price                                     33,006              7,831
Investments in affiliates                                     172,640              9,751
Other                                                          54,847             57,604
                                                           ----------         ----------



Total assets                                               $1,490,845         $1,278,991
                                                           ==========         ==========
</TABLE>








                                        4

<PAGE>   5

                   QUORUM HEALTH GROUP, INC. AND SUBSIDIARIES
                CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                             MARCH 31           JUNE 30
                                                               1998               1997
                                                            ----------         ----------
<S>                                                              <C>                <C>
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable and accrued expenses                     $   83,527         $   77,225
  Accrued salaries and benefits                                 66,487             61,936
  Other current liabilities                                      8,653              9,589
  Current maturities of long-term debt                             933              1,869
                                                            ----------         ----------
    Total current liabilities                                  159,600            150,619

Long-term debt, less current maturities                        662,442            519,940
Deferred income taxes                                           23,422             38,249
Other liabilities and deferrals                                 27,229             25,450
Minority interests in consolidated entities                     26,972             26,618

Commitments and contingencies

Stockholders' equity:
  Common stock, $.01 par value;
    300,000 shares authorized; 75,272
    issued and outstanding at March 31,
    1998 and 74,137 at June 30, 1997                               753                741
  Additional paid-in capital                                   286,336            272,692
  Retained earnings                                            304,091            244,682
                                                            ----------         ----------
                                                               591,180            518,115
                                                            ----------         ----------

    Total liabilities and stockholders' equity              $1,490,845         $1,278,991
                                                            ==========         ==========
</TABLE>






                             See accompanying notes.



                                        5




<PAGE>   6

                   QUORUM HEALTH GROUP, INC. AND SUBSIDIARIES
           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                 NINE MONTHS
                                                                ENDED MARCH 31
                                                         ----------------------------
                                                           1998               1997
                                                         ---------          ---------
<S>                                                      <C>                <C>      
Net cash provided by operating activities                $  85,738          $ 119,636

Investing activities:
  Purchase of acquired companies                          (141,357)          (170,877)
  Purchase of property, plant and equipment               (105,726)           (51,117)
  Proceeds from sale of assets                              14,695                 --
  Purchase of asset held for sale                          (11,000)                --
  Other                                                     (4,052)             1,592
                                                         ---------          ---------
Net cash used in investing activities                     (247,440)          (220,402)

Financing activities:
  Borrowings under bank debt                               391,500            268,000
  Repayments of bank debt                                 (248,400)          (179,000)
  Proceeds from issuance of common stock, net               10,654              8,245
  Other                                                     (5,021)            (2,583)
                                                         ---------          ---------
Net cash provided by financing activities                  148,733             94,662
                                                         ---------          ---------

Decrease in cash and cash equivalents                      (12,969)            (6,104)
Cash and cash equivalents at beginning of period            19,008             20,382
                                                         ---------          ---------

Cash and cash equivalents at end of period               $   6,039          $  14,278
                                                         =========          =========

Supplemental cash flow information:
  Interest paid                                          $ (29,410)         $ (26,173)
                                                         =========          =========
  Income taxes paid                                      $ (55,558)         $ (36,338)
                                                         =========          =========
</TABLE>


                             See accompanying notes.




                                        6
                           
<PAGE>   7
                   QUORUM HEALTH GROUP, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)


1.  BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months and nine months ended
March 31, 1998, are not necessarily indicative of the results that may be
expected for the year ending June 30, 1998. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended June 30, 1997. Certain
reclassifications have been made to the fiscal 1997 financial presentation to
conform with fiscal 1998.

2.  NEWLY ISSUED ACCOUNTING STANDARDS

In 1997, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standard (SFAS) No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes reporting standards for
operating segment information disclosed in annual financial statements and in
interim financial reports issued to shareholders. Under existing accounting
standards, the Company has reported its operations as one line of business since
its inception because substantially all of its revenues and operating profits
have been derived from its acute care hospitals, affiliated health care entities
and health care management services. The Company will adopt SFAS No. 131
beginning with its fiscal year ending June 30, 1999 and is presently evaluating
the new standard in order to determine its effect, if any, on the way the
Company might report its operations in the future.

3.  ACQUISITIONS AND DIVESTITURES

During the nine months ended March 31, 1998, the Company acquired two hospitals
and affiliated health care entities and sold its remaining interest in a
Nebraska hospital. In addition, the Company and Universal Health Services, Inc.
(UHS) formed Valley Health System LLC and Summerlin Hospital Medical Center LLC
in Las Vegas, Nevada. UHS contributed Valley Hospital Medical Center and the
Company contributed Desert Springs Hospital in exchange for equity interests of
72.5% and 27.5%, respectively, in Valley Health System LLC. The Company paid
approximately $23 million in exchange for a 26.1% interest in Summerlin Hospital
Medical Center LLC. The Company recorded a $15 million charge after taxes
related to the write-down of goodwill. There will be working capital settlements
to maintain the respective ownership interests of each party. During



                                        7

<PAGE>   8



the nine months ended March 31, 1997, the Company acquired four hospitals and
affiliated health care entities. Hospital and affiliated business acquisitions
are summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                      NINE MONTHS
                                                         ENDED
                                                        MARCH 31
                                              ----------------------------
                                                1998               1997
                                              ---------          ---------

<S>                                           <C>                <C>      
Fair value of assets acquired                 $ 155,080          $ 206,273
Fair value of liabilities assumed               (13,723)           (21,675)
Contributions from minority investors                --            (13,721)
                                              ---------          ---------
Net cash used for acquisitions                $ 141,357          $ 170,877
                                              =========          =========
</TABLE>

All of the foregoing acquisitions were accounted for using the purchase method
of accounting. The allocation of the purchase price associated with certain of
the acquisitions has been determined by the Company based upon available
information and is subject to further refinement. The operating results of the
acquired entities have been included in the accompanying condensed consolidated
statements of income from the respective dates of acquisition.

The following unaudited pro forma results of operations give effect to the
operations of the entities acquired and divested in fiscal 1998 and 1997 as if
the respective transactions had occurred at the beginning of the periods
presented (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                THREE MONTHS                           NINE MONTHS
                                                  ENDED                                   ENDED
                                                 MARCH 31                                MARCH 31
                                     ------------------------------          -----------------------------------
                                         1998                1997                  1998                  1997
                                     -----------         -----------         -------------         -------------

<S>                                  <C>                 <C>                 <C>                   <C>          
Net operating revenue                $   393,742         $   373,165         $   1,164,929         $   1,090,743
Net income                                27,382              21,683                71,150                59,086
Net income per common share:
  Basic                                      .37                 .29                   .95                   .81
  Diluted                                    .35                 .28                   .93                   .78
</TABLE>

The pro forma results of operations do not purport to represent what the
Company's results of operations would have been had such transactions in fact
occurred at the beginning of the periods presented or to project the Company's
results of operations in any future period.

4.  LONG-TERM DEBT

On December 15, 1997, the Company redeemed its remaining $2.2 million 11.875%
Senior Subordinated Notes at 1.05875%.




                                        8

<PAGE>   9



5.  STOCKHOLDERS' EQUITY AND STOCK BENEFIT PLANS

On August 19, 1997, the Board of Directors approved a three-for-two stock split
effected in the form of a stock dividend paid on September 16, 1997 to
shareholders of record on September 2, 1997. The shares of common stock, price
per share, the number of shares subject to options and the exercise prices have
been retroactively restated to give effect to the stock dividend for all periods
presented.

On November 10, 1997, the Company's stockholders approved an amendment to
increase the number of authorized shares of common stock from 100,000,000 to
300,000,000. The additional shares of common stock are identical to the shares
of common stock previously authorized.

On November 10, 1997, the Company's stockholders approved an amendment to the
Company's qualified employee stock purchase plan to increase the number of
shares reserved for issuance from 3,000,000 to 3,750,000.

On November 10, 1997, the Company's stockholders approved the 1997 Stock Option
Plan. Under the plan, non-qualified and incentive stock options to purchase
common stock may be granted to executive officers, other key employees and
consultants. Stock options are generally granted at an exercise price equal to
the fair market value at the date of grant and are exercisable over a period not
to exceed ten years. The number of shares initially reserved for issuance was
3,000,000. No further options will be granted pursuant to the Company's Restated
Stock Option Plan.

6.  NET INCOME PER COMMON SHARE

In 1997, the FASB issued SFAS No. 128, "Earnings per Share." Statement 128
replaced the previously reported primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants, and
convertible securities. Diluted earnings per share is similar to the previously
reported fully diluted earnings per share. All earnings per share amounts for
all periods have been presented to conform to the Statement 128 requirements.

The following table sets forth the computation of basic and diluted earnings per
share:




                                        9

<PAGE>   10




<TABLE>
<CAPTION>
                                                THREE MONTHS                   NINE MONTHS
                                                   ENDED                          ENDED
                                                 MARCH 31                        MARCH 31
                                         -----------------------         -----------------------
                                          1998            1997            1998            1997
                                         -------         -------         -------         -------

<S>                                      <C>             <C>             <C>             <C>    
Numerator:
  Net income                             $13,637         $24,084         $59,409         $61,718
                                         =======         =======         =======         =======

Denominator:
  Basic earnings per share -
    weighted-average shares               74,933          73,568          74,514          73,251
  Effect of dilutive stock options         2,308           2,352           2,381           2,198
                                         -------         -------         -------         -------
Diluted earnings per share -             
  adjusted weighted-average shares        77,241          75,920          76,895          75,449
                                         =======         =======         =======         =======

Basic earnings per share                 $  0.18           $0.33         $  0.80         $  0.84
                                         =======         =======         =======         =======
Diluted earnings per share               $  0.18           $0.32         $  0.77         $  0.82
                                         =======         =======         =======         =======
</TABLE>

7.  LEASES

On November 26, 1997, the Company entered into a five-year $150 million End
Loaded Lease Financing (ELLF) agreement to provide a financing option for future
acquisitions and/or construction. This financing option is in addition to the
Company's $850 million revolving line of credit. The ELLF interest rate margins
and facility fee rates are substantially the same as the Company's revolving
line of credit. All lease payments under the agreement are guaranteed by the
Company. In connection with the ELLF, the Company amended its unsecured
revolving line of credit to extend the credit agreement expiration date by six
months to November 26, 2002 to coincide with the expiration date of the ELLF. At
March 31, 1998, $23.7 million was outstanding under the ELLF agreement.

8.  INCOME TAXES

The income tax provision recorded for the three months and nine months ended
March 31, 1998 and 1997 differs from the expected income tax provision due to
permanent differences and the provision for state income taxes.

9.  CONTINGENCIES

Management continually evaluates contingencies based on the best available
evidence and believes that adequate provision for losses has been provided to
the extent necessary. In the opinion of management, the ultimate resolution of
the following contingencies will not have a material effect on the Company's
results of operations or financial position.


                                           

                                       10

<PAGE>   11



Litigation

The Company currently, and from time to time, is expected to be subject to
claims and suits arising in the ordinary course of business.

Net Patient Service Revenue

Final determination of amounts earned under the Medicare and Medicaid programs
often occurs in subsequent years because of audits by the programs, rights of
appeal and the application of numerous technical provisions.

Income Taxes

The Internal Revenue Service (IRS) is in the process of conducting examinations
of the Company's federal income tax returns for the fiscal years ended June 30,
1993 through 1995. The Company has reached a settlement with the IRS in
connection with its examination of the Company's federal income tax returns for
the fiscal years ended June 30, 1990 through 1992. The settlement did not have a
material effect on the Company's results of operations or financial position.

Financial Instruments

Interest rate swap agreements are used on a limited basis to manage the
Company's interest rate exposure. The agreements are contracts to periodically
exchange fixed and floating interest rate payments over the life of the
agreements. The floating-rate payments are based on LIBOR and fixed-rate
payments are dependent upon market levels at the time the swap agreement was
consummated. In fiscal 1997, the Company amended its 1993 interest rate swap
agreements to effectively convert two borrowings of $50 million each from
fixed-rate to floating-rate through September 2001 and December 2001,
respectively. In addition, the Company entered into interest rate swap
agreements which effectively convert $100 million and $200 million of
floating-rate borrowings to fixed-rate borrowings. During the nine months ended
March 31, 1998, the Company entered into interest rate swap agreements which
effectively convert two borrowings of $50 million each from floating-rate to
fixed-rate through December 2002 and allows the counterparty of one agreement a
one-time option at the end of the initial term to extend the swap for an
incremental five years. In addition, the Company replaced its existing $100
million and $200 million interest rate swap agreements with new five year
agreements, effective March 1998, to allow the Company to convert $100 million
and $200 million of floating-rate borrowings to fixed-rate borrowings and allow
the counterparty a one-time option at the end of the initial term to extend the
swaps for an incremental five years. For the nine months ended March 31, 1998
and 1997, the Company received a weighted average rate of 5.9% and 5.8%,
respectively, and paid a weighted average rate of 6.1% and 5.6%, respectively.

Other

In June 1993, the Office of the Inspector General (OIG) of the Department of
Health and Human Services requested information from the Company in connection
with an investigation involving the



                                       11

<PAGE>   12


Company's procedures for preparing Medicare cost reports. In January 1995, the
U.S. Department of Justice issued a Civil Investigative Demand which also
requested information from the Company in connection with that same
investigation. As a part of the government's investigation, several former and
current employees of the Company have been interviewed. The Company has provided
information and is cooperating fully with the investigation. The Company cannot
predict whether the government will commence litigation regarding this matter.

10.  SUBSEQUENT EVENTS

Effective May 1, 1998, the Company and Columbia/HCA Healthcare Corp. (Col/HCA)
formed Macon Healthcare LLC. Col/HCA contributed Coliseum Medical Centers and
Coliseum Psychiatric Center while the Company contributed Macon Northside
Hospital and Middle Georgia Hospital in exchange for equity interests of 62% and
38%, respectively, in the joint venture. There will be working capital
settlements to maintain the respective ownership interests of each party. The
Company will account for its investment in the joint venture using the equity
method of accounting.

On May 7, 1998, the Company learned that it is a named defendant in a qui tam
case when it received a letter from a U.S. Attorney. The complaint alleges
violations of Medicare laws governing the home health operations at two of the
Company's hospitals. The complaint was filed under seal in June 1996 by a former
employee who was discharged by the Company in April 1996. The purpose of the
letter from the U.S. Attorney was to allow the Company an opportunity to
evaluate the results of the government's investigation to date and to discuss
with the government the allegations made in the complaint, prior to the
government making a decision as to whether it will intervene as a plaintiff in
the case. The lawsuit remains under seal for all other purposes. The Company
intends to cooperate fully and share information with the U.S. Attorney's
Office. If any violation of law is found, the Company intends to pursue an
amicable settlement. The case is in a very preliminary stage, and the Company
cannot at this time predict the outcome of the case or its ultimate impact on
the Company's business or operating results. If the outcome were unfavorable,
the Company could be subject to fines, penalties and damages and also could be
excluded from Medicare and other government reimbursement programs which could
have a material adverse effect on the Company's financial condition or results
of operations.




                                       12
<PAGE>   13
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION

IMPACT OF ACQUISITIONS

         During the nine months ended March 31, 1998, the Company acquired two
hospitals and affiliated health care entities and sold its remaining interest in
a Nebraska hospital. In addition, the Company and Universal Health Services,
Inc. (UHS) formed Valley Health System LLC and Summerlin Hospital Medical Center
LLC in Las Vegas, Nevada. UHS contributed Valley Hospital Medical Center and the
Company contributed Desert Springs Hospital in exchange for equity interests of
72.5% and 27.5%, respectively, in Valley Health System LLC. The Company paid
approximately $23 million in exchange for a 26.1% interest in Summerlin Hospital
Medical Center LLC. The Company accounts for its investment in the joint venture
using the equity method of accounting, and accordingly, the Company's net
investment is included in "Investment in affiliates" and the Company's share of
the Las Vegas operations is included as "Equity in earnings." The Company
recorded a $15 million charge after taxes related to the write-down of goodwill.
During fiscal 1997, the Company acquired five hospitals and affiliated health
care entities (four during the nine months ended March 31, 1997) and sold a
minority interest in a hospital.

         Because of the financial impact of the Company's recent acquisitions
and divestitures, it is difficult to make meaningful comparisons between the
Company's financial statements for the fiscal periods presented. In addition,
due to the current number of owned hospitals, each additional hospital
acquisition can affect the overall operating margin of the Company. During a one
to three year transition period after the acquisition of a hospital, the Company
has typically taken a number of steps to lower operating costs. The impact of
such actions can be partially offset by cost increases to expand the hospital's
services, strengthen its medical staff and improve its market position. The
benefits of these investments and of other activities to improve operating
margins may not occur immediately. Consequently, the financial performance of an
acquired hospital may adversely affect overall operating margins in the
near-term. As the Company makes additional hospital acquisitions, the Company
expects that this effect will be mitigated by the expanded financial base of
existing hospitals.

SELECTED OPERATING STATISTICS - OWNED HOSPITALS

         The following table sets forth certain operating statistics for the
Company's owned hospitals for each of the periods presented. The results of the
owned hospitals for the three months ended March 31, 1998 include three months
of operations for eighteen hospitals and partial periods for the Las Vegas
exchange and the hospital acquired during such period. The results of the owned
hospitals for the three months ended March 31, 1997 include three months of
operations for eighteen hospitals. The results of the owned hospitals for the
nine months ended March 31, 1998 include nine



                                       13

<PAGE>   14



months of operations for seventeen hospitals and partial periods for the
hospital divested, the Las Vegas exchange and two hospitals acquired during such
period. The results of the owned hospitals for the nine months ended March 31,
1997 include nine months of operations for fifteen hospitals and a partial
period for three hospitals acquired during such period.


<TABLE>
<CAPTION>
                                                         Three Months                           Nine Months
                                                            Ended                                  Ended
                                                           March 31                              March 31
                                                  --------------------------          ------------------------------
                                                    1998              1997                1998                1997
                                                  --------          --------          ----------          ----------

<S>                                               <C>               <C>                <C>                <C>
Number of hospitals at end of period                    19                18                  19                  18
Licensed beds at end of period                       4,188             4,113               4,188               4,113
Beds in service at end of period                     3,420             3,421               3,420               3,421
Admissions                                          32,995            31,969              98,411              87,590
Average length of stay (days)                          5.7               5.8                 5.5                 5.6
Patient days                                       187,185           184,098             545,627             491,622
Adjusted patient days                              308,690           284,598             899,577             766,620
Occupancy rates (average licensed beds)               50.5%             49.7%               47.2%               46.9%
Occupancy rates (average beds in service)             61.6%             59.7%               57.2%               56.7%
Gross inpatient revenues (in thousands)           $390,051          $394,591          $1,181,082          $1,062,398
Gross outpatient revenues (in thousands)          $253,198          $215,339          $  766,171          $  594,272
</TABLE>





RESULTS OF OPERATIONS

         The table below reflects the percentage of net operating revenue
represented by various categories in the Condensed Consolidated Statements of
Income and the percentage change in the related dollar amounts. The results of
operations for the periods presented include hospitals from their acquisition
dates as discussed above.



                                       14

<PAGE>   15




<TABLE>
<CAPTION>
                                                Three Months           Percentage
                                                    Ended               Increase 
                                                  March 31             (Decrease)
                                           ---------------------        of Dollar   
                                           1998            1997          Amounts 
                                           -----           -----        ---------
<S>                                        <C>             <C>          <C> 
Net operating revenue                      100.0%          100.0%           5.6%
Operating expenses (1)                      80.7            81.2            5.0
Equity in earnings of affiliates             (.5)             --         (100.0)
                                           -----           -----          -----
EBITDA (2)                                  19.8            18.8           11.2
Depreciation and amortization                5.5             5.0           14.7
Interest                                     2.3             3.1          (21.9)
Minority interest                             .2              .1          155.5
Write-down of assets                         5.7              --          100.0%
                                           -----           -----          -----
Income before income taxes                   6.1            10.6          (38.9)
Provision for income taxes                   2.7             4.2          (32.1)
                                           -----           -----          -----
Net income                                   3.4%            6.4%         (43.4)%
                                           =====           -----          =====
</TABLE>



<TABLE>
<CAPTION>
                                                 Nine Months           Percentage
                                                    Ended               Increase 
                                                  March 31             (Decrease)
                                           ---------------------        of Dollar   
                                           1998            1997          Amounts 
                                           -----           -----          -----
<S>                                        <C>             <C>          <C> 
Net operating revenue                      100.0%          100.0%          15.9%
Operating expenses (1)                      81.7            81.4           16.2
Equity in earnings of affiliates             (.2)             --         (100.0)
                                           -----           -----          -----
EBITDA (2)                                  18.5            18.6           15.6
Depreciation and amortization                5.5             5.3           19.5
Interest                                     2.5             3.3          (11.1)
Minority interest                             .2              .1          392.1
Write-down of assets                         1.9              --          100.0
                                           -----           -----          -----
Income before income taxes                   8.4             9.9           (2.0)
Provision for income taxes                   3.4             3.9             .6
                                           -----           -----          -----
Net income                                   5.0%            6.0%          (3.7)%
                                           =====           =====          =====
</TABLE>

--------------------
(1) Operating expenses represent expenses before interest, minority interest,
write-down of assets, income taxes, depreciation and amortization expense.

(2) EBITDA represents earnings before interest, minority interest, write-down of
assets, income taxes, depreciation and amortization expense. The Company has
included EBITDA data because such data is used by certain investors to measure a
company's ability to service debt. EBITDA is not a measure of financial
performance under generally accepted accounting principles and should not be
considered an alternative to net income as a measure of operating performance or
to cash flows from operating activities as a measure of liquidity.




                                       15

<PAGE>   16




Three Months Ended March 31, 1998 Compared to Three Months Ended March 31,
1997

         The Company's net operating revenue was $398.3 million for the three
months ended March 31, 1998, compared to $377.1 million for the comparable
period of fiscal 1997, an increase of $21.2 million or 5.6%. This increase was
attributable to, among other things, three hospital acquisitions, a 7.4%
increase in revenue generated by hospitals owned during both periods (calculated
by comparing the same periods in both fiscal periods for hospitals owned for one
year or more), including additional revenues from settlements with third-party
payors, and a 1.5% increase in management services revenue. These increases were
partially offset by a reduction in net revenue due to the divestiture of the
Nebraska hospital and the Las Vegas exchange, which is accounted for by the
equity method.

         Operating expenses as a percent of net operating revenue decreased to
80.7% for the three months ended March 31, 1998 from 81.2% for the three months
ended March 31, 1997 which was primarily attributable to decreased supplies, bad
debt and other expenses. Operating expenses as a percentage of net operating
revenue for the Company's owned hospitals decreased to 81.2% for the three
months ended March 31, 1998 from 81.7% for the three months ended March 31,
1997. For the Company's hospitals owned during both periods, operating expenses
as a percentage of net operating revenue decreased to 80.5% for the three months
ended March 31, 1998 from 82.6% for the three months ended March 31, 1997.
Equity in earnings of affiliates, which was primarily attributable to the Las
Vegas operations, represented 0.5% of the Company's net operating revenue for
the three months ended March 31, 1998.

         EBITDA as a percent of net operating revenue was 19.8% for the three
months ended March 31, 1998 compared to 18.8% for the three months ended March
31, 1997. EBITDA as a percent of net operating revenue for the Company's owned
hospitals was 19.4% for the three months ended March 31, 1998 compared to 18.3%
for the three months ended March 31, 1997. EBITDA as a percent of net operating
revenue for the Company's hospitals owned during both periods was 19.5% for the
three months ended March 31, 1998 compared to 17.4% for the three months ended
March 31, 1997. EBITDA as a percent of net operating revenue for the Company's
management services business was 24.5% for the three months ended March 31, 1998
compared to 24.3% for the three months ended March 31, 1997.

         Depreciation and amortization expense as a percent of net operating
revenue increased to 5.5% for the three months ended March 31, 1998 from 5.0%
for the three months ended March 31, 1997 primarily due to the completion of
various construction and renovation projects. Interest expense as a percent of
net operating revenue decreased to 2.3% for the three months ended March 31,
1998 from 3.1% for the three months ended March 31, 1997 primarily due to the
impact of IRS examinations, the replacement of subordinated debt with bank debt
in fiscal 1997, a reduction in interest rates and repayments of bank debt with
cash flow generated from



                                       16

<PAGE>   17



operations. Minority interest expense as a percent of net operating revenue
increased to 0.2% for the three months ended March 31, 1998 from 0.1% for the
three months ended March 31, 1997 which was primarily attributable to the fiscal
1997 acquisitions. Write-down of assets of $22.8 million is due to the
write-down of goodwill at Desert Springs Hospital. The provision for income
taxes as a percent of net operating revenue was 2.7% for the three months ended
March 31, 1998. Excluding the write-down of assets, the provision for income
taxes as a percent of net operating revenue increased to 4.7% from 4.2% for the
three months ended March 31, 1997, which was attributable to the increase in
pretax income.


         Net income as a percent of net operating revenue was 3.4% for the three
months ended March 31, 1998. Excluding the write-down of assets, net income as a
percent of net operating revenue was 7.2% for the three months ended March 31,
1998 compared to 6.4% for the three months ended March 31, 1997.

Nine Months Ended March 31, 1998 compared to Nine Months Ended March 31,
1997

         The Company's net operating revenue was $1,200.0 million for the nine
months ended March 31, 1998 compared to $1,035.2 million for the comparable
period of fiscal 1997, an increase of $164.8 million or 15.9%. This increase was
attributable to, among other things, six hospital acquisitions, an 8.3% increase
in revenue generated by hospitals owned during both periods, including
additional revenues from settlements with third-party payors, and a 4.2%
increase in management services revenue. These increases were partially offset
by a reduction in net revenue due to the divestiture of the Nebraska hospital
and the Las Vegas exchange.

         Operating expenses as a percent of net operating revenue increased to
81.7% for the nine months ended March 31, 1998 from 81.4% for the nine months
ended March 31, 1997 which was primarily attributable to the fiscal 1997 and
1998 acquisitions and an increase in bad debt expense. Operating expenses as a
percentage of net operating revenue for the Company's owned hospitals increased
to 82.2% for the nine months ended March 31, 1998 from 81.8% for the nine months
ended March 31, 1997. For the Company's hospitals owned during both periods,
operating expenses as a percentage of net operating revenue decreased to 81.1%
for the nine months ended March 31, 1998 from 81.5% for the nine months ended
March 31, 1997 which was primarily attributable to decreases in supplies. Equity
in earnings of affiliates, which was primarily attributable to the Las Vegas
operations, represented 0.2% of the Company's net operating revenue for the nine
months ended March 31, 1998.

         EBITDA as a percent of net operating revenue was 18.5% for the nine
months ended March 31, 1998 compared to 18.6% for the nine months ended March
31, 1997. EBITDA as a percent of net operating revenue for the Company's owned
hospitals was 18.0% for the nine months ended March 31, 1998 compared to 18.2%
for the nine months ended March 31, 1997. EBITDA




                                       17

<PAGE>   18



as a percent of net operating revenue for the Company's hospitals owned during
both periods was 18.9% for the nine months ended March 31, 1998 compared to
18.5% for the nine months ended March 31, 1997. EBITDA as a percent of net
operating revenue for the Company's management services business was 24.1% for
the nine months ended March 31, 1998 compared to 22.3% for the nine months ended
March 31, 1997.

         Depreciation and amortization expense as a percent of net operating
revenue increased to 5.5% for the nine months ended March 31, 1998 from 5.3% for
the nine months ended March 31, 1997. Interest expense as a percent of net
operating revenue decreased to 2.5% for the nine months ended March 31, 1998
from 3.3% for the nine months ended March 31, 1997 due to the impact of IRS
examinations, the replacement of subordinated debt with bank debt in fiscal
1997, a reduction in interest rates and repayments of bank debt with cash flow
generated from operations. Minority interest expense as a percent of net
operating revenue increased to 0.2% for the nine months ended March 31, 1998
from 0.1% for the nine months ended March 31, 1997 which was primarily
attributable to the fiscal 1997 acquisitions. Write-down of assets of $22.8
million is due to the write-down of goodwill at Desert Springs Hospital. The
provision for income taxes as a percent of net operating revenue was 3.4% for
the nine months ended March 31, 1998. Excluding the write-down of assets, the
provision for income taxes as a percent of net operating revenue increased to
4.1% from 3.9% for the nine months ended March 31, 1997, which was attributable
to the increase in pretax income.

         Net income as a percent of net operating revenue was 5.0% for the nine
months ended March 31, 1998. Excluding the write-down of assets, net income as a
percent of net operating revenue was 6.2% compared to 6.0% for the nine months
ended March 31, 1997.

LIQUIDITY AND CAPITAL RESOURCES

         At March 31, 1998, the Company had working capital of $220.6 million,
including cash and cash equivalents of $6.0 million. The ratio of current assets
to current liabilities was 2.4 to 1.0 at March 31, 1998 compared to 2.2 to 1.0
at June 30, 1997.

         The Company's cash requirements excluding acquisitions have
historically been funded by cash generated from operations. Cash generated from
operations was $85.7 million and $119.6 million for the nine months ended March
31, 1998 and 1997, respectively. The decrease is primarily due to an increase in
current year tax payments, payments related to the IRS examinations and accounts
receivable at three hospitals, which the Company is addressing.

         Capital expenditures excluding acquisitions for the nine months ended
March 31, 1998 and 1997 were $105.7 million and $51.1 million, respectively.
Capital expenditures may vary from year to year depending on facility
improvements and service enhancements undertaken by the owned hospitals. The
Company is constructing a replacement hospital in Florence,




                                       18

<PAGE>   19



South Carolina with fiscal 1998 capital expenditures of up to $60 million and a
total project cost of approximately $85 million. In fiscal 1998, the Company
expects to make capital expenditures from $130 million to $150 million,
including the replacement hospital and excluding acquisitions.

         Effective May 1, 1998, the Company and Columbia/HCA Healthcare Corp.
(Col/HCA) formed Macon Healthcare LLC. Col/HCA contributed Coliseum Medical
Centers and Coliseum Psychiatric Center while the Company contributed Macon
Northside Hospital and Middle Georgia Hospital in exchange for equity interests
of 62% and 38%, respectively, in the joint venture. There will be working
capital settlements to maintain the respective ownership interests of each
party. The Company will account for its investment in the joint venture using
the equity method of accounting.

         During the nine months ended March 31, 1998, the Company acquired two
hospitals and affiliated health care entities for approximately $141.4 million
and sold its remaining interest in a Nebraska hospital. In addition, the Company
and Universal Health Services, Inc. (UHS) formed Valley Health System LLC and
Summerlin Hospital Medical Center LLC. UHS contributed Valley Hospital Medical
Center and the Company contributed Desert Springs Hospital and paid
approximately $23 million. There will be working capital settlements to maintain
the respective ownership interests of each party. During fiscal 1997, the
Company acquired five hospitals and affiliated health care entities for
approximately $184.6 million and sold a minority interest in a hospital.

         The Company intends to acquire additional acute care facilities, and is
actively seeking out such acquisitions. The Company is continually evaluating
various structures to serve existing local healthcare delivery markets. These
structures could include joint ventures with other hospital owners or
physicians.

         Also, the Company continually reviews its capital needs and financing
opportunities and may seek additional equity or debt financing for its
acquisition program or other needs. At March 31, 1998, the Company had $507.0
million outstanding under its Revolving Line of Credit.

         On November 26, 1997, the Company entered into a five-year $150 million
End Loaded Lease Financing (ELLF) agreement to provide a financing option for
future acquisitions and/or construction. This financing option is in addition to
the Company's $850 million revolving line of credit. The ELLF interest rate
margins and facility fee rates are substantially the same as the Company's
revolving line of credit. All lease payments under the agreement are guaranteed
by the Company. In connection with the ELLF, the Company amended its unsecured
revolving line of credit to extend the credit agreement expiration date by six
months to November 26, 2002 to coincide with the expiration date of the ELLF. At
March 31, 1998, $23.7 million was outstanding under the ELLF agreement.

         On December 15, 1997, the Company redeemed its remaining $2.2 million
11.875% Senior Subordinated Notes at 1.05875%.



                                       19

<PAGE>   20




         On August 19, 1997, the Board of Directors approved a three-for-two
stock split effected in the form of a stock dividend payable on or about
September 16, 1997 to shareholders of record on September 2, 1997. The shares of
common stock, price per share, the number of shares subject to options and the
exercise prices have been retroactively restated to give effect to the stock
dividend for all periods presented.

         On November 10, 1997, the Company's stockholders approved an amendment
to increase the number of authorized shares of common stock from 100,000,000 to
300,000,000. The additional shares of common stock are identical to the shares
of common stock previously authorized.

         On November 10, 1997, the Company's stockholders approved an amendment
to the Company's qualified employee stock purchase plan to increase the number
of shares reserved for issuance from 3,000,000 to 3,750,000.

         On November 10, 1997, the Company's stockholders approved the 1997
Stock Option Plan. Under the plan, non-qualified and incentive stock options to
purchase common stock may be granted to executive officers, other key employees
and consultants. Stock options are generally granted at an exercise price equal
to the fair market value at the date of grant and are exercisable over a period
not to exceed ten years. The number of shares initially reserved for issuance
was 3,000,000. No further options will be granted pursuant to the Company's
Restated Stock Option Plan.

         The Internal Revenue Service is in the process of conducting
examinations of the Company's federal income tax returns for the fiscal years
ended June 30, 1993 through 1995. The Company has reached a settlement with the
IRS in connection with its examination of the Company's federal income tax
returns for the fiscal years ended June 30, 1990 through 1992. The settlement
did not have a material effect on the Company's results of operations or
financial position.

         Interest rate swap agreements are used on a limited basis to manage the
Company's interest rate exposure. The agreements are contracts to periodically
exchange fixed and floating interest rate payments over the life of the
agreements. The floating-rate payments are based on LIBOR and fixed-rate
payments are dependent upon market levels at the time the swap agreement was
consummated. In fiscal 1997, the Company amended its 1993 interest rate swap
agreements to effectively convert two borrowings of $50 million each from
fixed-rate to floating-rate through September, 2001 and December, 2001,
respectively. In addition, the Company entered into interest rate swap
agreements which effectively convert $100 million and $200 million of
floating-rate borrowings to fixed-rate borrowings. During the nine months ended
March 31, 1998, the Company entered into interest rate swap agreements which
effectively convert two borrowings of $50 million each from floating-rate to
fixed-rate through December, 2002 and allows the counterparty of one agreement a
one-time option at the end of the initial term to extend the swap for an
incremental five years. In



                                       20

<PAGE>   21



addition, the Company replaced its existing $100 million and $200 million
interest rate swap agreements with new five year agreements, effective March
1998, to allow the Company to convert $100 million and $200 million of
floating-rate borrowings to fixed-rate borrowings and allow the counterparty a
one-time option at the end of the initial term to extend the swaps for an
incremental five years. For the nine months ended March 31, 1998 and 1997, the
Company received a weighted average rate of 5.9% and 5.8%, respectively, and
paid a weighted average rate of 6.1% and 5.6%, respectively.

         In June 1993, the OIG of the Department of Health and Human Services
requested information from the Company in connection with an investigation
involving the Company's procedures for preparing Medicare cost reports. In
January 1995, the U.S. Department of Justice issued a Civil Investigative Demand
which also requested information from the Company in connection with that same
investigation. As a part of the government's investigation, several former and
current employees of the Company have been interviewed. The Company has provided
information and is cooperating fully with the investigation. The Company cannot
predict whether the government will commence litigation regarding this matter.
Management believes that any claims likely to be asserted by the government as a
result of its investigation would not have a material effect on the Company's
results of operations or financial position.

         On May 7, 1998, the Company learned that it is a named defendant in a
qui tam case when it received a letter from a U.S. Attorney. The complaint
alleges violations of Medicare laws governing the home health operations at two
of the Company's hospitals. The complaint was filed under seal in June 1996 by a
former employee who was discharged by the Company in April 1996. The purpose of
the letter from the U.S. Attorney was to allow the Company an opportunity to
evaluate the results of the government's investigation to date and to discuss
with the government the allegations made in the complaint, prior to the
government making a decision as to whether it will intervene as a plaintiff in
the case. The lawsuit remains under seal for all other purposes. The Company
intends to cooperate fully and share information with the U.S. Attorney's
Office. If any violation of law is found, the Company intends to pursue an
amicable settlement. The case is in a very preliminary stage, and the Company
cannot at this time predict the outcome of the case or its ultimate impact on
the Company's business or operating results. If the outcome were unfavorable,
the Company could be subject to fines, penalties and damages and also could be
excluded from Medicare and other government reimbursement programs which could
have a material adverse effect on the Company's financial condition or results
of operations.

         In 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which establishes reporting standards
for operating segment information disclosed in annual financial statements and
in interim financial reports issued to shareholders. Under existing accounting
standards, the Company has reported its operations as one line of business since
its inception because substantially all of its revenues and operating profits
have been derived from its acute care



                                       21

<PAGE>   22



hospitals, affiliated health care entities and health care management services.
The Company will adopt SFAS No. 131 beginning with its fiscal year ending June
30, 1999 and is presently evaluating the new standard in order to determine its
effect, if any, on the way the Company might report its operations in the
future.

         In 1997, the FASB issued SFAS No. 128, "Earnings per Share." Statement
128 replaced the previously reported primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options,
warrants, and convertible securities. Diluted earnings per share is similar to
the previously reported fully diluted earnings per share. All earnings per share
amounts for all periods have been presented to conform to the Statement 128
requirements.

YEAR 2000 ISSUES

         As with most other industries, hospitals and health care systems use
information systems that may misidentify dates beginning January 1, 2000. This
could result in system or equipment failures or miscalculations. In addition to
the impact on the Company's computer programs and building infrastructure
components, the Company may also experience malfunctions with computer-aided
biomedical equipment used in patient care.

         The Company has a Year 2000 strategy that includes phases for
education, inventory and assessment of applications at risk, analysis and
planning, testing, conversion/remediation/replacement and post-implementation.

         With respect to the Company's core information systems, the Company has
completed its inventory and assessment and has determined that all but three
hospitals require only one upgrade to become Year 2000 compliant, which is
scheduled for completion in fiscal 1999. The remaining three hospitals are
scheduled to convert in fiscal 1999 to new information systems which will be
Year 2000 compliant. The Company is in the inventory and assessment phase of its
analysis of other systems, such as biomedical equipment, building infrastructure
components (elevators, HVAC, etc.) and systems that interface with the core
information systems.

         The costs for upgrades and conversions of core information systems are
included in the Company's existing budget. The Company is not able to reasonably
estimate the costs to be incurred for the review and modification of the medical
equipment and infrastructure elements at this time.

         The Company can provide no assurances that applications the Company
believes to be Year 2000 compliant will not experience difficulties, that
companies on which the Company relies will resolve all Year 2000 issues on a
timely basis or that the Company will not experience difficulties obtaining
resources needed to make modifications to the Company's systems. Consequently,
the Company can give no assurances that issues related to




                                       22

<PAGE>   23



Year 2000 will not have a material adverse effect on the Company.

GENERAL

         The federal Medicare program and state Medicaid programs accounted for
approximately 55% and 56% of gross patient service revenue for the years ended
June 30, 1997 and 1996, respectively. The payment rates under the Medicare
program for inpatients are prospective, based upon the diagnosis of a patient.
The payment rate increases have historically been less than actual inflation.

         Federal and state legislators are continuing to scrutinize the health
care industry for the purpose of reducing health care costs. While the Company
is unable to predict what, if any, future health reform legislation may be
enacted at the federal or state level, the Company expects continuing pressure
to limit expenditures by governmental health care programs. Under the Balanced
Budget Act of 1997 (the 1997 Act), there are no increases in the rates paid to
acute care hospitals for inpatient care through September 30, 1998. Payments for
Medicare outpatient services provided at acute care hospitals, home health
services and skilled nursing facility services historically have been paid based
on costs, subject to certain limits. The 1997 Act requires that the payment for
those services be converted to a prospective payment system, which will be
phased in over various periods, beginning June 30, 1998. The 1997 Act also
includes a managed care option which could direct Medicare patients to only
managed care providers. Further changes in the Medicare or Medicaid programs and
other proposals to limit health care spending could have a material adverse
impact upon the health care industry and the Company.

         The Company is continuing to experience an increase in managed care. 
States, insurance companies and employers are actively negotiating amounts paid
to hospitals, which are typically lower than their standard rates. The trend
toward managed care, including health maintenance organizations, preferred
provider organizations and various other forms of managed care, may adversely
affect hospitals' ability, including the Company's hospitals, to maintain their
current rate of net revenue growth and operating margins.

         The Company's acute care hospitals, like most acute care hospitals in
the United States, have significant unused capacity. The result is substantial
competition for patients and physicians. Inpatient utilization continues to be
negatively affected by payor-required pre-admission authorization and by payor
pressure to maximize outpatient and alternative health care delivery services
for less acutely ill patients. The Company expects increased competition and
admission constraints to continue in the future. The ability to successfully
respond to these trends, as well as spending reductions in governmental health
care programs, will play a significant role in determining hospitals' ability to
maintain their current rate of net revenue growth and operating margins.

         The Company expects the industry trend from inpatient to outpatient
services to continue due to the increased focus on managed care and advances in
technology. Outpatient revenue of the Company's owned




                                       23

<PAGE>   24



hospitals was approximately 39.3% and 35.9% of gross patient service revenue for
the nine months ended March 31, 1998 and 1997, respectively.

         The complexity of the Medicare and Medicaid regulations, increases in
managed care, hospital personnel turnover, dependence of hospitals on physician
documentation of medical records and the subjective judgment involved
complicates billing and collections of accounts receivable by hospitals. There
can be no assurance that this complexity will not negatively impact the
Company's future cash flow or results of operations.

         The Company's historical financial trend has been favorably impacted by
the Company's ability to successfully acquire acute care hospitals. The Company
believes that trends in the health care industry described above may create
possible future acquisition opportunities. The Company faces competition in
acquiring hospitals from a number of well-capitalized organizations.
Additionally, some hospitals are sold through an "auction" process, which may
result in higher purchase prices being paid by competitors for those properties
than the Company believes are reasonable. There can be no assurances that the
Company can continue to maintain its current growth rate through hospital
acquisitions and the successful integration of hospitals into its system.

         The Company's owned hospitals accounted for 91% of the Company's net
operating revenue for the nine months ended March 31, 1998 compared to 90% for
the nine months ended March 31, 1997. Carolinas Hospital System, Flowers
Hospital, Gadsden Regional Medical Center, Lutheran Hospital of Indiana and Mary
Black Hospital accounted for approximately 50% of the Company's owned hospital
revenue for the nine months ended March 31, 1998.

         The federal government and a number of states are rapidly increasing
the resources devoted to investigating allegations of fraud and abuse in the
Medicare and Medicaid programs. At the same time, regulatory and law enforcement
authorities are taking an increasingly strict view of the requirements imposed
on providers by the Social Security Act and Medicare and Medicaid regulations.
Although the Company believes that it is in material compliance with such laws,
a determination that the Company has violated such laws, or even the public
announcement that the Company was being investigated concerning possible
violations, could have a material adverse effect on the Company.

INFLATION

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



                                       24

<PAGE>   25


FORWARD-LOOKING STATEMENTS

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




                                       25
<PAGE>   26
                           PART II. OTHER INFORMATION


ITEM 5.  OTHER INFORMATION.

         On May 7, 1998, the Company learned that it is a named defendant in a
qui tam case when it received a letter from a U.S. Attorney. The complaint
alleges violations of Medicare laws governing the home health operations at two
of the Company's hospitals. The complaint was filed under seal in June 1996 by a
former employee who was discharged by the Company in April 1996.

         The purpose of the letter from the U.S. Attorney was to allow the
Company an opportunity to evaluate the results of the government's investigation
to date and to discuss with the government the allegations made in the
complaint, prior to the government making a decision as to whether it will
intervene as a plaintiff in the case. The lawsuit remains under seal for all
other purposes.

         The Company intends to cooperate fully and share information with the
U.S. Attorney's Office. If any violation of law is found, the Company intends to
pursue an amicable settlement.

         The case is in a very preliminary stage, and the Company cannot at this
time predict the outcome of the case or its ultimate impact on the Company's
business or operating results. If the outcome were unfavorable, the Company
could be subject to fines, penalties and damages and also could be excluded from
Medicare and other government reimbursement programs which could have a material
adverse effect on the Company's financial condition or results of operations.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a) Exhibits. The exhibits filed as part of this Report are listed in
the Index to Exhibits immediately following the signature page.

         (b) No reports on Form 8-K were filed during the quarter ended March
31, 1998.


                                   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.


                                      QUORUM HEALTH GROUP, INC.


Date: May 14, 1998                    By: /s/Steve B. Hewett
                                          --------------------------------------
                                          Steve B. Hewett
                                          Vice President/Chief Financial Officer
<PAGE>   27

                                  Exhibit Index




Exhibit No.
-----------

 3               Amended and Restated Certificate of Incorporation of
                 the Company, effective with the Secretary of State of
                 Delaware on December 15, 1997 (Incorporated by
                 reference to Exhibit A to the Company's definitive
                 Proxy Statement for the Annual Meeting of
                 Shareholders held on November
                 10, 1997.)

10.1(A)          1997 Stock Option Plan (Incorporated by reference to
                 Exhibit B to the Company's definitive Proxy Statement
                 for the Annual Meeting of Shareholders held on November
                 10, 1997.)

10.1(B)          Employee Stock Purchase Plan, as amended
                 (Incorporated by reference to Exhibit C to the
                 Company's definitive Proxy Statement for the Annual
                 Meeting of Shareholders held on November 10, 1997.)

10.1(C)          Form of Executive Employment Agreement with certain
                 executives of the Company.

27               Financial Data Schedule (for SEC use only)