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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-K

(Mark One)

|     |  |                                                                                                                                    
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------
|[X]  |  | Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Fiscal Year Ended December 31, 2003 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 0-23639

PROVINCE HEALTHCARE COMPANY

(Exact Name of Registrant Specified in Its Charter)


|                                                                                           |  |                                                
|------------------------------------------------------------------------------------------ |  | -----------------------------------------------
|Delaware
(State or Other Jurisdiction of Incorporation or
Organization)                    |  | 62-1710772
(I.R.S. Employer
Identification No.)
|                                                                                           |  |                                                
|105 Westwood Place
Suite 400
Brentwood, Tennessee
(Address of Principal Executive Offices) |  | 37027
(Zip Code)                               

(615) 370-1377
(Registrants Telephone Number, Including Area Code)

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

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

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

Common Stock, $.01 Par Value Per Share
(Title of Class)

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

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

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

The aggregate market
  value of the shares of Common Stock of the Registrant held by nonaffiliates
  on June 30, 2003 (the last business day of the Registrants second
  fiscal quarter) was $524,636,082 (based upon the closing price of $11.07 per
  share as reported on the New York Stock Exchange on such date).

As of March 1, 2004,  48,718,856 shares of the Registrants Common Stock
were issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrants Definitive Proxy Statement for the 2004
Annual Meeting of Shareholders are incorporated by reference under Part III of
this report. The Proxy Statement will be filed with the Securities and
Exchange Commission within 120 days after December 31, 2003.





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FORWARD-LOOKING STATEMENTS

Our disclosure and analysis in this report contain some forward-looking
statements. Forward-looking statements give our current expectations or
forecasts of future events. You can identify these statements by the fact that
they do not relate strictly to historical or current facts. Such statements may
include words such as anticipate, estimate, expect, project, intend,
plan, believe and other words and terms of similar meaning in connection
with any discussion of future operating or financial performance. Any or all
of our forward-looking statements in this report may turn out to be wrong. They
can be affected by inaccurate assumptions we might make or by known or unknown
risks and uncertainties. Many factors mentioned in our discussion in this
report will be important in determining future results. Consequently, no
forward-looking statement can be guaranteed. Actual future results may vary
materially. Factors that may cause our plans, expectations, future financial
condition and results to change include, but are not limited to:



| |  |  | the highly competitive nature of the healthcare business;                                                                                                     
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the efforts of insurers, healthcare providers and others to contain healthcare costs;                                                                         
|
| |  |  | the financial condition of managed care organizations that pay us for healthcare services;                                                                    
|
| |  |  | possible changes in the levels and terms of reimbursement for
our charges by government programs, including Medicare and Medicaid
or other third-party payors;
|
| |  |  | changes in or failure to comply with federal, state or local
laws and regulations affecting the healthcare industry;                                          
|
| |  |  | the possible enactment of federal or state healthcare reform;                                                                                                 
|
| |  |  | the departure of key members of our management;                                                                                                               
|
| |  |  | claims and legal actions relating to professional liability;                                                                                                  
|
| |  |  | our ability to implement successfully our acquisition and development strategy;                                                                               
|
| |  |  | our ability to recruit and retain qualified personnel and physicians;                                                                                         
|
| |  |  | potential federal or state investigations;                                                                                                                    
|
| |  |  | fluctuations in the market value of our common stock or notes;                                                                                                
|
| |  |  | changes in accounting principles generally accepted in the
United States or in our critical accounting policies;                                              
|
| |  |  | changes in demographic, general economic and business
conditions, both nationally and in the regions in which we operate;                                     
|
| |  |  | changes in the availability, cost and terms of insurance
coverage for our hospitals and physicians who practice at our
hospitals; and                         
|
| |  |  | other risks described in this report.                                                                                                                         

Except as required by law, we undertake no obligation to publicly update
any forward-looking statements, whether as a result of new information, future
events or otherwise. You are advised, however, to consult any additional
disclosures we make in our Form 10-K, 10-Q and 8-K reports to the Securities
and Exchange Commission, as well as the discussion of risks and uncertainties
described in Item 1 of this Report under the caption Principal Risk Factors
That May Affect Our Business and Results of Operations. These are factors
that we think could cause our actual results to differ materially from expected
results. Other factors besides those listed here also could affect us
adversely. You are cautioned not to place undue reliance on such
forward-looking statements when evaluating the information presented in this
report. This discussion is provided as permitted by the Private Securities
Litigation Reform Act of 1995.





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TABLE OF CONTENTS



|                                                   |                                                                                                         |  |  |  |  |  |  | 
|-------------------------------------------------- | ------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                            
|                                                   | ITEM 1. BUSINESS                                                                                       
|                                                   | ITEM 2. PROPERTIES                                                                                     
|                                                   | ITEM 3. LEGAL PROCEEDINGS                                                                              
|                                                   | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                            
|PART II                                           
|                                                   | ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                          
|                                                   | ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA                                                           
|                                                   | ITEM 7.  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS         
|                                                   | ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                    
|                                                   | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                    
|                                                   | ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE           
|                                                   | ITEM 9A. CONTROLS AND PROCEDURES                                                                       
|PART III                                          
|                                                   | ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                            
|                                                   | ITEM 11. EXECUTIVE COMPENSATION                                                                        
|                                                   | ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|                                                   | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                
|                                                   | ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                        
|PART IV                                           
|                                                   | ITEM 15. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K                  
|SIGNATURES                                        
|EX-10.10 SEVERANCE AGREEMENT D SLIPKOVICH 02/01/04
|EX-10.12 SEVERANCE AGREEMENT R PANTOJA 01/01/04   
|EX-10.39 EMPLOYMENT AGREEMENT J RUTLEDGE 02/01/04 
|EX-21.1 SUBSIDIARIES OF THE REGISTRANT            
|EX-23.1 CONSENT OF ERNST & YOUNG LLP              
|EX-31.1 RULE 13A-14(A) CERTIFICATION OF THE CEO   
|EX-31.2 RULE 13A-14(A) CERTIFICATION OF THE CFO   
|EX-32.1 SECTION 906 CERTIFICATION OF THE CEO & CFO



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PROVINCE HEALTHCARE COMPANY

FORM 10-K ANNUAL REPORT TO
THE SECURITIES AND EXCHANGE COMMISSION
FOR THE YEAR ENDED DECEMBER 31, 2003

TABLE OF CONTENTS

|     |     |  |  |                                                                                                |               |  |    |    | 
|---- | --- |  |  | ---------------------------------------------------------------------------------------------- | ------------- |  | -- | -- | 
|Item |     |  |  |                                                                                                | Page         
|     |     |  |  | PART I                                                                                         |               |  |    |   
|     | 1.  |  |  | Business                                                                                       |               |  | 1  |   
|     | 2.  |  |  | Properties                                                                                     |               |  | 26 |   
|     | 3.  |  |  | Legal Proceedings                                                                              |               |  | 26 |   
|     | 4.  |  |  | Submission of Matters to a Vote of Security Holders                                            |               |  | 26 |   
|     |     |  |  | PART II                                                                                        |               |  |    |   
|     | 5.  |  |  | Market for the Registrants Common Equity and Related Stockholder Matters                      |               |  | 27 |   
|     | 6.  |  |  | Selected Consolidated Financial Data                                                           |               |  | 27 |   
|     | 7.  |  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations          |               |  | 28 |   
|     | 7A. |  |  | Quantitative and Qualitative Disclosures About Market Risk                                     |               |  | 41 |   
|     | 8.  |  |  | Financial Statements and Supplementary Data                                                    |               |  | 41 |   
|     | 9.  |  |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure           |               |  | 41 |   
|     | 9A. |  |  | Controls and Procedures                                                                        |               |  | 41 |   
|     |     |  |  | PART III                                                                                       |               |  |    |   
|     | 10. |  |  | Directors and Executive Officers of the Registrant                                             |               |  | 43 |   
|     | 11. |  |  | Executive Compensation                                                                         |               |  | 43 |   
|     | 12. |  |  | Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters |               |  | 43 |   
|     | 13. |  |  | Certain Relationships and Related Transactions                                                 |               |  | 43 |   
|     | 14. |  |  | Principal Accountant Fees and Services                                                         |               |  | 43 |   
|     |     |  |  | PART IV                                                                                        |               |  |    |   
|     | 15. |  |  | Exhibits, Consolidated Financial Statement Schedules and Reports on Form 8-K                   |               |  | 44 |   
|     |     |  |  |                                                                                                | Exhibit Index |  |    | 44 | 
|     |     |  |  |                                                                                                | Signatures    |  |    | 50 | 





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PART I




ITEM 1. BUSINESS

Overview

We own and operate acute care hospitals located in non-urban markets. We
currently own or lease 20 general acute care hospitals in 13 states with a
total of 2,273 licensed beds. Our objective is to be the primary provider of
quality healthcare services in the selected non-urban markets that we serve.
We target hospitals for acquisition that are the sole or a primary provider of
healthcare in the non-urban communities that they serve. After acquiring a
hospital, we implement a number of strategies designed to improve financial
performance. These strategies include improving hospital operations, expanding
the breadth of services and recruiting and retaining physicians to increase
market share.

On
January 5, 2004, we signed a letter of intent to permit the Palm Beach
Healthcare District to reacquire Glades General Hospital in Belle Glade,
Florida. This transaction is expected to close in the first half of 2004.
Pursuant to this plan of divestiture, the operations and non-cash impairment of
assets charge related to this hospital are reported as discontinued
operations and our consolidated financial statements and statistics for all
prior periods set forth in this report have been adjusted to reflect this
presentation. Accordingly, our companys remaining 19 hospitals are now
reported as continuing operations throughout the financial statements and
statistics for all periods set forth in this report.

What We Do

Our general acute care hospitals typically provide a full range of
services commonly available in acute care hospitals, such as internal medicine,
general surgery, cardiology, oncology, orthopedics, obstetrics, rehabilitation,
subacute care, as well as diagnostic and emergency services. Our hospitals
also generally provide outpatient and ancillary healthcare services such as
outpatient surgery, laboratory, radiology, respiratory therapy, home healthcare
and physical therapy. In addition, certain of our general acute care hospitals
have a limited number of licensed psychiatric beds. We provide capital
resources and make available a variety of management services to our owned and
leased hospitals. In addition, we provide management services to 36 primarily
non-urban hospitals that we do not own or lease in 14 states with a total of
2,985 licensed beds. For the year ended December 31, 2003, our owned and
leased hospitals accounted for 97.9% of our revenues from continuing
operations.

The Non-Urban Healthcare Market

According to 2000 U.S. Census Bureau statistics, over one-third of the
people in the United States live in counties with a population of less than
150,000. In these non-urban areas, hospitals are typically the primary resource
for healthcare services, and in many cases the local hospital is the only
provider of acute hospital services. According to the Centers for Medicare and
Medicaid Services, as of October 1, 2003, there were approximately 2,200
non-urban hospitals in the country. Of those, approximately 1,200 hospitals
meet our acquisition criteria described below.

We believe that non-urban areas are attractive markets in which to operate
hospitals. Because non-urban service areas have smaller populations, only one
or two hospitals generally are located in each market. We believe the size and
demographic characteristics of non-urban markets and the relative strength of
the local hospital also make non-urban markets less attractive to health
maintenance organizations, other forms of managed care, and alternate site
providers, such as full service outpatient surgery centers, rehabilitation or
diagnostic imaging providers.

We believe that a significant opportunity for consolidation exists in the
non-urban healthcare market. Despite the attractive characteristics of these
markets for healthcare service providers, many not-for-profit and governmental
operators of non-urban hospitals are under increasing pressure due to capital
constraints, limited
management resources and the challenges of managing in a complex
healthcare regulatory environment. This





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combination of factors often causes
these operators to limit the range of services offered through their non-urban
hospitals. As a result, patients, by choice or physician direction, may obtain
care outside of the community. This out-migration often leads to deteriorating
operating performance at the hospital, further limiting its ability to address
the issues that initially led to these pressures. As a result of these
pressures, not-for-profit and governmental hospitals increasingly are selling
or leasing these hospitals to companies, like us, that have greater financial
and management resources, coupled with proven operating strategies, to help
serve the community better.

Business Strategy

The key elements of our business strategy are to:

Acquire Hospitals in Attractive Non-Urban Markets. We seek to acquire
hospitals that are the sole or a primary provider of healthcare services in
their markets and that present the opportunity to increase profitability and
local market share. We believe that approximately 1,200 non-urban hospitals in
the United States meet our acquisition criteria; however, we remain selective
in our acquisition decisions.

Improve Hospital Operations. Following the acquisition of a hospital, we
augment local management with appropriate operational and financial managers
and, where appropriate, install our standardized information system. Using
demonstrated best practices, the local management team implements expense
controls, manages staffing levels according to patient volumes, reduces supply
costs by requiring strict compliance with our supply arrangements and often
renegotiates vendor contracts. By implementing this strategy, we seek to
improve operating performance at each of the hospitals we acquire.

Expand Breadth of Services to Increase Market Share and Reduce Patient
Out-migration. We seek to provide additional healthcare services and programs
in response to community needs. These services may include specialty inpatient,
outpatient and rehabilitation services. We also may make capital investments
in technology and physical plant to improve both the quality of healthcare and
the reputation of the hospital in the community. By providing a broader range
of services in a more attractive setting, we encourage residents in our markets
to seek care in our hospitals, thereby reducing patient out-migration and
increasing hospital revenues.

Recruit and Retain Physicians. We believe that recruiting physicians into
local communities and retaining their services at our hospitals are key to
increasing the quality of healthcare and breadth of available services. We work
with the local hospital board, management and medical staff to determine the
number and type of additional physicians needed in the community. Our Vice
President of Medical Staff Development and his staff then assist the local
management team and local hospital boards in identifying and recruiting
specific physicians to the community to meet those needs. We added 106, 82
and 57 new physicians to our medical staffs during 2003, 2002 and 2001, respectively. Approximately
36% of the physicians added during the last three years have been primary
care physicians and approximately 64% have been specialty-care physicians. In
addition, we already have recruited 13 new physicians to join our hospital
staffs in 2004 and 2005. We believe that expansion of services in our
hospitals should assist in future physician recruiting efforts.

Acquisition Program

We proactively identify acquisition targets and respond to requests for
proposals from entities that are seeking to sell or lease hospitals. We
identify attractive markets and hospitals and initiate meetings with hospital
systems to discuss acquiring non-urban hospitals or operating them through a
joint venture.

We believe that it generally takes six to twelve months from a hospital
owners decision to accept an offer until the consummation of a sale or lease
of a hospital. After a potential acquisition has been identified, we undertake
a systematic approach to evaluate and close the transaction. We begin the
acquisition process with a thorough due diligence review of the target hospital
and its community. We use our dedicated teams of experienced personnel to
conduct a formalized review of all aspects of the targets operations,
including Medicare reimbursement, purchasing, fraud and abuse compliance,
litigation, capital requirements and employment and

2



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environmental issues.
During the course of our due diligence review, we prepare an operating plan for
the target
hospital, identify opportunities for operating efficiencies and physician
recruiting needs, and assess productivity and management information systems.
Throughout the process, we work closely with community leaders in order to
enhance both the communitys understanding of our philosophy and abilities and
our knowledge of the needs of the community.

From time to time, we enter into letters of intent with acquisition
targets in connection with our evaluation of a potential acquisition. Such
letters of intent generally are executed prior to the commencement of due
diligence undertaken during the evaluation process. In addition to due
diligence, proposed transactions to acquire hospitals for which we have signed
a letter of intent are subject to numerous conditions and contingencies,
including internal approvals of both our company and the target companies,
receipt of regulatory approvals, receipt of attorney general approval,
resolution of legal and equitable matters relating to continuation of labor
agreements, review of supply and service agreements, receipt of satisfactory
surveys, title insurance commitments and environmental and engineering surveys,
and preparation and negotiation of documentation. In addition, our letters of
intent generally provide that they may be terminated by either party without
cause. Accordingly, we cannot assure you that any such proposed transaction for
which we have signed a letter of intent will occur, or if it occurs, we cannot
predict the values or condition of the assets that may be acquired, the
purchase price of such assets or the terms of their acquisition.

The acquisition of non-urban hospitals is competitive, and we believe that
the acquiror will be selected for a variety of reasons, not exclusively on the
basis of price. We believe that we are well-positioned to compete for
acquisitions for several reasons. First, our management team has extensive
experience in acquiring and operating previously under-performing non-urban
hospitals. Second, we benefit from access to capital, strong financial and
operating systems, a national purchasing organization and training programs
focused on employee and patient satisfaction. Third, we believe our strategy of
increasing access to, and quality of, healthcare in the communities served by
our hospitals aligns our interests with those of the communities. Finally, we
believe that the alignment of interests with the community, our reputation for
providing market-specific, quality healthcare, and our focus on physician
recruiting and retention enables us to compete successfully for acquisitions.

Hospital Operations

Following the acquisition of a hospital, we implement our systematic
policies and procedures to improve the hospitals operating and financial
performance. We implement an operating plan designed to reduce costs by
improving operating efficiency and increasing revenue through the expansion of
the breadth of services offered by the hospitals and the recruitment of
physicians to the community. We believe that the long-term growth potential of
a hospital is dependent on that hospitals ability to add appropriate
healthcare services and effectively recruit and retain physicians.

Each hospital management team is comprised of a chief executive officer,
chief financial officer, chief nursing officer and in certain
instances a chief operating officer. We believe that the quality
of the local management team at each hospital is critical to the hospitals
success because the management team is responsible for implementing the
elements of our operating plan. The operating plan is developed by the local
management team in conjunction with our senior management team and sets forth
revenue enhancement strategies and specific expense benchmarks. We have
implemented a performance-based compensation program for each local management
team based upon the achievement of the goals set forth in the operating plan.

The local management team is responsible for the day-to-day operations of
the hospitals. Our corporate staff provides support services to each hospital,
including physician recruiting, corporate compliance, reimbursement advice,
standardized information systems, human resources, accounting, cash management
and other finance activities, as well as tax and risk management support. Financial
controls are maintained through utilization of standardized policies and
procedures. We promote communication among our hospitals so that local
expertise and improvements can be shared throughout our network.

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To achieve the operating efficiencies set forth in the operating plan, we do the following:



| |  |  | evaluate existing hospital management;                                                              
| | - |  | ----------------------------------------------------------------------------------------------------
|
| |  |  | adjust staffing levels according to patient volumes
using best demonstrated practices by department;
|
| |  |  | where appropriate, install a standardized management information system;                            
|
| |  |  | capitalize on purchasing efficiencies and renegotiate certain vendor contracts; and                 
|
| |  |  | improve billing and collection policies and procedures.                                             

We also enforce strict protocols for compliance with our supply contracts.
All of our owned or leased hospitals currently purchase supplies and certain
equipment pursuant to an arrangement we have with an affiliate of HCA Inc. We
also evaluate the vendor contracts, and based on cost comparisons, we may
renegotiate or terminate such contracts. We prepare for the transition of
management information systems to our standardized system prior to the
completion of an acquisition, in order that the newly-acquired hospital may
begin using our management information systems following completion of the
acquisition.

Expansion of Services

As part of our efforts to improve access to quality healthcare in the
communities we serve, we add services at our hospitals on an as-needed basis.
Added services and care programs may include specialty inpatient services, such
as cardiology, rehabilitation and subacute care, and outpatient services such
as same-day surgery. We believe the establishment of quality emergency room
departments and obstetrics and gynecological services are particularly
important because they are often the most visible and needed services in the
community. We also make capital investments in technology and facilities to
increase the quality and breadth of services available in the communities. By
increasing the services provided at our hospitals and upgrading the technology
used in providing such services, we believe that we improve each hospitals
quality of care and reputation in the community, which in turn may increase
patient admissions and revenue.

Physician Recruitment

We work with local hospital boards, management and medical staff to
determine the number and type of additional physicians needed in the community.
Our corporate staff then assists the local management team in identifying and
recruiting specific physicians to the community to meet those needs. The
majority of physicians who relocate their practices to the communities served
by our hospitals are identified by our Vice President of Medical Staff
Development and his physician recruiting staff, with assistance from
independent recruiting firms at times. When recruiting a physician to a
community, we generally guarantee the physician a minimum level of cash
collections during a limited initial period and assist the physician with his
or her transition to the community. We require the physician to repay some or
all of the amounts expended for such assistance in the event the physician
leaves the community prior to the end of the contract period. We prefer not to
employ physicians; therefore, recruited physicians generally do not become our
employees.

Physician Retention

We have implemented a number of procedures to help retain physicians at
our hospitals. We have designated a Vice President of Medical Staff
Development to oversee all aspects of physician recruiting and retention and to
work with our hospital chief executive officers in recognizing and addressing
physician issues. Additionally, our company has instituted an early alert
system in every hospital to address physician concerns and to identify
physicians that are at risk of leaving. We also have re-established a
physician advisory council, which will serve as a direct conduit between
physicians at our hospitals and our management.

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Owned and Leased Hospitals

We currently own
  or lease 20 general acute care hospitals in 13 states, with a total of 2,273
  licensed beds. Of our 20 hospitals, 19 are the only providers of acute hospital
  services in their communities. The owned or leased hospitals, excluding Glades
  General Hospital, represented 97.9% of our revenues from continuing operations
  for the year ended December 31, 2003, compared to 97.8% for the year ended
  December 31, 2002, and 96.9% for the year ended December 31, 2001.

On December 12,
  2003, the City Council of Las Cruces, New Mexico and the Doña Ana County
  Commission selected our bid to purchase the 286-bed Memorial Medical Center
  in Las Cruces, New Mexico. This transaction is currently in the due diligence
  phase. On January 5, 2004, we signed a letter of intent to permit the Palm
  Beach Healthcare District to reacquire Glades General Hospital in Belle Glade,
  Florida. The Glades transaction is expected to close in the first half of 2004,
  subject to negotiation of definitive agreements, regulatory approval and satisfaction
  of closing conditions. We are also currently constructing a new 41-bed acute
  care hospital in Bluffton, South Carolina, which is expected to be completed
  by the first quarter of 2005 and a new 60-bed acute care hospital in Ft. Mojave,
  Arizona, which is expected to be completed in the second half of
2005. The Bluffton facility will be our first hospital in South
Carolina.

Our hospitals offer a wide range of inpatient medical services such as
operating/recovery rooms, intensive care units, diagnostic services and
emergency room services, as well as outpatient services such as same-day
surgery, radiology, laboratory, pharmacy and physical therapy. Our hospitals
frequently provide specialty services that include rehabilitation and home
healthcare. Our hospitals currently do not provide highly specialized surgical
services such as organ transplants and open heart surgery and are not engaged
in extensive medical research or educational programs.

The following table sets forth certain information with respect to each of
our owned or leased hospitals as of March 1, 2004.

|                                                                          |  |      |          |        |        |           |      |           |  |  |  |  | 
|------------------------------------------------------------------------- |  | ---- | -------- | ------ | ------ | --------- | ---- | --------- |  |  |  |  | 
|                                                                          |  |      | Licensed |        | Owned/ |           | Date
|Hospital                                                                  |  | Beds |          | Leased |        | Acquired 
|                                                                          |  |      |          |        |        |          
|Ashland Regional Medical Center 
Ashland, Pennsylvania                    |  |      | 123      | (1)    |        | Owned     |      | Aug. 2001
|Bolivar Medical Center
Cleveland, Mississippi                             |  |      | 165      | (2)    |        | Leased    |      | Apr. 2000
|Colorado Plains Medical Center
Fort Morgan, Colorado                      |  |      | 50       |        |        | Leased(3) |      | Dec. 1996
|Colorado River Medical Center
Needles, California                         |  |      | 49       |        |        | Leased(4) |      | Aug. 1997
|Doctors Hospital of Opelousas
Opelousas, Louisiana                       |  |      | 165      |        |        | Owned     |      | Jun. 1999
|Ennis Regional Medical Center
Ennis, Texas                                |  |      | 45       |        |        | Leased(5) |      | Feb. 2000
|Eunice Community Medical Center
Eunice, Louisiana                         |  |      | 72       |        |        | Leased(6) |      | Feb. 1999
|Glades General Hospital
Belle Glade, Florida                              |  |      | 73       |        |        | Owned(7)  |      | Apr. 1999
|Havasu Regional Medical Center
Lake Havasu City, Arizona                  |  |      | 138      |        |        | Owned     |      | May 1998 
|Los Alamos Medical Center
Los Alamos, New Mexico                          |  |      | 47       |        |        | Owned     |      | Jun. 2002
|Medical Center of Southern Indiana
Charlestown, Indiana                   |  |      | 96       |        |        | Owned     |      | Oct. 2001
|Memorial Hospital of Martinsville and Henry County
Martinsville, Virginia |  |      | 237      |        |        | Owned     |      | May 2002 
|Minden Medical Center
Minden, Louisiana                                   |  |      | 159      |        |        | Owned     |      | Oct. 1999

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|                                                       |                     |      |          |        |        |            |      |           |  |  |  |  | 
|------------------------------------------------------ | ------------------- | ---- | -------- | ------ | ------ | ---------- | ---- | --------- |  |  |  |  | 
|                                                       |                     |      | Licensed |        | Owned/ |            | Date
|Hospital                                               |                     | Beds |          | Leased |        | Acquired  
|                                                       |                     |      |          |        |        |           
|Northeastern Nevada Regional Hospital (8)
Elko, Nevada |                     |      | 75       |        |        | Owned      |      | Jun. 1998
|Palestine Regional Medical Center
Palestine, Texas     |                     |      | 249      |        |        | Owned(9)   |      | July 1996
|Palo Verde Hospital
Blythe, California                 |                     |      | 51       |        |        | Leased(10) |      | Dec. 1996
|Parkview Regional Hospital
Mexia, Texas                |                     |      | 59       |        |        | Leased(11) |      | Dec. 1996
|Starke Memorial Hospital
Knox, Indiana                 |                     |      | 53       |        |        | Leased(12) |      | Oct. 1996
|Teche Regional Medical Center
Morgan City, Louisiana   |                     |      | 153      |        |        | Leased(13) |      | Dec. 2001
|Vaughan Regional Medical Center (14)
Selma, Alabama    |                     |      | 214      |        |        | Owned      |      | Oct. 2001
|                                                       |                     |      |          |        |        |            |      |           |  |  |  | 
|                                                       | Total licensed beds |      |          | 2,273  |        |            |      |           |  |  |  |  | 



---

|(1)  |  | Includes 40 dually licensed skilled nursing and long-term care beds.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(2)  |  | Includes 24 skilled nursing beds but excludes 35 long-term care beds.
The lease expires in April 2040.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    
|(3)  |  | The lease expires in April 2014, and is subject to a five-year renewal
term. We have a right of first refusal to purchase the hospital.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    
|(4)  |  | The lease expires in July 2012, and is subject to three five-year renewal
terms. We have a right of first refusal to purchase the hospital.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    
|(5)  |  | The lease expires in February 2030, and is subject to three 10-year
renewal terms at our option.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    
|(6)  |  | The lease expires in February 2009,
and is subject to a five-year renewal at our
option.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    
|(7)  |  | We have entered into a letter of intent to sell Glades General Hospital
to the Palm Beach Health Care District. This transaction is expected to
close in the first half of 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    
|(8)  |  | This 75-bed, 125,000 square foot hospital replaced the 50-bed Elko
General Hospital in September 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    
|(9)  |  | The hospital is owned by a partnership in which a subsidiary of ours is
the sole general partner, with a 1.0% general partnership interest, and
another subsidiary of ours has a limited partnership interest of 96.35%,
subject to an option by the other non-affiliated limited partner (which
currently owns a 2.65% interest) to acquire up to 10% of the total limited
partnership interests.                                                                                                                                                                                                                                                                                                                                    
|    
|(10) |  | The lease expires in December 2012. We have the option to purchase the
hospital at any time prior to termination of the lease, subject to
regulatory approval.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    
|(11) |  | The lease expires in January 2011, and is subject to two five-year
renewal terms. We have a right of first refusal to purchase the hospital.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    
|(12) |  | The lease expires in September 2016, and is subject to two ten-year
renewal terms at our option. We have a right of first refusal to purchase
the hospital.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    
|(13) |  | The lease expires in December 2041.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    
|(14) |  | We acquired Selma Regional Medical Center, formerly known as Selma
Baptist Medical Center, located in Selma, Alabama, in July 2001. In
October 2001, we acquired Vaughan Regional Medical Center, which is also
located in Selma, Alabama, approximately four miles from Selma Baptist.
In April 2002, we consolidated the operations of Selma Regional Medical
Center with Vaughan Regional Medical Center, and formed one regional
hospital with two campuses. Upon completion of the consolidation, we
changed the name of Selma Regional Medical Center to Vaughan Regional
Medical Center  Parkway Campus, and we changed the name of Vaughan
Regional Medical Center to Vaughan Regional Medical Center  Dallas Avenue
Campus.

Ashland Regional Medical Centeris a general acute care facility with 123
beds located in Ashland, Pennsylvania, approximately 110 miles northwest of
Philadelphia, Pennsylvania. Ashland, Pennsylvania has a service area
population of approximately 65,000. The nearest competitor of Ashland Regional
Medical Center is Regional Medical Center in Pottsville, Pennsylvania, located
20 miles from Ashland.

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Bolivar Medical Centeris a general acute care facility with 141 acute
care beds, 24 skilled nursing beds and 35 long-term care beds located in
Cleveland, Mississippi. Established in 1962, the hospital is owned by Bolivar
County, Mississippi. Cleveland is a manufacturing-based community with an
estimated 16,000 residents and an estimated service area population of 55,000.
The nearest competitor is South Sunflower County Hospital in Indianola,
Mississippi, located 32 miles from Cleveland.

Colorado Plains Medical Centeris a 50-bed general acute care facility
located in Fort Morgan, Colorado, approximately 70 miles from Denver. Fort
Morgan is an agricultural-based community with an estimated 12,000 residents
and an estimated service area population of 43,000. The original hospital was
built in 1952. The hospital is the only rural-based Level III trauma center in
Colorado, and one of only 10 such rural centers in the United States. The
hospitals major competition comes from the 276-bed Northern Colorado Medical
Center located in Greeley, Colorado, which is approximately 45 miles west of
Colorado Plains. East Morgan County Hospital, located nine miles away in Brush,
Colorado, is the closest hospital to Colorado Plains and offers only limited
services. Both of these competing hospitals are owned by the Lutheran Health
System.

Colorado River Medical Centeris a 49-bed general acute care facility
located in Needles, California, approximately 100 miles southwest of Las Vegas,
Nevada. The hospital, established in 1974, previously was owned by the City of
Needles. Colorado River Medical Center is the only hospital serving a community
base of approximately 20,000 people. The nearest competitor is Bullhead
Community Hospital, located 22 miles away, which serves the Laughlin, Nevada
and Bullhead City, Arizona areas.

Doctors Hospital of Opelousasis a 165-bed general acute care facility,
located in Opelousas, Louisiana, approximately 21 miles east of Eunice,
Louisiana, where we operate Eunice Community Medical Center, a 91-bed
healthcare facility and approximately 22 miles north of Lafayette, Louisiana.
Opelousas is the parish seat with a population of approximately 21,000 in the
city of Opelousas and approximately 100,000 residents of the St. Landry Parish.
The primary competition for Doctors Hospital of Opelousas is the 134-bed
Opelousas General Hospital, a county-owned not-for-profit facility located
approximately five miles from Doctors Hospital of Opelousas. We completed a
$3.0 million 32-bed addition to the hospital in April 2000.

Ennis Regional Medical Centeris a 45-bed general acute care facility
located in Ennis, Texas, approximately 35 miles southeast of Dallas.
Established in the mid-1950s, the hospital is owned by the City of Ennis. The
acute care facility is the only hospital serving the Ennis community, which has
a total service area population of approximately 85,000 people. The nearest
competitor is the 73-bed Baylor HealthCare System Waxahachie Hospital, located
17 miles from Ennis.

Eunice Community Medical Centeris a 72-bed general acute care facility
located in Eunice, Louisiana. Eunice, Louisiana is a community of approximately
20,000 people, located approximately 50 miles northwest of Lafayette. The total
service area consisting of St. Landry Parish has a population of approximately
100,000. The hospital is located 21 miles from Opelousas General Hospital, a
133-bed facility, which we own. We must construct a replacement facility,
currently expected to cost approximately $25.3 million, at such time as the
hospital reaches pre-determined operating levels. The lease will terminate at
the time the replacement facility commences operations. Eunice Community
Medical Center competes with Savoy Medical Center located in Mamou, Louisiana,
approximately 15 miles north of Eunice.

Glades General Hospitalis a 73-bed general acute care facility serving
the residents of Western Palm Beach, Hendry and Glades counties and is located
45 miles west of West Palm Beach on the southeast corner of Lake Okeechobee.
Belle Glade, Florida has a service area population of 36,000. The nearest
competitor is Palms West, located 30 miles away in Loxahatchee,
Florida. On January 5, 2004, we signed a letter of intent to permit
the Palm Beach Healthcare District to reacquire the hospital. This
transaction is expected to close in the first half of 2004.

Havasu Regional Medical Centeris a 138-bed general acute care facility
providing healthcare services for a population of over 41,000, primarily in the
Lake Havasu City, Arizona area. Lake Havasu City is on the shore of Lake Havasu
on the Colorado River border of California and Arizona. It is now the major
population center of southern Mohave County, one of the fastest growing
counties in the United States. Lake Havasu City has a service area population
of 127,000 residents in the rapidly growing Colorado River basin. The nearest
acute hospital

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competitor is Kingman Regional Medical Center in Kingman,
Arizona, which is approximately 60 miles from Havasu Regional Medical Center.

Los Alamos Medical Centeris a 47-bed acute care facility located in Los
Alamos, New Mexico. Los Alamos, New Mexico is located approximately 96 miles
north of Albuquerque and 40 miles west of Santa Fe, New Mexico, and has a
service area population of approximately 50,000. Los Alamos Medical Center is
the only hospital in the community. The hospitals nearest competitor is
Espanola Hospital in Espanola, New Mexico, which is located approximately 35
miles from Los Alamos Medical Center.

Medical Center of Southern Indianais a 96-bed general acute care facility
located in Charlestown, Indiana. Charlestown, Indiana is located approximately
16 miles northwest of Louisville, Kentucky, and has a service area population
of approximately 48,000. Medical Center of Southern Indiana is the only
hospital in the community. The hospitals nearest competitor is Clark Memorial
in Jeffersonville, Indiana, which is located approximately 20 miles from
Medical Center of Southern Indiana.

Memorial Hospital of Martinsville and Henry Countyis a 237-bed acute care
facility located in Martinsville, Virginia. Martinsville, Virginia is located
approximately 50 miles south of Roanoke, Virginia and has a service area
population of approximately 100,000. Memorial Hospital is the only hospital in
the county. Its nearest competitor is Danville Regional Medical Center in
Danville, Virginia, which is located approximately 30 miles from Memorial
Hospital of Martinsville and Henry County.

Minden Medical Centeris a 159-bed general acute care facility located in
Minden, Louisiana. Minden, Louisiana is approximately 28 miles from Shreveport
and has a service area population of approximately 64,000. The hospitals
nearest competitors are the Willis-Knight Medical Center and Bossier Medical
Center, which are both located in Shreveport.

Northeastern Nevada Regional Hospital, which opened in September 2001 as a
replacement to Elko General Hospital, is a 75-bed general acute care facility
located in Elko, Nevada. Elko, Nevada is located 237 miles west of Salt Lake
City, Utah, 295 miles northeast of Reno and 475 miles north of Las Vegas. Elko
Countys population is approximately 55,000, with the primary population base
residing in the City of Elko. The nearest acute care hospital competitors are
in Salt Lake City, Utah.

Palestine Regional Medical Centeris a two-campus facility located in
Palestine, Texas. Palestine, a community of approximately 19,000 residents, is
located 50 miles south of Tyler, Texas and is roughly equidistant from Dallas
and Houston. The total service area population for the hospital, which includes
Anderson and eight surrounding counties, is estimated at 104,000 people. The
facility is comprised of Palestine Regional Medical Center, the former Trinity
Valley Medical Center, a 172-bed acute care facility that we acquired in
October 1999 from Tenet Healthcare Corporation, and Palestine Regional
Rehabilitation Hospital, the former Memorial Mother Frances Hospital, a 77-bed
acute care facility also located in Palestine, which we have owned since 1996.
Palestine Regional Medical Center competes indirectly with two other hospitals,
Mother Frances Hospital Regional HealthCare Center and East Texas Medical
Center, both in Tyler, Texas.

Palo Verde Hospitalis a 51-bed general acute care facility located in
Blythe, California, which is in southeast California on the Arizona border. The
hospital is located in a community with a stable population of 20,000; however,
the population increases significantly during the winter months due to a
seasonal influx of retirees. The nearest competitor is Parker Hospital in
Parker, California, which is approximately 45 miles from Palo Verde Hospital.

Parkview Regional Hospitalis a 59-bed general acute care facility located
in Mexia, Texas, approximately 85 miles south of Dallas, Texas. Parkviews
primary service area includes Mexia and the surrounding Limestone County, as
well as Freestone, Leon, and Hill counties. Mexia is the areas largest city
with a population of 7,000 people. The service area of the hospital includes
approximately 50,000 residents. Parkview Regional Hospital is the only hospital
in the community, but experiences competition from Waco hospitals, about 40
miles to the west.

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Starke Memorial Hospitalis a 53-bed general acute care facility in Knox,
Indiana, a community located approximately 50 miles from South Bend. The town
of Knox has a population of approximately 8,000, and the population of Starke
County is estimated to be 23,000. The hospitals total service area, including
the surrounding counties, is approximately 35,000. The nearest competing
hospitals are the 36-bed St. Joe Marshall County Hospital,
which is located 18 miles east in Plymouth, Indiana, and the 307-bed
Porter Memorial Hospital, which is located 32 miles away in Valparaiso,
Indiana.

Teche Regional Medical Centeris a general acute care facility with 153
beds located in Morgan City, Louisiana, approximately 67 miles south of Baton
Rouge, Louisiana. The hospital has a service area of approximately 82,000
people. Teche Regional Medical Center is the only acute care hospital in the
community it serves. The hospitals nearest competitor is Thibodeaux Regional
Medical Center, located approximately 30 miles away in Thibodeaux, Louisiana.

Vaughan Regional Medical Centerand Selma Regional Medical Center located
in Selma, Alabama, were consolidated in April 2002 into a two-campus, 214-bed
general acute care facility. Selma, Alabama ,which has a service area
population of approximately 90,000, is located approximately 50 miles west of
Montgomery, Alabama and 97 miles south of Birmingham, Alabama. The Parkway
Campus is comprised of the former Selma Regional Medical Center that we
acquired from Baptist Health of Montgomery, Alabama in July 2001. The Dallas
Avenue Campus is comprised of the former Vaughan Regional Medical Center that
we acquired from Vaughan Regional Medical Center, Inc. in October 2001. The
two campuses are located approximately four miles from each other. The
hospitals current nearest competitor is Baptist Medical Center, located
approximately 48 miles away in Montgomery, Alabama.

Operating Statistics

The following table
  sets forth certain operating statistics for our owned or leased hospitals classified
  as continuing operations for each of the periods presented.(1)

|                                                     |  |   |                                 |  |      |   |           |  |      |   |         |  |  |   |         |  |  |   |         |  | 
|---------------------------------------------------- |  | - | ------------------------------- |  | ---- | - | --------- |  | ---- | - | ------- |  |  | - | ------- |  |  | - | ------- |  | 
|                                                     |  |   | Year Ended December
        31,
|                                                     |  |   |                                
|                                                     |  |   | 2003                            |  | 2002 |   | 2001      |  | 2000 |   | 1999   
|                                                     |  |   |                                 |  |      |   |           |  |      |   |        
|Number
          of hospitals owned at end of period |  |   | 19                              |  |      |   | 19        |  |      |   | 18      |  |  |   | 13      |  |  |   | 13      | 
|Licensed
          beds at end of period(2)          |  |   | 2,189                           |  |      |   | 2,207     |  |      |   | 2,063   |  |  |   | 1,253   |  |  |   | 1,209   | 
|Beds
          in service at end of period           |  |   | 1,933                           |  |      |   | 1,933     |  |      |   | 1,839   |  |  |   | 1,168   |  |  |   | 1,126   | 
|Admissions(3)                                        |  |   | 72,630                          |  |      |   | 69,107    |  |      |   | 52,053  |  |  |   | 44,194  |  |  |   | 29,867  | 
|Adjusted
          admissions(4)                     |  |   | 131,557                         |  |      |   | 120,990   |  |      |   | 86,198  |  |  |   | 76,358  |  |  |   | 52,164  | 
|Patient
          days(5)                            |  |   | 307,195                         |  |      |   | 299,138   |  |      |   | 227,596 |  |  |   | 204,550 |  |  |   | 148,691 | 
|Adjusted
          patient days(6)                   |  |   | 556,331                         |  |      |   | 523,307   |  |      |   | 376,539 |  |  |   | 352,999 |  |  |   | 259,513 | 
|Average
          length of stay (days)(7)           |  |   | 4.2                             |  |      |   | 4.3       |  |      |   | 4.4     |  |  |   | 4.6     |  |  |   | 5.0     | 
|Net
          patient revenue (in thousands)         |  | $ | 735,841                         |  |      | $ | 649,954   |  |      | $ | 480,627 |  |  | $ | 419,657 |  |  | $ | 299,250 | 
|Gross
          patient revenue (in thousands)(8)    |  |   |                                 |  |      |   |           |  |      |   |         |  |  |   |         |  |  |   |         | 
|Inpatient                                            |  | $ | 903,740                         |  |      | $ | 799,358   |  |      | $ | 588,203 |  |  | $ | 482,773 |  |  | $ | 317,451 | 
|Outpatient                                           |  |   | 732,844                         |  |      |   | 599,333   |  |      |   | 387,195 |  |  |   | 351,468 |  |  |   | 237,007 | 
|                                                     |  |   |                                 |  |      |   |           |  |      |   |         |  |  |   |         |  |  |   |         | 
|Total
          gross patient revenue                |  | $ | 1,636,584                       |  |      | $ | 1,398,691 |  |      | $ | 975,398 |  |  | $ | 834,241 |  |  | $ | 554,458 | 
|                                                     |  |   |                                 |  |      |   |           |  |      |   |         |  |  |   |         |  |  |   |         |  | 



---

|(1) |  | All statistics have been restated to exclude the ownership and operations
of Glades General Hospital, which is scheduled to be sold in the first
half of 2004.                                                                                                                                                                                                                                                                                                                                                                                         
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Beds for which a hospital has been granted approval to operate from the
applicable state licensing agency.                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|(3) |  | Represents the total number of patients admitted (in a facility for a
period in excess of 23 hours) and used by management and investors as a
general measure of inpatient volume.                                                                                                                                                                                                                                                                                                                                                                     
|   
|(4) |  | Used by management and investors as a general measure of combined
inpatient and outpatient volume. Adjusted admissions are computed by
multiplying admissions (inpatient volume) by the outpatient factor. The
outpatient factor is the sum of gross inpatient revenue and gross
outpatient revenue divided by gross inpatient revenue. The adjusted
admissions computation equates outpatient revenue to the volume measure
(admissions) used to measure inpatient volume, resulting in a general
measure of combined inpatient and outpatient volume.
|   
|(5) |  | Represents the total number of days the patients who are admitted stay in
our hospitals.                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|(6) |  | Adjusted patient days are computed by multiplying patient days (inpatient
volume) by the outpatient factor. The outpatient factor is the sum of
gross inpatient revenue and gross outpatient revenue divided by gross
inpatient revenue. The adjusted patient days                                                                                                                                                                                                                                                                                     

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|    |  | computation equates
outpatient revenue to the volume measure (patient days) used to measure
inpatient volume, resulting in a general measure of combined inpatient and
outpatient volume.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(7) |  | The average number of days admitted patients stay in our hospitals.                                                                                                                      
|   
|(8) |  | Represents revenues prior to reductions for discounts and contractual
allowances.                                                                                                        

Sources of Revenue

We receive payments for patient care from private insurance carriers,
federal Medicare programs for elderly and disabled patients, health maintenance
organizations, preferred provider organizations, state Medicaid programs,
TriCare, and from employers and patients directly. See Item 7. Managements
Discussion and Analysis of Financial Condition and Results of Operations. The
approximate percentages of net patient revenue of our facilities (excluding
Glades General Hospital) from these sources during the periods specified below
were as follows:

|         |       |      |                         |       |   |      |      |       |   |  |      |       |  
|-------- | ----- | ---- | ----------------------- | ----- | - | ---- | ---- | ----- | - |  | ---- | ----- | -
|         |       |      | Year Ended December 31,
|         |       |      |                        
|Source   |       | 2003 |                         | 2002  |   | 2001
|         |       |      |                         |       |   |     
|Medicare |       |      | 38.5                    | %     |   |      | 45.4 | %     |   |  | 39.6 | %    
|Medicaid |       |      | 10.3                    |       |   |      | 11.3 |       |   |  | 9.0  |      
|Other    |       |      | 51.2                    |       |   |      | 43.3 |       |   |  | 51.4 |      
|         |       |      |                         |       |   |      |      |       |   |  |      |      
|         | Total |      |                         | 100.0 | % |      |      | 100.0 | % |  |      | 100.0 | %
|         |       |      |                         |       |   |      |      |       |   |  |      |      

Management Information Systems

Following the acquisition of a hospital, we implement our systematic
procedures to improve the hospitals operating and financial
performance. In many cases, one of our first steps is to convert the newly-acquired hospital to our broad-based
management information system. Our hospital management information system
contains the primary software required to run an entire hospital, bundled into
one software package. This software generally includes features such as a
general ledger, patient accounting, billing, accounts receivable, payroll,
accounts payable and pharmacy. Our goal is to convert an acquired hospital to
our management information system within 60 days from the date of the
acquisition.

Quality Assurance

Our hospitals implement quality assurance procedures to monitor the level
of care. Each hospital also has a medical executive committee, which reviews
the professional credentials of physicians applying for medical staff
privileges at the hospital. Each facility monitors outcomes along with
procedures performed and the quality of the logistical, medical and
technological support provided to the physician. We survey our patients either
during their stay at the hospital or subsequently by mail to identify potential
areas of improvement. All of our hospitals are accredited by the Joint
Commission on Accreditation of Healthcare Organizations.

Regulatory Compliance Program

We maintain a company-wide compliance program. Our compliance program
focuses on all areas of regulatory compliance, including physician recruitment,
reimbursement, cost reporting practices and laboratory and home healthcare
operations. Each of our hospitals designates a compliance officer and undergoes
an annual risk assessment to determine potential risk issues and develop plans
to correct problems should they arise. In addition, all of our employees are
given a thorough introduction to our ethical and compliance guidelines, as well
as a guide to the proper resources to address any concerns that may arise. We
also conduct annual training to re-emphasize our established guidelines. We
regularly monitor our corporate compliance programs to respond to developments
in healthcare regulation and the industry. We also maintain a toll-free hotline
to permit employees to report compliance concerns on an anonymous basis. In
addition, the hotline is a method of obtaining answers to questions of
compliance encountered during the day-to-day operation of a facility.

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Management and Professional Services

Brim Healthcare, Inc., a wholly owned subsidiary, provides management
services to 36 primarily non-urban hospitals in 14 states with a total of 2,985
licensed beds. These services are provided for a fixed monthly fee under three
to seven-year contracts. Brim Healthcare, Inc. generally provides a chief
executive officer, who is an employee of Brim Healthcare, Inc., and also may
provide a chief financial officer. Brim Healthcare, Inc. typically does not
employ other hospital personnel. Management services typically are limited to
strategic planning,
operational consulting and assistance with Joint Commission on
Accreditation of Healthcare Organizations accreditation and compliance. To
further promote compliance, Brim Healthcare, Inc. requires that each of the
hospitals that it manages have a compliance officer. In addition, to assist
hospitals and community healthcare, Brim Healthcare, Inc. sometimes establishes
regional provider networks. This subsidiary represented 2.1% of
revenues from continuing operations for the year ended December 31, 2003 and
2.2% of revenues from continuing operations for the year ended December
31, 2002.

Competition

The primary bases of competition among hospitals in non-urban markets are
the quality and scope of medical services, strength of referral network,
location, and, to a lesser extent, price. With respect to the delivery of
general acute hospital services, most of our hospitals face less competition in
their immediate patient service areas than would be expected in larger
communities. While our hospitals are generally the primary provider of
healthcare services in their respective communities, our hospitals face
competition from larger tertiary care centers and, in some cases, other
non-urban hospitals and full service outpatient surgery centers. Some of the
hospitals that compete with us are owned by governmental agencies or
not-for-profit entities supported by endowments and charitable contributions,
and can finance capital expenditures on a tax-exempt basis.

One of the most significant factors in the competitive position of a
hospital is the number and quality of physicians affiliated with the hospital.
Although physicians may at any time terminate their affiliation with a hospital
that we operate, our hospitals seek to retain physicians of varied specialties
on the hospitals medical staffs and to recruit other qualified physicians
through our in-house recruiting department overseen by our Vice President of
Medical Staff Development and his staff. We believe the key reasons physicians refer patients
to a hospital are the quality of services it renders to
patients and physicians, the quality of other physicians on the medical staff,
the location of the hospital and the quality of the hospitals facilities,
equipment and employees. Accordingly, we strive to maintain high ethical and
professional standards and quality facilities, equipment, employees and
services for physicians and their patients.

Another factor in the competitive position of a hospital is the
managements ability to negotiate service contracts with purchasers of group
healthcare services. Health maintenance organizations and preferred provider
organizations attempt to direct and control the use of hospital services
through managed care programs and to obtain discounts from hospitals
established charges. In addition, employers and traditional health insurers
increasingly are interested in containing costs through negotiations with
hospitals for managed care programs and discounts from established charges.
Generally, hospitals compete on the basis of market reputation, geographic
location, quality and range of services, quality of the medical staff,
convenience and price for service contracts with group healthcare service
purchasers. The importance of obtaining contracts with managed care
organizations varies from market to market, depending on the market strength of
such organizations. Managed care contracts generally are less important in the
non-urban markets served by us than they are in urban and suburban markets
where there is typically a higher level of managed care penetration.

State certificate of need laws, which place limitations on a hospitals
ability to expand hospital services and add new equipment, also may have the
effect of restricting competition. Five states in which we operate, Alabama,
Florida, Mississippi, Nevada and Virginia currently have certificate of need
laws. The application process for approval of covered services, facilities,
changes in operations and capital expenditures is, therefore, highly
competitive. In those states that have no certificate of need laws or that set
relatively high thresholds before expenditures become reviewable by state
authorities, competition in the form of new services, facilities and capital
spending may be more prevalent. We have not experienced, and do not expect to
experience, any material adverse

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effects from state certificate of need
requirements or from the imposition, elimination or relaxation of such
requirements. SeeItem 1. Business - Healthcare Regulation and Licensing.

We, and the healthcare industry as a whole, face the challenge of
continuing to provide quality patient care while dealing with rising costs,
strong competition for patients and a slow growth in reimbursement rates
by both private and government payors. As both private and government payors
reduce the scope of what may be reimbursed and reduce reimbursement levels for
what is covered, federal and state efforts to reform the healthcare system may
further impact reimbursement rates. Changes in medical technology, existing and
future legislation,
regulations and interpretations and competitive contracting for provider
services by private and government payors may require changes in our
facilities, equipment, personnel, rates and/or services in the future.

The hospital industry and some of our hospitals continue to have
significant unused capacity. Inpatient utilization, average lengths of stay and
average inpatient occupancy rates continue to be negatively affected by
payor-required pre-admission authorization, utilization review, and payment
mechanisms to maximize outpatient and alternative healthcare delivery services
for less acutely ill patients. Admissions constraints, payor pressures and
increased competition are expected to continue. We will endeavor to meet these
challenges by expanding our facilities outpatient services, offering
appropriate discounts to private payor groups, upgrading facilities and
equipment, and offering new programs and services.

We also face competition for acquisitions primarily from for-profit
hospital management companies as well as not-for-profit entities. Some of our
competitors have greater financial and other resources than us. Increased
competition for the acquisition of non-urban acute care hospitals could have an
adverse impact on our ability to acquire such hospitals on favorable terms.

Properties

In
addition to real estate associated with our
  owned and leased hospitals, we lease approximately 43,508 square feet of office
  space for our corporate headquarters in Brentwood, Tennessee under a ten-year
  lease that expires on December 31, 2013 and contains customary terms and
  conditions. *See* Item 1. Business - Owned and Leased Hospitals.

Employees and Medical Staff

As of March 1,
  2004, we had 5,848 full-time equivalent employees, including 86
  corporate personnel and 81 management company personnel. The remaining employees,
  most of whom are nurses and office personnel, work at the hospitals. We consider
  relations with our employees to be good. Approximately 5.9% of our employees
  are represented by unions.

We typically do not employ physicians; however, as of March 1, 2004, we
employed 17 practicing physicians. Certain of our hospital services, including
emergency room coverage, radiology, pathology and anesthesiology services, are
provided through independent contractor arrangements with physicians.

Environmental Matters

We are
subject to various federal, state and local statutes and ordinances
regulating the discharge of materials into the environment. Our healthcare
operations generate medical waste, such as pharmaceuticals, biological
materials and disposable medical instruments, that must be disposed of in
compliance with federal, state and local environmental laws, rules and
regulations. Our operations, as well as our purchases and sales of facilities,
also are subject to various other environmental laws, rules and regulations.
We do not expect that we will be required to expend any material amounts in
order to comply with these laws and regulations or that compliance will
materially affect our capital expenditures, earnings or competitive position.
Environmental regulations also may apply when we renovate or refurbish
hospitals, particularly older facilities. While these requirements may impose
some additional costs for such improvements, we do not expect these amounts to
be material.

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Government Reimbursement

Medicare/Medicaid Reimbursement

For the year ended
  December 31, 2003, approximately 38.5% and 10.3% of our net patient revenue
  from continuing operations resulted from Medicare and Medicaid payments, respectively.
  The Medicare program pays hospitals on a prospective payment system for acute
  inpatient services. Under this prospective payment system, a hospital receives
  a fixed amount for inpatient hospital services based on the patients final
  diagnosis. These payments do not take into consideration a specific hospitals
  costs, but instead are set national rates adjusted for area wage differentials
  and case-mix index. Certain sub-acute inpatient services, which historically
  were reimbursed on a hospital's costs, are currently being converted by Medicare
  to a prospective payment system. Rehabilitation sub-acute services were converted
  to a prospective payment system for cost report periods beginning on or after
  January 1, 2002. This system is similar to the acute inpatient system because
  it pays a rate based on the type of discharge. Skilled nursing sub-acute services
  are paid based on a prospective per diem, which is also tied to the patients
  needs and condition. Psychiatric sub-acute services are also transitioning to
  a prospective payment system. With respect to implementations of the proposed
  prospective payment system for psychiatric services, the Centers for Medicare
  and Medicaid Services is proposing a three-year transition period starting with
  the cost reporting period beginning on or after April 1, 2004. For these
  three years, CMS is proposing a blended payment. The prospective payment for
  this first transition period would consist of 75% based on the current cost-based
  reimbursement system and 25% on the proposed federal prospective payment rate.
  In the second year, the split will be 50% each and in the third year the split
  will be 25% based on the current cost-based system and 75% prospective payment
  system. For cost reporting periods beginning on or after July 1, 2007,
  the prospective payment federal rate percentage will be 100%.

For several years, the percentage increases to the prospective payment
rates have been lower than the percentage increases in the cost of goods and
services purchased by general hospitals. The index used to adjust payment rates
is based on a price proxy, known as the hospital market basket index, reduced
by Congressionally-mandated reduction factors. For fiscal year 2003, the
hospital market basket index was rebased and revised based on 1997 data. Acute
care hospitals received Medicare payment rate increases for inpatient services
based upon the full market basket increase in federal fiscal year 2004. On
December 8, 2003, President Bush signed into law the Medicare Prescription Drug
Improvement and Modernization Act of 2003 (the Medicare Prescription Drug
Act). The Medicare Prescription Drug Act provides for changes in Medicare
reimbursement for hospitals. For example, the Medicare Prescription Drug Act
requires all acute care hospitals to participate in CMSs quality-of-care
National Voluntary Hospital Reporting Initiative in order to receive the full
market basket increase in fiscal year 2005 through 2007. Those acute care
hospitals that fail to participate in CMSs quality-of-care National Voluntary
Reporting Initiative will receive a lesser increase in Medicare reimbursement
equal to the market basket update minus 0.4 percent.

Many of our hospitals receive an add-on to the Medicare DRG payment for
providing care to indigent patients. This add-on is referred to as the
disproportionate share adjustment. Section 402 of the Medicare Prescription
Drug Act increases the cap on the disproportionate share adjustment from 5.25%
to 12% for rural hospitals. This increase in the cap will be effective April
1, 2004. We currently have eight hospitals that will benefit from this change.

Approximately 71% (labor share) of the Medicare DRG payment is adjusted by
the hospitals wage index. The wage index compares the cost of labor in the
hospitals market compared to the national average. For those hospitals with
wage indices over 1.00, the labor share is increased and, for those hospitals
with wage indices under 1.00, the labor share is reduced. Section 403 of the
Medicare DRG bill reduces the labor share to 62% of the DRG payment for those
hospitals with wage indices below 1.00. We currently have fifteen hospitals
that will benefit from this change.

Most outpatient services
  provided by general hospitals are reimbursed by Medicare under the outpatient
  prospective payment system. The Balanced Budget Act of 1997 mandated the implementation
  of the prospective payment system for Medicare outpatient services. This outpatient
  prospective payment system is based on a system of Ambulatory Payment Classifications.
  Each Ambulatory Payment Classification represents a bundle of outpatient services,

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and each Ambulatory
Payment Classification has been assigned a fully prospective reimbursement rate. On
November 7, 2003, the Centers for Medicare and Medicaid Services published the
final rule establishing the calendar year 2004 conversion factor and revisions
to Ambulatory Payment Classifications for hospital outpatient services. The 2004
conversion factor was increased by 3.4%, the full market basket for fiscal year
2004. The Medicare Prescription Drug Act extends for two years special
payments to small rural hospitals with 100 or fewer beds to ensure that they
are paid at least as much under the outpatient prospective payment system as
they had been paid under the prior cost-based system. These special payments
were first authorized by the Balanced Budget Refinement Act of 1999, and were
scheduled to end for services on or after January 1, 2004. Besides extending
the special payments for an additional two-year period, the Medicare
Prescription Drug Act also makes Sole Community Hospitals (regardless of the
number of beds) eligible for the special payments. A Sole Community Hospital is generally the only hospital in at
least a 35-mile radius or a 45-minute driving time radius. Colorado Plains
Medical Center, Colorado River Medical Center, Northeastern Nevada Regional
Hospital, Havasu Regional Medical Center, Teche Regional Medical Center, Palo
Verde Hospital, Parkview Regional Hospital and Los Alamos Medical Center
qualify as Sole Community Hospitals under Medicare regulations.

Medicare has other special payment provisions for Sole Community
Hospitals.  Special payment provisions related to Sole Community Hospitals include the payment of a
hospitals specific rate which may be higher than the Federal DRG payment rate.

Each state has its own Medicaid program that is funded jointly by such
state and the federal government. Federal law governs how each state manages
its Medicaid program, but there is wide latitude for states to customize
Medicaid programs to fit local needs and resources. As a result, each state
Medicaid plan has its own payment formula and recipient eligibility criteria.

Program Adjustments

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

Because
of information technology problems at CMS, prior to May 2002, United
States hospitals were unable to file Medicare cost reports for periods ending on or
after August 1, 2000. Between May 2002 and May 2003, we filed two years of
cost reports for our hospitals based on the timetable developed by CMS.
Between May 2002 and December 2002, we filed 31 cost reports. As of April
2003, we were back to the normal filing dates.

Healthcare Regulation and Licensing

Background Information

Healthcare, as one of the largest industries in the United States,
continues to attract much legislative interest and public attention. Medicare,
Medicaid, and other public and private hospital cost-containment programs,
proposals to limit healthcare spending, and proposals to limit prices and
industry competitive factors are among the many factors that are highly
significant to the healthcare industry. In addition, the healthcare industry is
governed by a framework of federal and state laws, rules and regulations that
are extremely complex and for which the industry has the benefit of only
limited regulatory or judicial interpretation.

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There continue to be federal and state proposals that would, and actions
that do, impose more limitations on government and private payments to
providers such as us. In addition, there are proposals to increase co-payments
and deductibles from program and private patients. Our facilities also are
affected by controls imposed by government and private payors designed to
reduce admissions and lengths of stay. Such controls, including what is
commonly referred to as utilization review, have resulted in a decrease in
certain treatments and procedures being performed.

Many states have enacted, or are considering enacting, measures that are
designed to reduce their Medicaid expenditures and to make changes to private
healthcare insurance. Various states have applied, or are considering applying,
for a federal waiver from current Medicaid regulations to allow them to serve
some of their Medicaid participants through managed care providers. These
proposals also may attempt to include coverage for some people who presently
are uninsured, and generally could have the effect of reducing payments to
hospitals, physicians and other providers for the same level of service
provided under Medicaid.

Certificate of Need Requirements

Some states require approval for purchase, construction and expansion of
healthcare facilities, including findings of need for additional or expanded
healthcare facilities or services. Certificates of need, which are issued by
governmental agencies with jurisdiction over healthcare facilities, are at
times required for capital expenditures exceeding a prescribed amount, changes
in bed capacity or services and certain other matters. Five states in which we
currently own hospitals, Alabama, Florida, Mississippi, Nevada and Virginia,
have certificate of need laws. In addition, we may in the future buy
additional hospitals in states that require certificates of need. We are unable
to predict whether our hospitals will be able to obtain any certificates of
need that may be necessary to accomplish their business objectives in any
jurisdiction where such certificates of need are required.

Anti-Kickback and Self-Referral Regulations

Sections of the Anti-Fraud and Abuse Amendments to the Social Security
Act, commonly known as the anti-kickback statute, prohibit certain business
practices and relationships that might influence the provision and cost of
healthcare services reimbursable under Medicaid or Medicare or other federal
healthcare programs, including the payment or receipt of remuneration for the
referral of patients whose care will be paid for by Medicare or other
government programs. Sanctions for violating the anti-kickback statute include
criminal penalties and civil sanctions, including fines and possible exclusion
from government programs, such as the Medicare and Medicaid programs. Pursuant
to the Medicare and Medicaid Patient and Program Protection Act of 1987, the
U.S. Department of Health and Human Services issued regulations that create
safe harbors under the anti-kickback statute. A given business arrangement that
does not fall within an enumerated safe harbor is not per se illegal; however,
business arrangements that fail to satisfy the applicable safe harbor criteria
risk increased scrutiny by enforcement authorities. The Health Insurance
Portability and Accountability Act of 1996 or HIPAA, which became effective
January 1, 1997, added several new fraud and abuse laws. These new laws cover
all health insurance programs  private as well as governmental. In addition,
HIPAA broadened the scope of certain fraud and abuse laws, such as the
anti-kickback statute, to include not just Medicare and Medicaid services, but
all healthcare services reimbursed under a federal or state healthcare program.

There is increasing scrutiny by law enforcement authorities, the Office of
Inspector General of the Department of Health and Human Services, the courts
and Congress of arrangements between healthcare providers and potential
referral sources to ensure that the arrangements are not designed as a
mechanism to exchange remuneration for patient care referrals and
opportunities. Investigators also have demonstrated a willingness to look
behind the formalities of a business transaction to determine the underlying
purpose of payments between healthcare providers and potential referral
sources. Enforcement actions have increased, as evidenced by recent highly
publicized enforcement investigations of certain hospital activities.

In addition, provisions of the Social Security Act prohibit physicians
from referring Medicare and Medicaid patients to providers of a broad range of
designated health services with which the physicians or their immediate family
members have ownership or certain other financial arrangements. Certain
exceptions are available for

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employment agreements, leases, physician
recruitment and certain other physician arrangements. These provisions are
known as the Stark law and are named for the legislative sponsor, Rep. Fortney
Pete Stark (R-CA). A person making a referral, or seeking payment for
services referred, in violation of the Stark law would be subject to the
following sanctions:



| |  |  | civil money penalties of up to $15,000 for each service;                                                                                                  
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | restitution of any amounts received for illegally billed claims; and/or                                                                                   
|
| |  |  | exclusion from participation in the Medicare program, which
can subject the person or entity to exclusion from participation in
state healthcare programs.

Further, if any physician or entity enters into an arrangement or scheme
that the physician or entity knows or should know has the principal purpose of
assuring referrals by the physician to a particular entity, and the physician
directly makes referrals to such entity, then such physician or entity could be
subject to a civil money penalty of up to $100,000. Many states have adopted
or are considering similar legislative proposals, some of which
extend beyond the Medicaid program, to prohibit the payment or receipt of
remuneration for the referral of patients and physician self-referrals
regardless of the source of the payment for the care.

Federal False Claims Act

The government has shown an increasing willingness in recent years to
bring lawsuits against healthcare providers alleging violations of a variety of
healthcare and non-healthcare laws, including, among others, the federal false
claims act (the False Claims Act) and mail fraud and wire fraud. The False
Claims Act, in particular, has been used with increasing frequency and
creativity. The False Claims Act has qui tam or whistleblower provisions
that allow private individuals to bring actions on behalf of the government
alleging that the defendant has defrauded the government. If the action is
successful, the private individual may recover up to one-third of the
governments recovery. The False Claims Act provides for a penalty of up to
three times the amount of the false claim, plus up to $11,000 for each claim
falsely submitted to the government.

Healthcare Facility Licensing Requirements

Our healthcare facilities are subject to extensive federal, state and
local legislation and regulation. In order to maintain their operating
licenses, healthcare facilities must comply with strict standards concerning
medical care, equipment and hygiene. Various licenses and permits also are
required in order to dispense narcotics, operate pharmacies, handle radioactive
materials and operate certain equipment. Our healthcare facilities hold all
required material governmental approvals, licenses and permits. All licenses, provider
numbers and other permits or approvals required to perform our business
operations are held by our subsidiaries. All of our hospitals are fully
accredited by the Joint Commission on Accreditation of Healthcare
Organizations.

Utilization Review Compliance and Hospital Governance

Our healthcare facilities are subject to and comply with various forms of
utilization review. In addition, under the Medicare prospective payment system,
each state has a Quality Improvement Organization to carry out federally
mandated systems of review of Medicare patient admissions, treatments and
discharges in hospitals. Medical and surgical services and practices also are
supervised extensively by committees of staff doctors at each healthcare
facility, are overseen by each healthcare facilitys local governing board, the
primary voting members of which are physicians and community members, and are
reviewed by our quality assurance personnel. The local governing boards also:



| |  |  | help maintain standards for quality care;                  
| | - |  | -----------------------------------------------------------
|
| |  |  | develop long-range plans;                                  
|
| |  |  | establish, review and enforce practices and procedures; and

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| |  |  | approve the credentials and disciplining of medical staff members.
| | - |  | ------------------------------------------------------------------

Governmental Developments Regarding Sales of Not-For-Profit Hospitals

In recent years, the legislatures and attorneys general of several states
have shown a heightened level of interest in transactions involving the sale of
non-profit hospitals. Although the level of interest varies from state to
state, the trend is to provide for increased governmental review, and in some
cases approval and ongoing oversight, of transactions in which not-for-profit corporations sell a
healthcare facility. Attorneys general in certain states, including California,
have been especially active in evaluating these transactions.

Medical Records Privacy Laws

There are currently numerous laws at the state and federal levels
addressing patient privacy concerns. Federal regulations issued pursuant to
HIPAA contain, among other measures, provisions that require many
organizations, including us, to implement very significant and potentially
expensive new computer systems,
employee training programs and business procedures. The federal
regulations are intended to encourage electronic commerce in the healthcare
industry.

On August 17, 2000, the Department of Health and Human Services finalized
regulations requiring our facilities to use standard data formats and code sets
established by the rule when electronically transmitting information in
connection with several transactions, including health claims and equivalent
encounter information, health care payment and remittance advice and health
claim status. On February 20, 2003, the Department of Health and Human Services
issued final modifications to these regulations. Compliance with these
regulations was required on October 16, 2003. We have implemented or upgraded
computer systems, as appropriate, at our facilities and at our corporate
headquarters to comply with the new transaction and code set regulations and
have tested these systems with several of our payors. Although compliance with
the transaction and code set regulations was required on October 16, 2003, the
Centers for Medicare & Medicaid Services, or CMS, announced on September 23,
2003 that it would implement a contingency plan to accept noncompliant
electronic transactions after the October 16, 2003 deadline. CMS has announced
that it will regularly reassess the readiness of its trading partners to comply
with the regulations in order to determine how long the contingency plan will
remain in effect. Blue Cross/Blue Shield plans in several states have announced
similar contingency plans. Our facilities are currently operating under
contingency plans with several of our payors.

HIPAA requires the Department of Health and Human Services to issue
regulations establishing standard unique health identifiers for individuals,
employers, health plans and health care providers to be used in connection with
the standard electronic transactions.

On May 7, 1998, the Department of Health and Human Services issued a
proposed rule to establish a unique number for healthcare providers that will
be used by health plans. Additionally, on May 31, 2002, the Department of
Health and Human Services issued a final rule that calls for using the Employer
Identification Number (the taxpayer identifying number for employers that is
assigned by the Internal Revenue Service) as the identifying number that will
be used by all health plans. Most health care organizations, including us,
must comply with this final rule by July 30, 2004. Health plans, health care
clearinghouses and providers would use these identifiers, among other uses, in
connection with the electronic transactions standards.

On January 23, 2004, the Department of Health and Human Services published
a final rule that adopted the National Provider Identifier (NPI) as the
standard unique health identifier for healthcare providers. When the NPI is
implemented, healthcare providers, including our facilities, will use only the
NPI to identify themselves in connection with electronic transactions. Legacy
numbers, such as Medicaid numbers, CHAMPUS numbers, and Blue Cross-Blue Shield
numbers, will not be permitted. Healthcare providers will no longer have to
keep track of multiple numbers to identify themselves in the standard
electronic transactions with one or more health plans. The NPI will be a
10-digit all numeric number that will be assigned to eligible healthcare
providers by the National Provider System (NPS), an independent government
contractor. Under the final rule, all healthcare providers may

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begin applying
for NPIs on May 23, 2005 with the NPS. All healthcare providers, including our
facilities, must obtain and start using NPIs in connection with the standard
electronic transactions no later than May 23, 2007.

The Department of Health and Human Services has not yet issued proposed
rules that establish the standard for a national health plan or individual
identifier. Once these regulations are issued in final form, we expect to have
about two years to become fully compliant.

On February 20, 2003, the Department of Health and Human Services
finalized a rule that establishes, in part, standards to protect the
confidentiality, availability and integrity of health information by health
plans, health care clearinghouses and health care providers that receive,
store, maintain or transmit health and related financial information in
electronic form, regardless of format. These security standards require us to
establish and maintain reasonable and appropriate administrative, technical and
physical safeguards to ensure the integrity, confidentiality and the
availability of electronic health and related financial information. The
security standards were designed to protect electronic information against
reasonably anticipated threats or hazards to the security or integrity of the
information and to protect the information against unauthorized use or
disclosure. Although the security standards do not reference or advocate a
specific technology, and covered health care providers, plans and
clearinghouses have the flexibility to choose their own technical solutions, we
expect that the security standards will require us to
implement significant new systems, business procedures and training
programs. We must comply with these security regulations by April 21, 2005.

On December 28, 2000, the Department of Health and Human Services
published a final rule establishing standards for the privacy of individually
identifiable health information. The final rule establishing the privacy
standards became effective on April 14, 2001, with compliance required by April
14, 2003. On August 14, 2002, the Department of Health and Human Services
published final revisions to the privacy rule. The final revisions did not
alter the compliance date of April 14, 2003 for the majority of the
requirements in the privacy regulations. These privacy standards apply to all
health plans, all health care clearinghouses and health care providers that
transmit health information in an electronic form in connection with the
standard transactions. Our facilities are covered entities under the final
rule. The privacy standards apply to individually identifiable information held
or disclosed by a covered entity in any form, whether communicated
electronically, on paper or orally. These standards impose extensive new
administrative requirements on us. They require our compliance with rules
governing the use and disclosure of this health information. They create new
rights for patients in their health information, such as the right to amend
their health information, and they require us to impose these rules, by
contract, on any business associate to whom we disclose such information in
order to perform functions on our behalf. We successfully met the privacy
standard deadline, but compliance is an ongoing process. In addition, our
facilities will continue to remain subject to any state laws that are more
restrictive than the privacy regulations issued under HIPAA. These state laws
vary by state and could impose additional penalties.

A violation of these regulations could result in civil money penalties of
$100 per incident, up to a maximum of $25,000 per person per year per standard.
HIPAA also provides for criminal penalties of up to $50,000 and one year in
prison for knowingly and improperly obtaining or disclosing protected health
information, up to $100,000 and five years in prison for obtaining protected
health information under false pretenses, and up to $250,000 and ten years in
prison for obtaining or disclosing protected health information with the intent
to sell, transfer or use such information for commercial advantage, personal
gain or malicious harm. Because there is no history of enforcement efforts by
the federal government at this time, it is not possible to ascertain the
likelihood of enforcement efforts in connection with the HIPAA regulations or
the potential for fines and penalties which may result from the violation of
the regulations.

We expect that compliance with these standards will require significant
commitment and action by us and our facilities. We have appointed members of
our management team to direct our compliance with these standards.
Implementation will require us to engage in extensive preparation and make
significant expenditures. At this time we have appointed a privacy officer at
each facility, prepared privacy policies, trained our workforce on these
policies and entered into business associate agreements with the appropriate
vendors. Because some of the regulations are proposed regulations, we cannot
predict the total financial impact of the regulations on our operations.

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Emergency Medical Treatment and Active Labor Act

All of our facilities are subject to the Emergency Medical Treatment and
Active Labor Act (EMTALA). This federal law requires any hospital that
participates in the Medicare program to conduct an appropriate medical
screening examination of every person who enters the hospitals emergency
department for treatment and, if the patient is suffering from an emergency
medical condition, to either stabilize that condition or make an appropriate
transfer of the patient to a facility that can handle the condition. The
obligation to screen and stabilize emergency medical conditions exists
regardless of a patients ability to pay for treatment. There are severe
penalties under EMTALA if a hospital fails to screen or appropriately stabilize
or transfer a patient or if the hospital delays appropriate treatment in order
to first inquire about the patients ability to pay. Penalties for violations
of EMTALA include civil monetary penalties and exclusion from participation in
the Medicare program. In addition, an injured patient, the patients family or
a medical facility that suffers a financial loss as a direct result of another
hospitals violation of the law can bring a civil suit against the hospital.

In September of 2003, CMS released final regulations to clarify hospitals
obligations under EMTALA . The final regulations included a new definition of
dedicated emergency department, and clarified that EMTALA does not apply to
inpatients. The final regulations also clarified a hospitals EMTALA
obligations with respect to
hospital owned ambulances, outpatient departments, off-campus
provider-based entities, and other locations within the hospital other than
the dedicated emergency department. The final rule also addressed a hospitals
physician on-call responsibilities. Under the final rule, each hospital must
maintain an on-call list that best meets the needs of its patients, but only in
accordance with the resources available to the hospital. There is no set
formula for on-call obligations in the final rules, and the final rules
recognize that not all hospitals will be able to have every specialist on call
at all times. Hospitals must maintain written procedures to be followed when a
specialist is not on call or a physician is not available due to circumstances
beyond the physicians control. The hospitals written procedures may also
provide for situations in which the on-call physician is performing elective
surgery or on call simultaneously with other facilities. We believe that our
facilities comply with EMTALA.

California Seismic Standards

Californias Alfred E. Alquist Hospital Facilities Seismic
Safety Act (the Alquist Act) requires that the California Building Standards Commission adopt
earthquake performance categories, seismic evaluation procedures, standards and
timeframes for upgrading certain facilities, and seismic retrofit building
standards. These regulations require hospitals to meet seismic performance
standards to ensure that they are capable of providing medical services to the
public after an earthquake or other disaster. The Building Standards Commission
completed its adoption of evaluation criteria and retrofit standards in 1998.

The Alquist Act requires that within three years after the Building
Standards Commission has adopted evaluation criteria and retrofit standards:



| |  |  | certain hospitals must conduct seismic evaluations and submit
these evaluations to the Office of Statewide Health Planning and
Development, Facilities Development Division for its review and
approval;                                                                                                       
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | hospitals must identify the most critical nonstructural
systems that represent the greatest risk of failure during an
earthquake and submit timetables for upgrading these systems to the
Office of Statewide Health Planning and Development, Facilities
Development Division for its review and approval; and
|
| |  |  | regulated hospitals must prepare a plan and compliance
schedule for each regulated building demonstrating the steps a
hospital will take to bring the hospital buildings into substantial
compliance with the regulations and standards.                                                                       

We are required to conduct engineering studies of our two California
facilities to determine whether and to what extent modifications to our
facilities will be required, and have submitted compliance plans for our
California facilities with the State of California. Any facilities not
currently in compliance with the applicable seismic

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regulations and standards
must be brought into compliance by 2008, or 2013 if the facility obtains an
extension. We may be required to make significant capital expenditures to
comply with the seismic standards, which could impact our earnings.

Professional Liability

As part of our business, we are subject to claims of liability for events
occurring in the ordinary course of hospital operations. To cover these
claims, we maintain professional malpractice liability insurance and general
liability insurance coverage of approximately $50,000,000, although some claims
may exceed the scope of the coverage in effect. We have purchased a tail
policy that provides an unlimited claim reporting period for our professional
liability for claims incurred  in 2000 and prior years.  We also maintain a
claims-made policy and have provided an actuarial-based accrual for incurred
but not reported claims. Recently, the cost of malpractice and other liability
insurance has risen significantly. Therefore, adequate levels of insurance may
not continue to be available at a reasonable price.

Through our typical hospital management contract, we attempt to protect
ourselves from such liability by requiring the hospital to maintain certain
specified limits of insurance coverage, including professional liability,
comprehensive general liability, workers compensation and fidelity insurance,
and by requiring the hospital to
name Brim Healthcare, Inc., our hospital management subsidiary, as an
additional insured party on the hospitals professional and comprehensive
general liability policies. We also maintain certain contingent liability
policies designed to cover contingent exposure Brim Healthcare, Inc. could
incur under such management contracts. Our management contracts generally
provide that we be indemnified by the hospital against claims that arise out
of hospital operations. However, there can be no assurance that the hospitals will
maintain such insurance or that such indemnities will be available.

Available Information

We make available free of charge through our Internet website
(http://www.provincehealthcare.com) our annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and, if applicable,
amendments to those reports filed or furnished pursuant to Section 13(a) of
the Exchange Act of 1934 as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the Securities and
Exchange Commission. However, the information found on our website is not part
of this or any other report.

Principal Risk Factors That May Affect Our Business and Results of Operations

If government programs reduce the payments we receive as reimbursement for our
services, our revenues may decline.

The Medicare and Medicaid programs are highly regulated and subject to
frequent and substantial changes. The Federal Balanced Budget Act of 1997,
which established a plan to balance the federal budget by fiscal year 2002,
included significant reductions in spending levels for the Medicare and
Medicaid programs, including:



| |  |  | payment reductions for inpatient and outpatient hospital
services;                                                                                                               
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | establishment of a prospective payment system for hospital
outpatient services, skilled nursing facilities and home health
agencies under Medicare; and                          
|
| |  |  | repeal of the federal payment standard often referred to as
the Boren Amendment for hospitals and nursing facilities, which
could result in lower Medicaid reimbursement rates.

The financial impact of the Federal Balanced Budget Act of 1997, however,
has been lessened somewhat by the Medicare, Medicaid, and SCHIP Benefits
Improvement and Protection Act of 2000, although significant revisions in how
hospitals are paid for some services are still proceeding. We cannot predict
the impact of future legislative and regulatory actions which might be taken to
reduce Medicare and Medicaid payment levels.

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In the future, Congress and state legislatures could introduce proposals
to make major changes in the healthcare system. If these proposals are enacted,
we may see a decline in the Medicare and Medicaid reimbursements we receive for
our services; however, at this time, we do not know what healthcare reform
legislation will be enacted or whether any changes in healthcare programs will
occur.

The healthcare cost containment initiatives and the financial condition of
purchasers of healthcare services may limit our revenue and profitability.

During the past several years, major purchasers of healthcare, such as
federal and state governments, insurance companies and employers, have
undertaken initiatives to revise payment methodologies and monitor healthcare
costs. As part of their efforts to contain healthcare costs, purchasers
increasingly are demanding discounted fee structures or the assumption by
healthcare providers of all or a portion of the financial risk through prepaid
capitation arrangements. We expect efforts to impose reduced allowances,
greater discounts and more stringent cost controls by government and other
payors to continue. In addition, we anticipate that organizations offering
prepaid and discounted medical services packages may represent an increasing
portion of our patient admissions. An increasing number of managed care
organizations have experienced financial difficulties in recent years, in some
cases resulting in bankruptcy or insolvency. In some instances, organizations
with provider agreements with certain of our hospitals have become insolvent,
and the hospitals have been unable to collect the full amounts due from such
organizations. Other managed care organizations with whom we do business may
encounter similar difficulties in paying claims in the future. We believe
that reductions in the payments we receive for our services, coupled with the
increased percentage of patient admissions from organizations offering prepaid
and discounted medical services and difficulty in collecting receivables from
managed care organizations, could reduce our overall revenue and profitability.

If we fail to comply with regulations regarding licenses, ownership and
operation, we could impair our ability to operate or expand our operations in
any state.

All of the states in which we operate require hospitals and most
healthcare facilities to maintain a license. In addition, some states require
prior approval for the purchase, construction and expansion of healthcare
facilities, based upon a states determination of need for additional or
expanded healthcare facilities or services. Such determinations, embodied in
certificates of need issued by governmental agencies with jurisdiction over
healthcare facilities, may be required for capital expenditures exceeding a
prescribed amount, changes in bed capacity or services and other matters. Five
states in which we currently own hospitals, Alabama, Florida, Mississippi,
Nevada and Virginia, have certificate of need laws. The failure to obtain any
required certificate of need or the failure to maintain a required license
could impair our ability to operate or expand operations in any state.

We are subject to extensive governmental regulation regarding conduct of our
operations and our relationships with physicians. If we fail to comply with
these regulations, we could suffer penalties or be required to make significant
changes to our operations.

The healthcare industry must comply with many laws and regulations at
federal, state and local governmental levels. These laws and regulations are
extremely complex and, in many instances, the industry does not have the
benefit of significant regulatory or judicial interpretation. In particular,
Medicare and Medicaid anti-fraud and abuse provisions, known as the
anti-kickback statute, prohibit some business practices and relationships
related to items or services reimbursable under Medicare, Medicaid and other
federal healthcare programs. For instance, the anti-kickback statute prohibits
healthcare service providers from paying or receiving remuneration to induce or
arrange for the referral of patients or items or services covered by a federal
or state healthcare program. If regulatory authorities determine that any of
our hospitals arrangements violate the anti-kickback statute, we could be
subject to liabilities under the Social Security Act, including:



| |  |  | criminal penalties;             
| | - |  | --------------------------------
|
| |  |  | civil monetary penalties; and/or

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| |  |  | exclusion from participation in Medicare, Medicaid or other
federal healthcare programs, any of which could impair our ability
to operate one or more of our hospitals or to operate profitably.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

There are currently numerous legislative and regulatory initiatives at the
federal and state levels addressing patient privacy and security concerns. In
particular, federal regulations issued under the Health Insurance Portability
and Accountability Act of 1996 contain provisions that have required, and in
the future may require us to implement costly new computer systems and to adopt
business procedures designed to protect the privacy and security of each of our
patients individually identifiable health and related financial information.
Compliance with the privacy regulations was required on April 14, 2003 for most
health care organizations, including us. The privacy regulations are expected
to have a financial impact on the health care industry because they impose
extensive new administrative requirements, restrictions on the use and
disclosure of individually identifiable patient health and related financial
information, provide patients with new rights with respect to their health
information and require us to enter into contracts extending many of the
privacy regulation requirements to third parties who perform functions on our
behalf involving health information. On February 20, 2003, the Department of
Health and Human Services issued final security regulations. Compliance with
these security regulations is required by April 21, 2005 for most health care
organizations, including us. These security regulations require us to
implement administrative, physical and technical safeguards to protect the
integrity, confidentiality and availability of electronically received,
maintained or transmitted patient individually identifiable health and related
financial information. We cannot predict the total financial or other impact
of these regulations on our business. Compliance with these regulations
requires substantial expenditures, which could negatively impact our financial
results. In addition, our management has spent, and may spend in the future,
substantial time and effort on compliance measures.

On August 17, 2000, the Department of Health and Human Services issued
regulations requiring most health care organizations, including us, to use
standard data formats and code sets by October 16, 2003 when electronically
transmitting information in connection with several types of transactions,
including health claims, health care payment and remittance advice and health
claim status transactions.

Violations of the privacy, security and transaction regulations could
subject us to civil penalties of up to $25,000 per calendar year for each
provision contained in the privacy, security and transaction regulations that
is violated and criminal penalties of up to $250,000 per violation for certain
other violations. Because there is no history of enforcement efforts by the
federal government at this time, it is not possible to ascertain the likelihood
of enforcement efforts in connection with these regulations or the potential
for fines and penalties which may result from the violation of the regulations.
We met the privacy standard compliance deadline, but compliance will be an
ongoing process. We are in the process of complying with the transaction
standard and the security standard.

In addition, the portion of the Social Security Act commonly known as the
Stark law prohibits physicians from referring Medicare or Medicaid patients
to particular providers of designated health services if the physician or a
member of the physicians immediate family has an ownership interest or
compensation arrangement with that provider. Sanctions for violating the Stark
law include civil money penalties and possible exclusion from the Medicare
program. Many states have adopted or are considering similar anti-kickback and
physician self-referral legislation. Some of the state physician self-referral
laws are more restrictive than the Stark law, in that they apply to services
reimbursed by all payors, not just by Medicaid or other government payors.

Moreover, the federal government has shown an increasing willingness to
prosecute providers under a variety of fraud laws, including laws that have not
traditionally been used for healthcare fraud, such as the federal civil false
claims law and the federal mail and wire fraud laws.

There are heightened coordinated civil and criminal enforcement efforts by
federal and state government agencies relating to the healthcare industry. We
may become the subject of an investigation in the future.

In recent years, the media and public attention have focused on the
hospital industry due to ongoing investigations related to:



| |  |  | referral, cost reporting and billing practices;
| | - |  | -----------------------------------------------

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| |  |  | laboratory and home healthcare services; and               
| | - |  | -----------------------------------------------------------
|
| |  |  | physician ownership and joint ventures involving hospitals.

Both federal and state government agencies have announced heightened and
coordinated civil and criminal enforcement efforts. In addition, the Office of
the Inspector General of the U.S. Department of Health and Human Services and
the Department of Justice have established enforcement initiatives that focus
on specific billing practices or other suspected areas of abuse. Recent
initiatives include a focus on hospital billing for outpatient charges
associated with inpatient services, as well as hospital laboratory billing
practices.

We cannot predict with accuracy whether we or other hospital operators
will be the subject of future investigations or inquiries. In the event that we
become the subject of an investigation, we will be required to devote
management and financial resources to defending our company in the
investigation. In addition, any negative publicity surrounding the
investigation could affect adversely the trading price of our securities. If we
incur significant fines or penalties or are forced to reimburse amounts as a
result of the investigation, our profitability may decline.

We may need to obtain additional financing in order to fund our acquisition
program and capital expenditures, and additional financing may not be available
when needed.

Our acquisition program requires substantial capital resources. Likewise,
the operations of our existing hospitals require ongoing capital expenditures
for renovation, expansion and the addition of medical equipment and technology
utilized in the hospitals.

For example,if specified operating targets are achieved, we have agreed
to build replacement facilities for Eunice Community Medical Center, expected
to cost approximately $25.3 million.

We may need to incur additional indebtedness and may issue, from time to
time, debt or equity securities to fund these expenditures. We may not receive
financing on satisfactory terms. In addition, our existing level of
indebtedness may restrict our ability to borrow additional funds. If we are not
able to obtain financing, then we may not be in a position to consummate
acquisitions or undertake capital expenditures.

Our growth strategy depends on acquisitions, and we may not be able to manage
our growth effectively or acquire hospitals that meet our target criteria. We
also may have difficulties acquiring hospitals from non-profit entities due to
regulatory scrutiny.

A key element of our growth strategy is expansion through the acquisition
of acute care hospitals in attractive non-urban markets. We face competition
for acquisitions primarily from other for-profit healthcare companies. Some of
our competitors have greater financial and other resources than we do. Even
though we may acquire additional hospitals, we may not be able to acquire a
sufficient number of hospitals that meet our target criteria in order to
implement successfully our growth strategy.

Hospital acquisitions generally require a longer period to complete than
acquisitions in many other businesses and are subject to additional regulatory
uncertainty. In recent years, the legislatures and attorneys general of some
states have shown a heightened level of interest in transactions involving the
sale of hospitals by not-for-profit entities. Although the level of interest
varies from state to state, the trend is to provide for increased governmental
review, and in some cases approval and ongoing oversight, of transactions in which not-for-profit
entities sell a healthcare facility. Attorneys general in some states have been
especially active in evaluating these transactions. Although we have not yet
been adversely affected as a result of these trends, such increased scrutiny
may increase the difficulty or prevent the completion of transactions with
not-for-profit organizations in some states in the future, and may affect our
ability to exercise existing purchase options for hospitals under current
hospital lease agreements.

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We have a concentration of revenue in Texas and Arizona, which makes us
particularly sensitive to regulatory and economic changes in those states.

Palestine Regional Medical Center, Ennis Regional Medical Center and
Parkview Regional Medical Center, each located in Texas, collectively accounted
for 16.6% of our net patient revenue from continuing operations for the year
ended December 31, 2003. This concentration makes us particularly sensitive to
economic, competitive and regulatory conditions in Texas. Any adverse change in
these conditions could reduce significantly our revenues and profitability.

We also own Havasu Regional Medical Center in Lake Havasu City, Arizona,
which accounted for approximately 11.1% of our net patient revenue from
continuing operations for the year ended December 31, 2003. Similarly, this
concentration of revenue in Arizona makes us particularly sensitive to
economic, competitive and regulatory conditions in Arizona. Any adverse change
in these conditions could reduce significantly our revenues and profitability.

Our California hospitals must comply with California seismic standards which
may require us to make significant capital expenditures.

California has a statute and regulations that require hospitals to meet
seismic performance standards. Regulated hospitals that do not meet the
standards may be required to retrofit facilities. California law requires that
owners of regulated hospitals evaluate their facilities and develop a plan and
schedule for complying with the standards. We are required to conduct
engineering studies of our two California facilities to determine whether and
to what extent modifications to our facilities will be required. We have
submitted compliance plans for our California facilities. Any facilities not
currently in compliance with the seismic regulations and standards must be
brought into compliance by 2008, or 2013 if the facility obtains an extension.
In the event that our two California facilities are found not to be in
compliance with the seismic standards, we may be required to make significant
capital expenditures to bring the California facilities into compliance, which
could impact our earnings.

Our performance depends on our ability to recruit and retain quality
physicians, nurses and other healthcare professionals at our hospitals.

The success of our owned or leased hospitals depends on:



| |  |  | the number and quality of the physicians on the medical staff
of, or who admit patients to, our hospitals;
| | - |  | ----------------------------------------------------------------------------------------------------------
|
| |  |  | the admissions practices of those physicians; and                                                         
|
| |  |  | the maintenance of good relations between our company and such physicians.                                

Our success has been dependent, in part, upon recruiting quality physicians and
maintaining good relations with and retaining our physicians because
physicians direct admissions to our hospitals and determine the
services to be provided to patients at our hospitals. We generally do
not employ physicians, and many of our staff physicians have admitting
privileges at other hospitals. Only a portion of physicians are interested in
practicing in the non-urban communities in which our hospitals are located. The
departure of physicians from these communities, such as we experienced in 2002,
or our inability to recruit physicians to these communities, could make it more
difficult to attract patients to our hospitals and could affect our
profitability. Also, if we are unable to maintain good relationships with
physicians, our hospitals admissions may decrease and our operating
performance may decline. In addition, hospitals nationwide are experiencing a
shortage of nursing professionals, a trend which many industry observers expect
to continue over the next decade. If the supply of qualified nurses or other
healthcare professionals declines in the markets in which our hospitals
operate, it may result in increased labor expenses and lower operating margins
at those hospitals.

We depend heavily on key personnel, and loss of the services of one or more of
our key executives or a significant portion of our local management personnel
could weaken our management team and our ability to deliver healthcare services
efficiently.

Our success largely depends on the skills, experience and efforts of our
senior management team and on the efforts, ability and experience of key
members of our local management staff. The loss of services of one or more

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members of our senior management or of a significant portion of any of our
local management staff could weaken significantly our management expertise and
our ability to deliver healthcare services efficiently. We do not maintain key
man life insurance policies on any of our officers.

Other hospitals and freestanding outpatient facilities provide services similar
to those offered by our hospitals, which may raise the level of competition
faced by our hospitals.

In all geographic areas in which we operate, there are other healthcare
providers, including hospitals, outpatient surgery centers and other outpatient
facilities, that provide comparable services to those offered by our hospitals.
Some of the hospitals with which we compete are owned by governmental agencies
and supported by tax revenues, and others are owned by not-for-profit
corporations and may be supported to a large extent by endowments and
charitable contributions. Some of these competitors are larger, may be more
established and may have more capital and other resources than we do. Many of
our hospitals attempt to attract patients from surrounding counties and
communities, including communities in which a competing facility exists. If our
competitors are able to finance capital improvements and expand services at
their facilities, we may be unable to attract patients away from these
facilities.

If we fail to improve the operations of acquired hospitals, we may be unable to
achieve our growth strategy.

Some of the hospitals we have acquired or will acquire had or may have
operating losses prior to the time we acquired them. We may be unable to
operate profitably any hospital or other facility we acquire, effectively
integrate the operations of any acquisitions, or otherwise achieve the intended
benefit of our growth strategy.

We may be subject to liabilities because of claims brought against our owned
and leased hospitals. In addition, if we acquire hospitals with unknown or
contingent liabilities, we could become liable for material obligations.

In recent years, plaintiffs have brought actions against hospitals and
other healthcare providers, alleging malpractice, product liability or other
legal theories. Many of these actions involved large claims and significant
defense costs. We maintain professional malpractice liability and general
liability insurance coverage of approximately $50,000,000 to cover claims
arising out of the operations of our owned and leased hospitals. Some of the
claims, however, could exceed the scope of the coverage in effect or coverage
of particular claims could be denied. While our professional and other
liability insurance has been adequate in the past to provide for liability
claims, such insurance may not be available for us to maintain adequate levels
of insurance. Moreover, healthcare providers in our industry are experiencing
significant increase in the premiums for malpractice insurance, and it is
anticipated that such costs may continue to rise. Malpractice insurance
coverage may not continue to be available at a cost allowing us to maintain
adequate levels of insurance with acceptable deductible amounts.

In addition, hospitals that we acquire may have unknown or contingent
liabilities, including liabilities for failure to comply with healthcare laws
and regulations. Although we obtain contractual indemnification from sellers
covering these matters, such indemnification may be insufficient to cover
material claims or liabilities for past activities of acquired hospitals.

We may be subject to liabilities because of claims arising from our hospital
management activities.

We may be subject to liabilities from the acts, omissions and liabilities
of the employees of hospitals we manage or from the actions of our employees in
connection with the management of such hospitals. Our hospital management
contracts generally require the hospitals we manage to indemnify us against
certain claims and to maintain specified amounts of insurance. The hospitals,
however, may not maintain such insurance and indemnification may not be
available to us. Recently, other hospital management companies have been
subject to complaints alleging that these companies violated laws on behalf of
hospitals they managed. In some cases, plaintiffs brought actions against the
managing company instead of, or in addition to, their individually managed
hospital clients for these violations. Our managed hospitals or other third
parties may not hold us harmless for any losses we incur arising out of the
acts, omissions and liabilities of the employees of the hospitals we manage. If
the

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courts determine that we are liable for amounts exceeding the limits of any
insurance coverage or for claims outside the scope of that coverage or any
indemnity, or if any indemnity agreement is determined to be unenforceable,
then the resulting liability could affect adversely our business, results of
operations and financial condition.




ITEM 2. PROPERTIES

Information with respect to our hospital facilities and other properties
can be found in Item 1 of this report under the captions, Business  Owned and
Leased Hospitals, and Business  Properties.




ITEM 3. LEGAL PROCEEDINGS

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




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

None.

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PART II




ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Prior to June 5, 2002, our common stock was quoted on the Nasdaq National
Market under the symbol PRHC. On and subsequent to June 5, 2002, our common
stock has been listed on the New York Stock Exchange under the symbol PRV.
The following table sets forth the high and low sale prices for our common
stock as reported by the Nasdaq National Market and New York Stock Exchange, as
applicable, for the periods indicated. The prices have been restated to
reflect the effect of the three-for-two stock split effected in the form of a
50% stock dividend on April 30, 2002.

|               |  |      |       |     |  |   |       | 
|-------------- |  | ---- | ----- | --- |  | - | ----- | 
|               |  | High |       | Low
|               |  |      |       |    
|2003           |  |      |       |     |  |   |       | 
|First Quarter  |  | $    | 10.00 |     |  | $ | 5.29  | 
|Second Quarter |  |      | 11.16 |     |  |   | 7.30  | 
|Third Quarter  |  |      | 14.82 |     |  |   | 10.60 | 
|Fourth Quarter |  |      | 16.14 |     |  |   | 10.39 | 
|2002           |  |      |       |     |  |   |       | 
|First Quarter  |  | $    | 24.33 |     |  | $ | 18.19 | 
|Second Quarter |  |      | 26.76 |     |  |   | 22.36 | 
|Third Quarter  |  |      | 22.40 |     |  |   | 15.55 | 
|Fourth Quarter |  |      | 19.11 |     |  |   | 9.19  | 

As of March 1,
  2004, there were approximately 48,718,856 shares of our common stock outstanding,
  held by 879 record holders.

We historically have
  retained and currently intend to retain all earnings to finance the development
  and expansion of our operations and, therefore, do not anticipate paying cash
  dividends or making any other distributions on our shares of common stock in
  the foreseeable future. Furthermore, our senior credit facility and the indenture
  for our 71⁄2% Senior Subordinated Notes contain restrictions on our ability
  to pay dividends. Our future dividend policy will be determined by our board
  of directors on the basis of various factors, including our results of operations,
  financial condition, business opportunities, capital requirements, restrictive
  covenants in our financing documents and such other factors as the board of
  directors may deem relevant.




ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data is qualified by, and should be
read in conjunction with, Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations and our consolidated financial
statements and related notes, appearing elsewhere in this report.

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|                                          |                                                  |                                                  |   |           |                         |   |      |         |                                       |  |      |         |       |   |   |         |       |   |   |         |      |  | 
|----------------------------------------- | ------------------------------------------------ | ------------------------------------------------ | - | --------- | ----------------------- | - | ---- | ------- | ------------------------------------- |  | ---- | ------- | ----- | - | - | ------- | ----- | - | - | ------- | ---- |  | 
|                                          |                                                  |                                                  |   |           | Year Ended December 31,
|                                          |                                                  |                                                  |   |           |                        
|                                          |                                                  |                                                  |   |           | 2003                    |   | 2002 |         | 2001                                  |  | 2000 |         | 1999 
|                                          |                                                  |                                                  |   |           |                         |   |      |         |                                       |  |      |         |      
|                                          |                                                  |                                                  |   |           |                         |   |      |         | (In thousands, except per share data) |  |      |         |      
|Income Statement Data(1):                 |                                                  |                                                  |   |           |                         |   |      |         |                                       |  |      |         |       |   |   |         |       |   |   |        
|                                          | Revenue
          from continuing operations     |                                                  | $ | 761,978   |                         |   | $    | 673,233 |                                       |  | $    | 502,087 |       |   | $ | 443,523 |       |   | $ | 322,504 |     
|                                          | Income from continuing operations, net of
tax(2) |                                                  |   | 42,688    |                         |   |      | 35,575  |                                       |  |      | 33,051  |       |   |   | 21,962  |       |   |   | 12,483  |     
|                                          | Discontinued operations, net of tax              |                                                  |   | (11,069   | )                       |   |      | 537     |                                       |  |      | (143    | )     |   |   | (2,024  | )     |   |   | 2,018   |     
|                                          | Net
          income (2)                         |                                                  |   | 31,619    |                         |   |      | 36,112  |                                       |  |      | 32,908  |       |   |   | 19,938  |       |   |   | 14,501  |     
|Per Common Share Data (1):                |                                                  |                                                  |   |           |                         |   |      |         |                                       |  |      |         |       |   |   |         |       |   |   |        
|                                          | Basic earnings per share:                        |                                                  |   |           |                         |   |      |         |                                       |  |      |         |       |   |   |         |       |   |   |         |     
|                                          |                                                  | Income from continuing operations, net of
tax(2) |   | $         | 0.88                    |   |      | $       | 0.74                                  |  |      | $       | 0.70  |   |   | $       | 0.51  |   |   | $       | 0.35 | 
|                                          |                                                  | Discontinued operations, net of tax              |   |           | (0.22                   | ) |      |         | 0.01                                  |  |      |         |      |   |   |         | (0.04 | ) |   |         | 0.05 | 
|                                          |                                                  |                                                  |   |           |                         |   |      |         |                                       |  |      |         |       |   |   |         |       |   |   |         |     
|                                          |                                                  | Net
          income (2)                         |   | $         | 0.65                    |   |      | $       | 0.75                                  |  |      | $       | 0.70  |   |   | $       | 0.47  |   |   | $       | 0.40 | 
|                                          | Diluted earnings per share:                      |                                                  |   |           |                         |   |      |         |                                       |  |      |         |       |   |   |         |       |   |   |         |     
|                                          |                                                  | Income from continuing operations, net of tax    |   | $         | 0.86                    |   |      | $       | 0.72                                  |  |      | $       | 0.68  |   |   | $       | 0.49  |   |   | $       | 0.35 | 
|                                          |                                                  | Discontinued operations, net of tax              |   |           | (0.19                   | ) |      |         | 0.01                                  |  |      |         | (0.01 | ) |   |         | (0.04 | ) |   |         | 0.05 | 
|                                          |                                                  |                                                  |   |           |                         |   |      |         |                                       |  |      |         |       |   |   |         |       |   |   |         |     
|                                          |                                                  | Net
          income                             |   | $         | 0.67                    |   |      | $       | 0.73                                  |  |      | $       | 0.67  |   |   | $       | 0.45  |   |   | $       | 0.40 | 
|Balance Sheet Data (at end of period)(1): |                                                  |                                                  |   |           |                         |   |      |         |                                       |  |      |         |       |   |   |         |       |   |   |        
|                                          | Total assets                                     |                                                  | $ | 1,009,125 |                         |   | $    | 972,499 |                                       |  | $    | 760,079 |       |   | $ | 530,852 |       |   | $ | 471,315 |     
|                                          | Long-term debt, less current portion             |                                                  |   | 447,956   |                         |   |      | 460,370 |                                       |  |      | 328,898 |       |   |   | 159,526 |       |   |   | 256,395 |     
|                                          | Stockholders equity                             |                                                  |   | 446,873   |                         |   |      | 413,202 |                                       |  |      | 362,005 |       |   |   | 314,714 |       |   |   | 184,359 |     



---

|(1) |  | On January 5, 2004, we entered into a
      letter of intent to permit the Palm Beach Healthcare District to reacquire
      Glades General Hospital. Management of our company, having the authority,
      approved this plan of divestiture in the fourth quarter of 2003. As required
      by Statement of Financial Accounting Standards No. 144 (SFAS No. 144),
      Accounting for the Impairment or Disposal of Long-Lived Assets, we
      have restated our historical consolidated financial statements to present
      the results of operations of Glades General Hospital separately as a discontinued
      operation.                                                                                                                              
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | The Company adopted Statement of Financial
      Accounting Standards No. 142 (SFAS No. 142), Goodwill
      and Other Intangible Assets, effective January 1, 2002. Under SFAS No. 142,
      goodwill is no longer amortized, but is subject to annual impairment tests,
      or more frequently if certain indicators arise. Had we been accounting
      for its goodwill under SFAS No. 142 for all periods presented, our
      pro forma income from continuing operations would have been
      $36,991, $26,051 and $16,302 for the years ended December 31, 2001,
      2000 and 1999, respectively, and pro forma net income would have been $37,106,
      $24,285, and $18,505 for the years ended December 31, 2001, 2000 and
      1999, respectively.




ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our
consolidated financial statements and related notes, appearing elsewhere in
this report.

Overview

We are a healthcare services company focused on acquiring and operating
hospitals in attractive non-urban markets in the United States. As of December
31, 2003, we owned or leased 20 general acute care hospitals in 13 states with
a total of 2,262 licensed beds, and managed 36 primarily non-urban hospitals in
14 states with a total of 2,985 licensed beds.

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Discontinued Operations

On January 5,
  2004, we signed a letter of intent to permit the Palm Beach Healthcare District
  to reacquire Glades General Hospital in Belle Glade, Florida. This transaction
  is expected to close during the first half of 2004. Pursuant to this plan of
  divestiture, which was approved in 2003, and as required by Statement of Financial
  Accounting Standards No. 144 (SFAS No. 144), Accounting for
  the Impairment or Disposal of Long-Lived Assets, the operations and non-cash impairment
  of assets charge related to this hospital are reported as discontinued
  operations and the consolidated financial statements, statistics and all
  references to such information contained in this section have been adjusted
  to reflect this presentation for all periods. Our remaining 19 hospitals are
  now reported as continuing operations.

Impact of Acquisitions and Divestitures

An integral part of our strategy is to acquire non-urban acute care
hospitals. Because of the financial impact of our 2001 and 2002 acquisitions, it is
difficult to make meaningful comparisons between our financial statements for
the fiscal periods presented. In addition, because of the relatively small
number of owned and leased hospitals, each hospital acquisition can materially
affect our overall operating performance. Upon the acquisition of a hospital,
we typically take a number of steps to lower operating costs. The impact of
such actions may be offset by cost increases to expand services, strengthen
medical staff and improve market position. The benefits of these investments
and of other activities to improve operating margins generally do not occur
immediately. Consequently, the financial performance of a newly-acquired
hospital may adversely affect overall operating margins in the near term. As we
make additional hospital acquisitions, we expect that this effect will be
mitigated by the expanded financial base of existing hospitals and the
allocation of corporate overhead among a larger number of hospitals. We also
may divest certain hospitals in the future if we determine a hospital no longer
fits within our strategy.

Industry Trends

Reimbursement

The federal Medicare program accounted for approximately 38.5%, 45.4% and
39.6% of net patient revenue in 2003, 2002 and 2001, respectively. The state
Medicaid programs accounted for approximately 10.3%, 11.3% and 9.0% of net
patient revenue in 2003, 2002 and 2001, respectively. The payment rates under
the Medicare program for inpatients are prospective, based upon the diagnosis
of a patient. The Medicare payment rate increases historically have been less
than actual inflation.

Both federal and
  state legislatures are continuing to scrutinize the healthcare industry for
  the purpose of reducing healthcare costs. While we are unable to predict what,
  if any, future healthcare-reform legislation may be enacted at the federal or
  state level, we expect continuing pressure to limit expenditures by governmental
  healthcare programs. The Balanced Budget Act of 1997 imposed certain limitations
  on increases in the inpatient Medicare rates paid to acute care hospitals. As
  required by the Balanced Budget Act of 1997, payments for hospital outpatient,
  psychiatric sub-acute, home health and rehabilitation sub-acute services have
  converted to prospective payment systems, instead of payments being based on
  costs. Most hospital outpatient services are now reimbursed under an outpatient
  prospective payment system based on a system of Ambulatory Payment Classifications.
  Rehabilitation sub-acute services transitioned to a prospective payment system
  in 2002. Psychiatric sub-acute services are transitioning to a prospective payment
  system. The Centers for Medicare and Medicaid Services (CMS) is
  proposing a three-year transition period for the implementation of the proposed
  prospective payment system starting with the cost reporting period for psychiatric
  services beginning on or after April 1, 2004.

On December 8, 2003, President Bush signed into law the Medicare
Prescription Drug Improvement and Modernization Act of 2003 (the Medicare
Prescription Drug Act). The Medicare Prescription Drug Act provides for
changes in Medicare reimbursement for hospitals. For example, the Medicare
Prescription Drug Act requires all acute care hospitals to participate in CMSs
quality-of-care National Voluntary Hospital Reporting Initiative in order to
receive the full market basket increase in fiscal year 2005 through 2007.
Those acute care hospitals that fail to participate in CMSs quality-of-care
National Voluntary Reporting Initiative will receive a lesser increase in
Medicare reimbursement equal to the market basket update minus 0.4 percent.

29



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Outpatient Utilization

The hospital industry and some of our hospitals continue to have
significant unused capacity. The result is substantial competition for patients
and physicians. Inpatient utilization continues to be affected negatively by
payor-required pre-admission authorization and by payor pressure to maximize
outpatient and alternative healthcare delivery services for less acutely ill
patients. We expect increased competition and admission constraints to continue
in the future. The ability to respond successfully to these trends, as well as
spending reductions in governmental healthcare programs, will play a
significant role in determining the ability of our hospitals to maintain their
current rate of net revenue growth and operating margins.

We expect the industry trend towards the provision of more services on an
outpatient basis to continue. This trend is the result of increased focus on
managed care and advances in technology.

Billing and Collection

The billing and collection of accounts receivable by hospitals are
complicated by a number of factors, including:



| |  |  | the complexity of the Medicare and Medicaid regulations;                       
| | - |  | -------------------------------------------------------------------------------
|
| |  |  | increases in managed care;                                                     
|
| |  |  | hospital personnel turnover;                                                   
|
| |  |  | the dependence of hospitals on physician documentation of medical records;     
|
| |  |  | an increase in the number of
patients who do not maintain health insurance; and
|
| |  |  | the subjective judgment involved.                                              

These factors, or any combination of them, may impact our ability to bill
and collect our accounts receivable at the rates we have anticipated, which
could negatively affect our future cash flows.

Healthcare providers
  are experiencing an increase in their provision for doubtful accounts relating
  to self-pay accounts receivable. Self-pay revenue refers
  to payment for healthcare services received directly from individual patients,
  either in the form of a deductible or co-payment under a health insurance plan
  or as full or partial payment of the amount charged by the provider or not covered
  by insurance. The current soft economic environment, higher unemployment rates
  and increasing numbers of uninsured patients, combined with higher co-payments
  and deductibles, are placing a greater portion of the financial responsibility
  for healthcare services on the patient rather than insurers. Additionally, many
  of these patients are being admitted through the emergency department and often
  require more costly care, resulting in higher billings. Many of
these accounts
  remain uncollected for extended periods of time, requiring providers to increase
  the amounts reserved as doubtful accounts and ultimately written
  off as uncollectible. Although the trend is national, the ability of providers to collect self-pay accounts varies greatly by geographic markets and demographic
  factors.

Investigations

The federal government and a number of states are 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 we
believe that we are in material compliance with such laws, a determination that
we have violated such laws, or even the public announcement that we were being
investigated concerning possible violations, could have a material adverse
effect on our company.

Our historical financial trend has been impacted favorably by our success
in acquiring acute care hospitals. While we believe that the healthcare
industry trends described above may create future acquisition opportunities,
our future financial growth rates will be impacted by our ability to acquire
hospitals and to successfully integrate them into our system.

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Results of Operations

The following tables present, for the periods indicated, the results of
operations of our company and its subsidiaries. Such information has been
derived from our consolidated statements of income included elsewhere in this
report. The results of operations for the periods presented include hospitals
from their respective dates of acquisition.

|                                                                              |                                                |                                           |         |                                                       |       |          |       |        |  |          |         |                 |      |      |       |          |  |  |       |    |  | 
|----------------------------------------------------------------------------- | ---------------------------------------------- | ----------------------------------------- | ------- | ----------------------------------------------------- | ----- | -------- | ----- | ------ |  | -------- | ------- | --------------- | ---- | ---- | ----- | -------- |  |  | ----- | -- |  | 
|                                                                              |                                                |                                           |         | Year Ended December
        31,                      
|                                                                              |                                                |                                           |         |                                                      
|                                                                              |                                                |                                           |         | 2003                                                  |       | 2002     |       |        |  |         
|                                                                              |                                                |                                           |         |                                                       |       |          |       |        |  |         
|                                                                              |                                                |                                           |         | (dollars in thousands,
        except per share data) |       |          |       |       
|                                                                              |                                                |                                           |         |                                                       |       |          |       | % of   |  |          |         |                 |      | % of |       | % Change
|                                                                              |                                                |                                           |         | Amount                                                |       | Revenues |       | Amount |  | Revenues |         | from prior year
|                                                                              |                                                |                                           |         |                                                       |       |          |       |        |  |          |         |                
|Revenues:                                                                     |                                                |                                           |         |                                                       |       |          |       |        |  |          |         |                 |      |      |       |          |  |  |       |   
|                                                                              | Net
          patient revenue                  |                                           | $       | 735,841                                               |       |          |       |        |  |          | $       | 649,954         |      |      |       |          |  |  |       |    | 
|                                                                              | Other                                          |                                           |         | 26,137                                                |       |          |       |        |  |          |         | 23,279          |      |      |       |          |  |  |       |    | 
|                                                                              |                                                |                                           |         |                                                       |       |          |       |        |  |          |         |                 |      |      |       |          |  |  |       |    |  | 
|                                                                              |                                                |                                           | 761,978 |                                                       |       |          | 100.0 | %      |  |          | 673,233 |                 |      |      | 100.0 | %        |  |  | 13.2  | % 
|Expenses:                                                                     |                                                |                                           |         |                                                       |       |          |       |        |  |          |         |                 |      |      |       |          |  |  |       |   
|                                                                              | Salaries,
          wages and benefits         |                                           |         | 287,466                                               |       |          |       | 37.7   |  |          |         | 266,651         |      |      |       | 39.6     |  |  |       |    | 
|                                                                              | Purchased
          services                   |                                           |         | 69,388                                                |       |          |       | 9.1    |  |          |         | 70,205          |      |      |       | 10.4     |  |  |       |    | 
|                                                                              | Supplies                                       |                                           |         | 95,675                                                |       |          |       | 12.6   |  |          |         | 84,524          |      |      |       | 12.6     |  |  |       |    | 
|                                                                              | Provision
          for doubtful accounts      |                                           |         | 72,678                                                |       |          |       | 9.5    |  |          |         | 53,059          |      |      |       | 7.9      |  |  |       |    | 
|                                                                              | Other
          operating expenses             |                                           |         | 96,568                                                |       |          |       | 12.7   |  |          |         | 77,341          |      |      |       | 11.4     |  |  |       |    | 
|                                                                              | Rentals
          and leases                   |                                           |         | 9,323                                                 |       |          |       | 1.2    |  |          |         | 8,592           |      |      |       | 1.3      |  |  |       |    | 
|                                                                              | Depreciation
          and amortization        |                                           |         | 37,753                                                |       |          |       | 5.0    |  |          |         | 32,313          |      |      |       | 4.8      |  |  |       |    | 
|                                                                              | Interest
          expense                     |                                           |         | 26,262                                                |       |          |       | 3.4    |  |          |         | 21,285          |      |      |       | 3.2      |  |  |       |    | 
|                                                                              | Minority
          interests                   |                                           |         | 260                                                   |       |          |       |       |  |          |         | 34              |      |      |       |         |  |  |       |    | 
|                                                                              | Loss
          (gain) on sale of assets        |                                           |         | 86                                                    |       |          |       |       |  |          |         | (77             | )    |      |       |         |  |  |       |    | 
|                                                                              | Loss
          on early extinguishment of debt |                                           |         | 486                                                   |       |          |       | 0.1    |  |          |         |                |      |      |       |         |  |  |       |    | 
|                                                                              |                                                |                                           |         |                                                       |       |          |       |        |  |          |         |                 |      |      |       |          |  |  |       |   
|                                                                              | Total
          expenses                       |                                           |         | 695,945                                               |       |          |       | 91.3   |  |          |         | 613,927         |      |      |       | 91.2     |  |  |       |    | 
|Income
          from continuing operations before provision for income taxes |                                                |                                           | 66,033  |                                                       |       |          | 8.7   |        |  |          | 59,306  |                 |      |      | 8.8   |          |  |  | 11.3  | % 
|Income
          taxes                                                        |                                                |                                           | 23,345  |                                                       |       |          | 3.1   |        |  |          | 23,731  |                 |      |      | 3.5   |          |  |  |       |   
|                                                                              |                                                |                                           |         |                                                       |       |          |       |        |  |          |         |                 |      |      |       |          |  |  |       |   
|Income
          from continuing operations                                   |                                                |                                           | 42,688  |                                                       |       |          | 5.6   |        |  |          | 35,575  |                 |      |      | 5.3   |          |  |  | 20.0  | % 
|Discontinued
          operations, net of tax:                                |                                                |                                           |         |                                                       |       |          |       |        |  |          |         |                 |      |      |       |          |  |  |       |   
|                                                                              | (Loss)
          earnings from operations      |                                           |         | (2,117                                                | )     |          |       |        |  |          |         | 537             |      |      |       |          |  |  |       |    | 
|                                                                              | Impairment
          of assets                 |                                           |         | (8,952                                                | )     |          |       |        |  |          |         |                |      |      |       |          |  |  |       |    | 
|                                                                              |                                                |                                           |         |                                                       |       |          |       |        |  |          |         |                 |      |      |       |          |  |  |       |   
|Net
          income                                                          |                                                | $                                         | 31,619  |                                                       |       |          |       |        |  | $        | 36,112  |                 |      |      |       |          |  |  | (12.4 | )%
|                                                                              |                                                |                                           |         |                                                       |       |          |       |        |  |          |         |                 |      |      |       |          |  |  |       |   
|Diluted
          earnings (loss) per common share:                           |                                                |                                           |         |                                                       |       |          |       |        |  |          |         |                 |      |      |       |          |  |  |       |   
|                                                                              | Continuing
          operations                |                                           | $       | 0.86                                                  |       |          |       |        |  |          | $       | 0.72            |      |      |       |          |  |  |       |    | 
|                                                                              | Discontinued
          operations:             |                                           |         |                                                       |       |          |       |        |  |          |         |                 |      |      |       |          |  |  |       |    | 
|                                                                              |                                                | (Loss)
          earnings from operations |         |                                                       | (0.04 | )        |       |        |  |          |         |                 | 0.01 |      |       |          |  |  |       |    |  | 
|                                                                              |                                                | Impairment
          of assets            |         |                                                       | (0.15 | )        |       |        |  |          |         |                 |     |      |       |          |  |  |       |    |  | 
|                                                                              |                                                |                                           |         |                                                       |       |          |       |        |  |          |         |                 |      |      |       |          |  |  |       |   
|                                                                              | Net
          income                           |                                           | $       | 0.67                                                  |       |          |       |        |  |          | $       | 0.73            |      |      |       |          |  |  |       |    | 
|                                                                              |                                                |                                           |         |                                                       |       |          |       |        |  |          |         |                 |      |      |       |          |  |  |       |   

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|                                                                              |                                           |                                           |         |                                                       |         |          |       |        |      |          |         |                 |         |      |       |          |      |  |      |   |  | 
|----------------------------------------------------------------------------- | ----------------------------------------- | ----------------------------------------- | ------- | ----------------------------------------------------- | ------- | -------- | ----- | ------ | ---- | -------- | ------- | --------------- | ------- | ---- | ----- | -------- | ---- |  | ---- | - |  | 
|                                                                              |                                           |                                           |         | Year Ended December
        31,                      
|                                                                              |                                           |                                           |         |                                                      
|                                                                              |                                           |                                           |         | 2002                                                  |         | 2001     |       |        |      |         
|                                                                              |                                           |                                           |         |                                                       |         |          |       |        |      |         
|                                                                              |                                           |                                           |         | (dollars in thousands,
        except per share data) |         |          |       |       
|                                                                              |                                           |                                           |         |                                                       |         |          |       | % of   |      |          |         |                 |         | % of |       | % Change
|                                                                              |                                           |                                           |         | Amount                                                |         | Revenues |       | Amount |      | Revenues |         | from prior year
|                                                                              |                                           |                                           |         |                                                       |         |          |       |        |      |          |         |                
|Revenues:                                                                     |                                           |                                           |         |                                                       |         |          |       |        |      |          |         |                 |         |      |       |          |      |  |      |  
|                                                                              | Net
          patient revenue             |                                           | $       | 649,954                                               |         |          |       |        |      |          | $       | 480,627         |         |      |       |          |      |  |      |   | 
|                                                                              | Other                                     |                                           |         | 23,279                                                |         |          |       |        |      |          |         | 21,460          |         |      |       |          |      |  |      |   | 
|                                                                              |                                           |                                           |         |                                                       |         |          |       |        |      |          |         |                 |         |      |       |          |      |  |      |   |  | 
|                                                                              |                                           |                                           | 673,233 |                                                       |         |          | 100.0 | %      |      |          | 502,087 |                 |         |      | 100.0 | %        |      |  | 34.1 | %
|Expenses:                                                                     |                                           |                                           |         |                                                       |         |          |       |        |      |          |         |                 |         |      |       |          |      |  |      |  
|                                                                              | Salaries,
          wages and benefits    |                                           |         | 266,651                                               |         |          |       | 39.6   |      |          |         | 195,261         |         |      |       | 38.9     |      |  |      |   | 
|                                                                              | Purchased
          services              |                                           |         | 70,205                                                |         |          |       | 10.4   |      |          |         | 47,700          |         |      |       | 9.5      |      |  |      |   | 
|                                                                              | Supplies                                  |                                           |         | 84,524                                                |         |          |       | 12.6   |      |          |         | 56,385          |         |      |       | 11.2     |      |  |      |   | 
|                                                                              | Provision
          for doubtful accounts |                                           |         | 53,059                                                |         |          |       | 7.9    |      |          |         | 44,258          |         |      |       | 8.8      |      |  |      |   | 
|                                                                              | Other
          operating expenses        |                                           |         | 77,341                                                |         |          |       | 11.4   |      |          |         | 54,663          |         |      |       | 10.9     |      |  |      |   | 
|                                                                              | Rentals
          and leases              |                                           |         | 8,592                                                 |         |          |       | 1.3    |      |          |         | 7,134           |         |      |       | 1.4      |      |  |      |   | 
|                                                                              | Depreciation
          and amortization   |                                           |         | 32,313                                                |         |          |       | 4.8    |      |          |         | 28,017          |         |      |       | 5.6      |      |  |      |   | 
|                                                                              | Interest
          expense                |                                           |         | 21,285                                                |         |          |       | 3.2    |      |          |         | 11,071          |         |      |       | 2.2      |      |  |      |   | 
|                                                                              | Minority
          interests              |                                           |         | 34                                                    |         |          |       |       |      |          |         | 267             |         |      |       | 0.1      |      |  |      |   | 
|                                                                              | Loss
          (gain) on sale of assets   |                                           |         | (77                                                   | )       |          |       |       |      |          |         | 196             |         |      |       |         |      |  |      |   | 
|                                                                              |                                           |                                           |         |                                                       |         |          |       |        |      |          |         |                 |         |      |       |          |      |  |      |  
|                                                                              |                                           | Total
          expenses                  |         |                                                       | 613,927 |          |       |        | 91.2 |          |         |                 | 444,952 |      |       |          | 88.6 |  |      |   |  | 
|Income
          from continuing operations before provision for income taxes |                                           |                                           | 59,306  |                                                       |         |          | 8.8   |        |      |          | 57,135  |                 |         |      | 11.4  |          |      |  | 3.8  | %
|Income
          taxes                                                        |                                           |                                           | 23,731  |                                                       |         |          | 3.5   |        |      |          | 24,084  |                 |         |      | 4.8   |          |      |  |      |  
|                                                                              |                                           |                                           |         |                                                       |         |          |       |        |      |          |         |                 |         |      |       |          |      |  |      |  
|Income
          from continuing operations                                   |                                           |                                           | 35,575  |                                                       |         |          | 5.3   |        |      |          | 33,051  |                 |         |      | 6.6   |          |      |  | 7.6  | %
|Discontinued
          operations, net of tax:                                |                                           |                                           |         |                                                       |         |          |       |        |      |          |         |                 |         |      |       |          |      |  |      |  
|                                                                              | (Loss)
          earnings from operations |                                           |         | 537                                                   |         |          |       |        |      |          |         | (143            | )       |      |       |          |      |  |      |   | 
|                                                                              | Impairment
          of assets            |                                           |         |                                                      |         |          |       |        |      |          |         |                |         |      |       |          |      |  |      |   | 
|                                                                              |                                           |                                           |         |                                                       |         |          |       |        |      |          |         |                 |         |      |       |          |      |  |      |  
|Net
          income                                                          |                                           | $                                         | 36,112  |                                                       |         |          |       |        |      | $        | 32,908  |                 |         |      |       |          |      |  | 9.7  | %
|                                                                              |                                           |                                           |         |                                                       |         |          |       |        |      |          |         |                 |         |      |       |          |      |  |      |  
|Diluted
          earnings (loss) per common share:                           |                                           |                                           |         |                                                       |         |          |       |        |      |          |         |                 |         |      |       |          |      |  |      |  
|                                                                              | Continuing
          operations           |                                           | $       | 0.72                                                  |         |          |       |        |      |          | $       | 0.68            |         |      |       |          |      |  |      |   | 
|                                                                              | Discontinued
          operations:        |                                           |         |                                                       |         |          |       |        |      |          |         |                 |         |      |       |          |      |  |      |   | 
|                                                                              |                                           | (Loss)
          earnings from operations |         |                                                       | 0.01    |          |       |        |      |          |         |                 | (0.01   | )    |       |          |      |  |      |   |  | 
|                                                                              |                                           | Impairment
          of assets            |         |                                                       |        |          |       |        |      |          |         |                 |        |      |       |          |      |  |      |   |  | 
|                                                                              |                                           |                                           |         |                                                       |         |          |       |        |      |          |         |                 |         |      |       |          |      |  |      |  
|                                                                              | Net
          income                      |                                           | $       | 0.73                                                  |         |          |       |        |      |          | $       | 0.67            |         |      |       |          |      |  |      |   | 
|                                                                              |                                           |                                           |         |                                                       |         |          |       |        |      |          |         |                 |         |      |       |          |      |  |      |  



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The following tables
  present key operating statistics for our owned and leased hospitals (excluding
  discontinued operations) for the periods presented. (1)

|                                                |                                            |            |           |                         |         |      |           |          |         |  |      |      |      |  
|----------------------------------------------- | ------------------------------------------ | ---------- | --------- | ----------------------- | ------- | ---- | --------- | -------- | ------- |  | ---- | ---- | ---- | -
|                                                |                                            |            |           | Year Ended December 31,
|                                                |                                            |            |           |                        
|                                                |                                            |            |           | 2003                    |         | 2002 |           | % Change
|                                                |                                            |            |           |                         |         |      |           |         
|Consolidated Hospitals (Continuing Operations): |                                            |            |           |                         |         |      |           |          |         |  |      |     
|                                                | Number of hospitals at end of period       |            |           | 19                      |         |      |           | 19       |         |  |      |     | %   
|                                                | Licensed beds at end of period (2)         |            |           | 2,189                   |         |      |           | 2,207    |         |  |      | (0.8 | )   
|                                                | Beds in service at end of period           |            |           | 1,933                   |         |      |           | 1,933    |         |  |      |     |     
|                                                | Inpatient admissions (3)                   |            |           | 72,630                  |         |      |           | 69,107   |         |  |      | 5.1  |     
|                                                | Adjusted admissions (4)                    |            |           | 131,557                 |         |      |           | 120,990  |         |  |      | 8.7  |     
|                                                | Net patient revenue per adjusted admission |            | $         | 5,593                   |         |      | $         | 5,372    |         |  |      | 4.1  |     
|                                                | Patient days (5)                           |            |           | 307,195                 |         |      |           | 299,138  |         |  |      | 2.7  |     
|                                                | Adjusted patient days (6)                  |            |           | 556,331                 |         |      |           | 523,307  |         |  |      | 6.3  |     
|                                                | Average length of stay (days) (7)          |            |           | 4.2                     |         |      |           | 4.3      |         |  |      | (2.3 | )   
|                                                | Net patient revenue (in thousands)         |            | $         | 735,841                 |         |      | $         | 649,954  |         |  |      | 13.2 |     
|                                                | Gross patient revenue (in thousands) (8):  |            |           |                         |         |      |           |          |         |  |      |      |     
|                                                |                                            | Inpatient  |           | $                       | 903,740 |      |           | $        | 799,358 |  |      |      | 13.1 | %
|                                                |                                            | Outpatient |           |                         | 732,844 |      |           |          | 599,333 |  |      |      | 22.3 |  
|                                                |                                            |            |           |                         |         |      |           |          |         |  |      |      |     
|Total
          gross patient revenue           |                                            | $          | 1,636,584 |                         |         | $    | 1,398,691 |          |         |  | 17.0 | %   
|                                                |                                            |            |           |                         |         |      |           |          |         |  |      |      |     
|Same Hospitals (Continuing Operations)(9):      |                                            |            |           |                         |         |      |           |          |         |  |      |     
|                                                | Number of hospitals at end of period       |            |           | 19                      |         |      |           | 19       |         |  |      |     | %   
|                                                | Licensed beds at end of period (2)         |            |           | 2,189                   |         |      |           | 2,207    |         |  |      | (0.8 | )   
|                                                | Beds in service at end of period           |            |           | 1,933                   |         |      |           | 1,933    |         |  |      |     |     
|                                                | Inpatient admissions(3)                    |            |           | 68,205                  |         |      |           | 67,694   |         |  |      | 0.8  |     
|                                                | Adjusted admissions (4)                    |            |           | 121,707                 |         |      |           | 118,035  |         |  |      | 3.1  |     
|                                                | Net patient revenue per adjusted admission |            | $         | 5,521                   |         |      | $         | 5,363    |         |  |      | 2.9  |     
|                                                | Patient days (5)                           |            |           | 287,880                 |         |      |           | 293,248  |         |  |      | (1.8 | )   
|                                                | Adjusted patient days (6)                  |            |           | 513,539                 |         |      |           | 510,906  |         |  |      | 0.5  |     
|                                                | Average length of stay (days) (7)          |            |           | 4.2                     |         |      |           | 4.3      |         |  |      | (2.3 | )   
|                                                | Net patient revenue (in thousands)         |            | $         | 671,910                 |         |      | $         | 633,005  |         |  |      | 6.1  |     
|                                                | Gross patient revenue (in thousands)(8):   |            |           |                         |         |      |           |          |         |  |      |      |     
|                                                |                                            | Inpatient  |           | $                       | 857,340 |      |           | $        | 787,050 |  |      |      | 8.9  | %
|                                                |                                            | Outpatient |           |                         | 672,018 |      |           |          | 584,687 |  |      |      | 14.9 |  
|                                                |                                            |            |           |                         |         |      |           |          |         |  |      |      |     
|Total
          gross patient revenue           |                                            | $          | 1,529,358 |                         |         | $    | 1,371,737 |          |         |  | 11.5 | %   
|                                                |                                            |            |           |                         |         |      |           |          |         |  |      |      |     



---

|(1) |  | All statistics have been restated to exclude the ownership and operations
of Glades General Hospital, which is scheduled to be sold in the first
half of 2004.                                                                                                                                                                                                                                                                                                                                                                                         
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Beds for which a hospital has been granted approval to operate from the
applicable state licensing agency.                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|(3) |  | Represents the total number of patients admitted (in a facility for a
period in excess of 23 hours) and used by management and investors as a
general measure of inpatient volume.                                                                                                                                                                                                                                                                                                                                                                     
|   
|(4) |  | Used by management and investors as a general measure of combined
inpatient and outpatient volume. Adjusted admissions are computed by
multiplying admissions (inpatient volume) by the outpatient factor. The
outpatient factor is the sum of gross inpatient revenue and gross
outpatient revenue divided by gross inpatient revenue. The adjusted
admissions computation equates outpatient revenue to the volume measure
(admissions) used to measure inpatient volume, resulting in a general
measure of combined inpatient and outpatient volume.
|   
|(5) |  | Represents the total number of days the patients who are admitted stay in
our hospitals.                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|(6) |  | Adjusted patient days are computed by multiplying patient days (inpatient
volume) by the outpatient factor. The outpatient factor is the sum of
gross inpatient revenue and gross outpatient revenue divided by gross
inpatient revenue. The adjusted patient days computation equates
outpatient revenue to the volume measure (patient days) used to measure
inpatient volume, resulting in a general measure of combined inpatient and
outpatient volume.                                                                                           
|   
|(7) |  | The average number of days admitted patients stay in our hospitals.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|(8) |  | Represents revenues prior to reductions for discounts and contractual
allowances.                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|(9) |  | Same hospital information includes the operations of only those hospitals
which were owned or leased during both entire periods presented and
excludes the ownership and operations of Glades General Hospital, which is
scheduled to be sold in the first half of 2004.                                                                                                                                                                                                                                                                               

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|                                                |                                            |            |           |                         |         |      |         |          |         |  |      |      |      |  
|----------------------------------------------- | ------------------------------------------ | ---------- | --------- | ----------------------- | ------- | ---- | ------- | -------- | ------- |  | ---- | ---- | ---- | -
|                                                |                                            |            |           | Year Ended December 31,
|                                                |                                            |            |           |                        
|                                                |                                            |            |           | 2002                    |         | 2001 |         | % Change
|                                                |                                            |            |           |                         |         |      |         |         
|Consolidated Hospitals (Continuing Operations): |                                            |            |           |                         |         |      |         |          |         |  |      |     
|                                                | Number of hospitals at end of period       |            |           | 19                      |         |      |         | 18       |         |  |      | 5.6  | %   
|                                                | Licensed beds at end of period (2)         |            |           | 2,207                   |         |      |         | 2,063    |         |  |      | 7.0  |     
|                                                | Beds in service at end of period           |            |           | 1,933                   |         |      |         | 1,839    |         |  |      | 5.1  |     
|                                                | Inpatient admissions (3)                   |            |           | 69,107                  |         |      |         | 52,053   |         |  |      | 32.8 |     
|                                                | Adjusted admissions (4)                    |            |           | 120,990                 |         |      |         | 86,198   |         |  |      | 40.4 |     
|                                                | Net patient revenue per adjusted admission |            | $         | 5,372                   |         |      | $       | 5,576    |         |  |      | (3.7 | )   
|                                                | Patient days (5)                           |            |           | 299,138                 |         |      |         | 227,596  |         |  |      | 31.4 |     
|                                                | Adjusted patient days (6)                  |            |           | 523,307                 |         |      |         | 376,539  |         |  |      | 39.0 |     
|                                                | Average length of stay (days) (7)          |            |           | 4.3                     |         |      |         | 4.4      |         |  |      | (2.3 | )   
|                                                | Net patient revenue (in thousands)         |            | $         | 649,954                 |         |      | $       | 480,627  |         |  |      | 35.2 |     
|                                                | Gross patient revenue (in thousands) (8):  |            |           |                         |         |      |         |          |         |  |      |      |     
|                                                |                                            | Inpatient  |           | $                       | 799,358 |      |         | $        | 588,203 |  |      |      | 35.9 | %
|                                                |                                            | Outpatient |           |                         | 599,333 |      |         |          | 387,195 |  |      |      | 54.8 |  
|                                                |                                            |            |           |                         |         |      |         |          |         |  |      |      |     
|Total
          gross patient revenue           |                                            | $          | 1,398,691 |                         |         | $    | 975,398 |          |         |  | 43.4 | %   
|                                                |                                            |            |           |                         |         |      |         |          |         |  |      |      |     
|Same Hospitals (Continuing Operations)(9):      |                                            |            |           |                         |         |      |         |          |         |  |      |     
|                                                | Number of hospitals at end of period       |            |           | 16                      |         |      |         | 16       |         |  |      |     | %   
|                                                | Licensed beds at end of period (2)         |            |           | 1,785                   |         |      |         | 1,895    |         |  |      | (5.8 | )   
|                                                | Beds in service at end of period           |            |           | 1,649                   |         |      |         | 1,671    |         |  |      | (1.3 | )   
|                                                | Inpatient admissions(3)                    |            |           | 49,919                  |         |      |         | 50,283   |         |  |      | (0.7 | )   
|                                                | Adjusted admissions (4)                    |            |           | 85,134                  |         |      |         | 83,346   |         |  |      | 2.1  |     
|                                                | Net patient revenue per adjusted admission |            | $         | 5,511                   |         |      | $       | 5,835    |         |  |      | (5.6 | )   
|                                                | Patient days (5)                           |            |           | 214,423                 |         |      |         | 218,891  |         |  |      | (2.0 | )   
|                                                | Adjusted patient days (6)                  |            |           | 364,567                 |         |      |         | 352,439  |         |  |      | 3.4  |     
|                                                | Average length of stay (days) (7)          |            |           | 4.3                     |         |      |         | 4.2      |         |  |      | 2.4  |     
|                                                | Net patient revenue (in thousands)         |            | $         | 469,170                 |         |      | $       | 468,509  |         |  |      | 0.1  |     
|                                                | Gross patient revenue (in thousands)(8):   |            |           |                         |         |      |         |          |         |  |      |      |     
|                                                |                                            | Inpatient  |           | $                       | 614,783 |      |         | $        | 571,920 |  |      |      | 7.5  | %
|                                                |                                            | Outpatient |           |                         | 433,689 |      |         |          | 377,449 |  |      |      | 14.9 |  
|                                                |                                            |            |           |                         |         |      |         |          |         |  |      |      |     
|Total
          gross patient revenue           |                                            | $          | 1,048,472 |                         |         | $    | 949,369 |          |         |  | 10.4 | %   
|                                                |                                            |            |           |                         |         |      |         |          |         |  |      |      |     

See notes following preceding table.

Hospital revenues are received primarily from Medicare, Medicaid and
commercial insurance. The percentage of revenues received from the Medicare
program is expected to increase with the general aging of the population. The
payment rates under the Medicare program for inpatients are based on a
prospective payment system, based upon the diagnosis of a patient. While these
rates are indexed for inflation annually, the increases historically have been
less than actual inflation. In addition, states, insurance companies and
employers are actively negotiating the amounts paid to hospitals as opposed to
paying standard hospital rates. The trend toward managed care, including health
maintenance organizations, preferred provider organizations and various other
forms of managed care, may affect our hospitals ability to maintain their
current rate of net operating revenue growth.

We continuously monitor the cost/benefit relationship of services provided
at our hospitals, and make decisions related to adding new services or
discontinuing existing services.

Net patient revenue is reported net of contractual adjustments and policy
discounts. The adjustments principally result from differences between our
hospitals customary charges and payment rates under the Medicare, Medicaid and
other third-party payor programs. Customary charges generally have increased at
a faster rate than the rate of increase for Medicare and Medicaid payments.
Operating expenses of our hospitals primarily consist of salaries, wages and
benefits, purchased services, supplies, provision for doubtful accounts,
rentals and leases, and other operating expenses, principally consisting of
utilities, insurance, property taxes, travel, physician recruiting, telephone,
advertising, repairs and maintenance.

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Other revenue is
  primarily comprised of fees from management and professional consulting services
  provided to third-party hospitals pursuant to management contracts and consulting
  arrangements, reimbursable expenses and miscellaneous other revenue items. Management
  and professional services revenue plus reimbursable expenses represented 2.1%
  of revenues from continuing operations for the year ended December 31,
  2003. Operating expenses for the management and professional services business
  primarily consist of salaries, wages and benefits and reimbursable expenses.

Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

Revenues increased 13.2% to $762.0 million in 2003 compared to $673.2
million in 2002. This increase was primarily attributable to the hospitals
acquired in 2002 and an increase in same hospital revenues. During the second
quarter of 2002, the Company acquired Los Alamos Medical Center in New Mexico
and Memorial Hospital of Martinsville and Henry County in Virginia. Same
hospital net patient revenues increased 6.1% in 2003 from 2002 primarily due to
increases in adjusted admissions of 3.1% and net revenue per adjusted admission
of 2.9%. The increase in adjusted admissions was attributable, in part, to the
addition of 106 new doctors, of which 17 are hospital-based, in our communities
in 2003. Cost report settlements and the filing of cost reports also
increased revenue in 2003 by $5.5 million compared to a reduction in
revenue in 2002 of $0.9 million.

Salaries, wages and
  benefits as a percentage of revenues, decreased to 37.7% from 39.6% in 2002.
  The decrease is primarily due to improvements resulting from continued implementation
  of our flexible staffing standards throughout our hospitals, which effectively
  matches labor with hospital volume trends and continued cost containment of
  employee benefit expenses.

Purchased services, as a percentage of revenues, decreased to 9.1% in 2003
from 10.4% in 2002. The decrease is primarily attributable to an 18.5%
reduction in contract labor and reductions in collection agency fees as we were
less reliant on outside collection consultants and staffing.

Provision for doubtful
  accounts, as a percentage of revenues, increased to 9.5% in 2003 from 7.9% in
  2002 due primarily to the increase in bad debts resulting from increases in
  self-pay revenue. During 2003, self-pay revenue as a percentage of total gross
  revenues increased to 4.6% from 3.8% in 2002. The most significant increase
  occurred in the second quarter of 2003 when self-pay revenue as a percentage
  of gross revenues increased to 5.1% but then declined slightly in the third
  quarter to 4.8% and continued to decline in the fourth quarter to 4.5%. The
  increase in self-pay revenue is due to the current economic environment and
  slow employment recovery, coupled with changes in benefit plan design toward
  increased co-pays and deductibles as employers pass a greater percentage of
  healthcare costs to individual employees. Net patient revenue associated with
  self-pay patients are generally recorded at gross charges, which are higher
  than what government programs and managed care plans pay. As a result, failure
  to receive payment from self-pay and uninsured patients results in a higher
  provision for doubtful accounts as a percentage of total net patient revenue.
  We are monitoring the self-pay revenue category closely and expect provision
  for doubtful accounts expense to be in the 10% of revenues range during the
  first six months of 2004.

Other operating expenses increased as a percentage of revenues to 12.7% in
2003 from 11.4% in 2002 primarily due to increased medical malpractice,
workers compensation and directors and officers insurance cost of $7.2 million
and increased physician recruitment expense of $3.1 million.

Depreciation and amortization expense increased $5.4 million to $37.7
million in 2003 from $32.3 million in 2002 primarily due to depreciation at the
two hospitals acquired in 2002 and capital expenditures.

Interest expense increased to $26.3 million in 2003 from $21.3 million
primarily due to the issuance in May 2003 of $200.0 million aggregate principal
amount of 71⁄2% Senior Subordinated Notes due 2013, offset by repayments of
outstanding borrowings on our senior bank credit facility, repurchases of a
portion of our 41⁄2% Convertible Subordinated Notes due 2005 and entering
into a $100.0 million fixed to floating interest rate swap agreement during the
third quarter of 2003.

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The write-off of deferred loan costs and the gain resulting from
repurchasing a portion of our 41⁄2% Convertible Subordinated Notes at a
discount resulted in a net pre-tax loss on extinguishment of debt of $0.5
million during 2003.

The provision for income taxes totaled $23.3 million, or a 35.4% effective
tax rate, in 2003 compared to $23.7 million, or a 40.0% effective tax rate, in
2002. The reduction in the effective tax rate during 2003 was primarily
attributable to a $2.3 million reduction in our tax liabilities due to the
final and favorable resolution of examinations by taxing authorities as we
recently concluded audits that have been ongoing for over one year. For 2004,
we anticipate our effective tax rate to approximate 38.0%; however, changing
circumstances and regulations may result in a change in the actual effective
tax rate.

In 2003, the Companys discontinued operations incurred an after-tax
impairment of assets charge of $8.9 million and a loss from operations totaling
$2.1 million. In 2002, the discontinued operations achieved earnings from
operations of $0.5 million. The decline in operations resulted primarily from
a shift in the demographic make-up of the service area surrounding Glades
General Hospital and a significant increase in the proportion of indigent care
provided by that facility.

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001

Revenues increased to $673.2 million in 2002 from $502.1 million in 2001,
an increase of $171.1 million, or 34.1%. Cost report settlements
and the filing of cost reports decreased revenues in 2002 by $0.9 million and increased revenues in 2001 by $0.6  million. Net patient revenue generated by the 16
hospitals owned during both periods increased 0.1%. These 16 hospitals also
incurred a decline in inpatient admissions of 0.7%, which was primarily
attributable to the departure of 51 physicians at the hospitals during 2002.
Total net patient revenue increased 35.2% during 2002, primarily related to the
hospitals acquired in the fourth quarter of 2001 and during 2002.

Our 2002 operations were adversely affected by the loss of physicians.
During 2002, we lost 51 physicians who were major contributors, with the
majority leaving in the last six months of the year. We define a major
contributor as a physician generating $200,000 or more in revenues annually.
All of these physicians left for reasons unrelated to hospital operations. We
recruited 82 physicians in 2002, 59% of whom only started their practices in
the third and fourth quarters of the year. Therefore, the new practices were
unable to generate sufficient volume to replace the lost revenues generated by
the departing physicians. As the new physicians practices move along the
timeline toward full, mature practices, lost revenues will be replaced. Of the
82 recruited physicians, 76 were admitting physicians. Based on historic
practice patterns of physicians recruited to our hospitals, to date, these
physician practices are tracking in line with historic trends and our
expectations.

Our 2002 operations were adversely impacted by increased competition from
ambulatory surgery centers in two of our markets. We have been proactive in
the only other markets large enough to support full service ambulatory surgery
centers that currently do not have these services, by either pursuing a
certificate of need for a full service ambulatory surgery center ourselves or
working with physicians in the market to address the community need for
outpatient surgery services.

Increases in expenses such as salaries, wages and benefits, purchased
services, supplies, provision for doubtful accounts, rentals and leases and
other operating expenses resulted primarily from new hospital acquisitions in
the fourth quarter of 2001 and in the second quarter of 2002 and from the addition of new services
and increased physician recruiting. The consolidated provision for doubtful
accounts decreased to 7.9% of revenues in 2002 from 8.8% of revenues in 2001,
primarily related to improvement in days in accounts receivable and increased
up-front cash collections.

Depreciation and amortization expense increased to $32.3 million, or 4.8%
of revenues, in 2002 from $28.0 million, or 5.6% of revenues in 2001. The
increase in depreciation and amortization resulted primarily from the
acquisition of hospitals in 2002 and 2001 as previously mentioned and capital expenditures
at hospitals owned during both periods,

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offset by non-amortization of goodwill
in 2002, which had an impact of approximately $6.2 million. Interest
expense increased to $21.3 million in 2002 from $11.1 million in 2001, an
increase of 91.9%. This was a result of increased borrowings to finance the
acquisition of additional hospitals in the fourth quarter of 2001 and in 2002,
and interest on the $172.0 million principal amount of 41⁄2% Convertible
Subordinated Notes issued in October 2001.

Income from continuing operations before provision for income taxes was
$59.3 million for the year ended December 31, 2002, compared to $57.1 million
in 2001, an increase of 3.8%.

Our provision for
  income taxes was $23.7 million for the year ended December 31, 2002,
  compared to $24.1 million in 2001. These provisions reflect effective income
  tax rates of 40.0% in 2002 and 42.2% in 2001. *See* Note 8 of the notes
  to our consolidated financial statements for information regarding differences
  between effective tax rates and statutory rates.

Income from continuing operations was $35.6 million, or 5.3% of revenues,
in 2002, compared to $33.1 million or 6.6% of revenues, in 2001.

In 2002, income from discontinued operations totaled $0.5 million compared
to a loss of $0.1 million in 2001.

Liquidity and Capital Resources

At December 31, 2003, we had working capital from continuing operations of
$128.3 million, including cash and cash equivalents of $46.1 million, compared
to working capital from continuing operations of $99.4 million, including $14.6
million in cash and cash equivalents at December 31, 2002.

Cash provided by
  operating activities was $106.2 million in 2003, compared to $92.1 million
  for the prior year, primarily due to an increase in income from continuing operations.
  Cash used in investing activities was down significantly to $57.0 million
  in 2003, from $216.7 million in 2002, primarily due to the purchases of
  Memorial Hospital of Martinsville and Henry County in May 2002, and Los Alamos
  Medical Center in June 2002. Net cash used in financing activities totaled $16.3 million
  in 2003 compared to $101.3 million of net cash provided by financing activities
  during the same period last year. Net cash provided by financing activities
  in 2002 primarily reflected borrowings under our revolving credit facility to
  fund the two hospital acquisitions.

During 2003, we received $194.2 million in net proceeds from the issuance
of the 71⁄2% Senior Subordinated Notes due 2013. We used the proceeds, along
with existing cash, to repay all amounts outstanding ($114.3 million) on our
senior credit facility and to repurchase $74.0 million principal amount of our
41⁄2% Convertible Subordinated Notes due 2005. At December 31, 2003, we had
$246.4 million (net of outstanding letters of credit) available for borrowing
under our senior credit facility.

In May 2003, the
  Board of Directors authorized the repurchase from time to time and subject to
  market conditions of our 41⁄2% Convertible Subordinated Notes in open market
  or privately negotiated transactions. Of the $150.0 million principal amount
  of the 41⁄2% Notes originally issued, we had $76.0 million principal
  amount outstanding at December 31, 2003. Additional repurchases, if any,
  will be made out of cash provided by operations.

We intend to acquire additional acute care facilities and are actively
seeking out such acquisitions. There can be no assurance that we will not
require additional debt or equity financing for any particular acquisition.
Also, we continually review our capital needs and financing opportunities and
may seek additional equity or debt financing for our acquisition program or
other needs.

Our shelf registration statement on Form S-3, providing for the offer,
from time to time, of common stock and debt securities up to an aggregate of
$300.0 million, remains effective. Following the issuance of $200.0 million
aggregate principal amount of our 71⁄2% Senior Subordinated Notes in May
2003, the shelf registration

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statement remains available for the issuance of up
to $100.0 million of additional securities, subject to market conditions and
our capital needs.

Capital expenditures
  for our owned and leased hospitals may vary from year to year depending on facility
  improvements and service enhancements undertaken by the hospitals. We expect
  to make total capital expenditures in 2004 of approximately $50.0 million,
  exclusive of any acquisitions of businesses or new hospital construction projects.
  Planned capital expenditures for 2004 consist principally of capital improvements
  to owned and leased hospitals. We expect to incur approximately $46.0 million
  in new hospital construction projects related to one hospital in Bluffton, South
  Carolina and one hospital in Ft. Mohave, Arizona. We anticipate opening the
  South Carolina hospital by the first quarter of 2005 and the Arizona hospital
  in the second half of 2005. We are obligated to construct a new facility at
  our Eunice, Louisiana location contingent upon the existing facility meeting
  specified operating targets. At December 31, 2003, the specified operating
  targets had not been met. A replacement facility, if constructed, at Eunice
  is estimated to cost approximately $25.3 million. We expect to fund these expenditures
  through cash provided by operating activities and borrowings under our revolving
  credit facility.

Our management anticipates that operations and amounts available under our
senior credit facility will provide sufficient liquidity for the next twelve
months.

The following table reflects a summary of our obligations and commitments
outstanding as of December 31, 2003.

|                                         |  |                        |       |           |  |           |        |                |  |       |         |  |  |   |         |  |  |   |         | 
|---------------------------------------- |  | ---------------------- | ----- | --------- |  | --------- | ------ | -------------- |  | ----- | ------- |  |  | - | ------- |  |  | - | ------- | 
|                                         |  | Payments due by period
|                                         |  |                       
|                                         |  | Less than 1            |       |           |  |           |        |                |  |       |         |  |  |   |         |  |  |  
|                                         |  | year                   |       | 1-2 years |  | 3-4 years |        | Thereafter     |  | Total
|                                         |  |                        |       |           |  |           |        |                |  |      
|                                         |  |                        |       |           |  |           |        | (in thousands) |  |       |         |  |  |   |        
|Contractual Cash Obligations:            |  |                        |       |           |  |           |        |                |  |       |         |  |  |   |         |  |  |   |         | 
|Long-term debt                           |  | $                      |      |           |  | $         | 75,970 |                |  | $     | 172,500 |  |  | $ | 196,634 |  |  | $ | 445,104 | 
|Capital lease obligations, with interest |  |                        | 1,037 |           |  |           | 987    |                |  |       | 946     |  |  |   | 2,115   |  |  |   | 5,085   | 
|Operating leases                         |  |                        | 6,810 |           |  |           | 11,274 |                |  |       | 9,572   |  |  |   | 15,610  |  |  |   | 43,266  | 
|                                         |  |                        |       |           |  |           |        |                |  |       |         |  |  |   |         |  |  |   |         | 
|Subtotal                                 |  | $                      | 7,847 |           |  | $         | 88,231 |                |  | $     | 183,018 |  |  | $ | 214,359 |  |  | $ | 493,455 | 
|                                         |  |                        |       |           |  |           |        |                |  |       |         |  |  |   |         |  |  |   |         | 

|                                                   |  |                                                    |         |           |  |           |        |            |  |       |         |  |  |   |         |  |  |   |         | 
|-------------------------------------------------- |  | -------------------------------------------------- | ------- | --------- |  | --------- | ------ | ---------- |  | ----- | ------- |  |  | - | ------- |  |  | - | ------- | 
|                                                   |  | Amount of commitment
        expiration per period
|                                                   |  |                                                   
|                                                   |  | Less than 1                                        |         |           |  |           |        |            |  |       |         |  |  |   |         |  |  |  
|                                                   |  | year                                               |         | 1-2 years |  | 3-4 years |        | Thereafter |  | Total
|                                                   |  |                                                    |         |           |  |           |        |            |  |      
|                                                   |  | (in thousands)                                    
|Other
          Commitments:                       |  |                                                    |         |           |  |           |        |            |  |       |         |  |  |   |         |  |  |   |         | 
|Letters
          of credit                        |  | $                                                  | 3,565   |           |  | $         |       |            |  | $     |        |  |  | $ |        |  |  | $ | 3,565   | 
|Construction
          and improvement commitments |  |                                                    | 75,204  |           |  |           | 9,838  |            |  |       |        |  |  |   |        |  |  |   | 85,042  | 
|Physician
          commitments(1)                 |  |                                                    | 17,304  |           |  |           | 1,187  |            |  |       |        |  |  |   |        |  |  |   | 18,491  | 
|                                                   |  |                                                    |         |           |  |           |        |            |  |       |         |  |  |   |         |  |  |   |         | 
|Subtotal                                           |  | $                                                  | 96,073  |           |  | $         | 11,025 |            |  | $     |        |  |  | $ |        |  |  | $ | 107,098 | 
|                                                   |  |                                                    |         |           |  |           |        |            |  |       |         |  |  |   |         |  |  |   |         | 
|Total
          obligations and commitments        |  | $                                                  | 103,920 |           |  | $         | 99,256 |            |  | $     | 183,018 |  |  | $ | 214,359 |  |  | $ | 600,553 | 
|                                                   |  |                                                    |         |           |  |           |        |            |  |       |         |  |  |   |         |  |  |   |         | 

---

(1)
Represents the aggregate of our contractual obligations for advances
to physicians as reflected in physician recruiting agreements.
See Note 11 to our consolidated financial statements starting
on page F-1 of this report. Amounts shown are calculated based on the
full extent of the obligation set forth in the agreements, although
the actual amount of such advances often depends on the financial
performance of the physicians practice during the first year after
relocating to the community. In most cases, the amounts advanced
under the agreements are significantly less than the contractual
commitment.

Critical Accounting Policies

Our consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States. In
preparing our financial statements, we are required to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. We evaluate our estimates and judgments on an ongoing basis.
We base our estimates and

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judgments on historical experience and on various
other factors that we believe to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Our actual results may differ from these estimates, and different assumptions
or conditions may yield different estimates. The following represent the
estimates that we consider most critical to our operating performance and
involve the most complex assumptions and assessments.

Allowance for Doubtful Accounts

Our ability to collect outstanding receivables from third-party payors and
others is critical to our operating performance and cash flows. The primary
collection risk lies with uninsured patient accounts or patient accounts for
which a balance remains after primary insurance has paid. Our policy with
respect to estimating an allowance for doubtful accounts is to reserve 50% of
all self-pay accounts receivable at 120 days and 100% of all self-pay accounts
at 150 days. Our allowance for doubtful accounts increased, as a percentage of
accounts receivable net of contractual adjustments, to 37.4% in 2003 from 37.1%
in 2002. We continually monitor our accounts receivable balances and utilize
cash collections data and other analytical tools to support the basis for our
estimates of the provision for doubtful accounts. In addition, we perform
hindsight procedures on historical collection and write-off experience to
determine the reasonableness of our policy for estimating the allowance for
doubtful accounts. We do not pursue collection of amounts related to patients
that qualify for charity care under our guidelines. Charity care accounts are
deducted from gross revenue and do not affect the provision for doubtful
accounts. Significant changes in payor mix or business office operations, or
deterioration in aging accounts receivable could result in a significant
increase in this allowance.

Allowance for Contractual Discounts

The percentage of our net patient revenue derived from Medicare, Medicaid
and other payors that receive discounts from our standard charges continues to
be high. For the year ended December 31, 2003, Medicare, Medicaid and
discounted plan patients accounts for a combined 93.0% of net patient
revenue from continuing operations,
compared to 94.9% in 2002. The Medicare and Medicaid regulations and various
managed care contracts under which these discounts must be calculated are often
complex and subject to interpretation and adjustment. We use an exhibit system
to estimate the allowance for contractual discounts on a payor-specific basis,
given our interpretation of the applicable regulations or contract terms. We
have invested significant human resources and information systems to improve
the estimation process; however, the services authorized and provided and
related reimbursement are often subject to interpretation that could result in
payments that differ from our estimates. Additionally, updated regulations and
contract negotiations occur frequently, necessitating our continual review and
assessment of the estimation process. In addition, we reserve 100% of all other payor class accounts
receivable consisting of Medicare, Medicaid, and other insurance payors at 365
days.

General and Professional Liability Reserves

We purchased a professional liability claims made reporting policy
effective January 1, 2003. This coverage is subject to a $5.0 million
self-insured retention per occurrence for general and professional liability
and provides coverage up to $50.0 million for claims incurred during the annual
policy term. This retention amount increases our exposure for claims occurring
prior to December 31, 2002, and reported on or after January 1, 2003 due to the
increased retention amount as compared to prior years. In 2002, the Company
had a claims-made reporting policy subject to a $750,000 deductible and a $2.0
million self-insured retention per occurrence, providing coverage up to $51.0 million for
claims incurred during the annual policy term in 2002. In 2001, we maintained
insurance for individual malpractice claims exceeding $50,000 per medical
incident, subject to an annual maximum of $500,000 for claims occurring and
reported in 2001. We purchased a tail policy that provides an unlimited claim reporting
period for our professional liability for claims incurred in 2000 and
prior years. We estimate our self-insured retention portion of the
malpractice risks using an outside actuary which uses historical claims data, demographic factors, severity
factors and other actuarial assumptions. The estimated accrual for malpractice
claims could be significantly affected should current and future occurrences
differ from historical claims trends. The estimation process is also
complicated by the relatively short period of time in which we have owned some
of our healthcare facilities, as occurrence data under previous ownership may
not necessarily reflect occurrence data under our ownership. While management
monitors current claims closely and considers outcomes when estimating our
insurance accruals, the complexity of the claims and wide range of potential

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outcomes often hampers timely adjustments to the assumptions used in the
estimates. We maintain a reserve to cover both reported claims and
claims that have been incurred but not yet reported within our self-insured retention.

Workers Compensation Reserves

Workers compensation claims are insured with a large deductible with stop
loss limits of $100,000 per accident and a $1.9 million and $2.2 million
minimum cap on total losses for the 1999 and 2000 years, respectively, and
$250,000 per accident and a $6.6 million and $3.0 million minimum cap on total
losses for the 2002 and 2001
years, respectively. We increased our deductible loss amount to $500,000
per accident effective January 1, 2003. The minimum cap for total 2003 losses
is $12.0 million. Our arrangement with the insurance provider allows us to
prepay the expected amounts of annual workers compensation claims, which is
based upon claims experience. The claims processor tracks payments for the
policy year. At the end of the policy year, the claims processor compares the
total amount prepaid by us to the actual amount paid by the claims processor.
This comparison ultimately will result in a receivable from or a payable to the
claims processor.

We are fully insured in the commercial marketplace for workers
compensation claims prior to January 1, 1999. We utilize loss run reports
provided by the claims administrator to determine the appropriate range of loss
reserves for the 1999 and subsequent years. Our accruals are calculated to
cover the risk from both reported claims and claims that have been incurred but
not yet reported.

Goodwill and Long-Lived Assets, Including Impairment

Our consolidated financial statements primarily include the following
types of long-lived assets: property and equipment, goodwill and other
intangible assets. Property and equipment purchased in the normal course of
business are recorded at the cost of the purchase and a useful life is assigned
based upon the nature of the asset in comparison to our policy. We also, in
connection with our acquisition of businesses, acquire property and equipment,
goodwill and other intangible assets. We use outside firms to perform a
valuation of these acquired assets for the purpose of allocating the purchase
price of the acquisition. As a result of the adoption of Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangible
Assets(SFAS No. 142), we have obtained valuation reports to identify property
and equipment, as well as any intangible assets purchased in our acquisitions.
Based on the valuation reports completed to date, the only identifiable
intangible assets valued have been non-compete agreements and licenses and
accreditations, which have had minimal associated value; the remainder was
goodwill. In accordance with SFAS No. 142, goodwill resulting from
acquisitions after June 30, 2001 has not been amortized.

Impairment of goodwill is governed by SFAS No. 142. In accordance with
the adoption of SFAS No. 142, we completed our transitional impairment test
prior to June 30, 2002 as of the beginning of 2002. The results of our review
indicated that no impairment was present related to the adoption of this
accounting standard. Additionally, we completed our annual impairment test as
of October 1, 2003. The results of our 2003 review indicated that no
impairment occurred, other than for Glades General Hospital, as discussed
below. Our annual impairment test is based upon a combination of market
capitalization and a projected run-rate for income from continuing operations
before provision for income taxes, depreciation and amortization, interest,
minority interests, loss on sale of assets and loss on extinguishment of debt
(adjusted for a multiple of earnings) for the consolidated company. The
results of this annual impairment test indicated no impairment has occurred.

Impairment of long-lived assets
other than goodwill is governed by Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. We
adopted this statement effective January 1, 2002. In accordance with the
standard, in connection with the proposed sale of Glades General Hospital, the
Company recorded an after tax impairment charge of $8.9 million related to the
write-off of goodwill associated with the hospital, the write-off of the
net book value of physician recruiting costs and the write down of other
long-lived assets of the hospital to their net realizable value, less costs to
sell.

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Inflation

The healthcare industry is labor intensive. Wages and other expenses
increase, especially during periods of inflation and labor shortages. In
addition, suppliers pass along to us rising costs in the form of higher prices.
We generally have been able to offset increases in operating costs by
increasing charges for services, expanding services, and implementing cost
control measures to curb increases in operating costs and expenses. In light of
cost containment measures imposed by government agencies and private insurance
companies, we do not know whether we will be able to offset or control future
cost increases, or be able to pass on the increased costs associated with
providing healthcare services to patients with government or managed care
payors, unless such payors correspondingly increase reimbursement rates.




ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our policy is not to hold or issue derivatives for trading purposes and to
avoid derivatives with leverage features. Our primary market risk involves
interest rate risk. Our interest expense is sensitive to changes in the general
level of interest rates. To mitigate the impact of fluctuations in interest
rates, we generally maintain 50% - 80% of our debt at a fixed rate, either by
borrowing on a long-term basis or entering into an interest rate swap. At
December 31, 2003, approximately 77% of our outstanding debt was effectively at
a fixed rate. We entered into an interest rate swap agreement which
effectively converted, for a ten-year period, $100.0 million of the $200.0
million fixed-rate borrowings under our 71⁄2% Senior Subordinated Notes due
2013 to floating rate borrowings. Floating rate borrowings are based on LIBOR
plus 2.79% over the term of the agreement. Our interest rate swap is a fair
value hedge. We are exposed to credit losses in the event of nonperformance by
the counterparty to the financial instrument. We anticipate that the
counterparty will fully satisfy its obligations under the contract.

The carrying amount of our total long-term debt, less current maturities,
of $448.0 million and $460.4 million at December 31, 2003 and 2002,
respectively, approximated fair value. At the December 31, 2003 borrowing
level, a hypothetical 1% increase in interest rates, considering the effect of
the interest rate hedge agreement, would have no significant impact on our net
income and cash flows. A hypothetical 1% increase in interest rates on the
fixed-rate debt would not have a material impact on the fair value of such
debt.




ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements can be found beginning at page F-1 following this report.




ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None




ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our company carried out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of
our disclosure controls and procedures (as defined in Exchange Act Rule
13a-14(c)) as of the end of the period covered by this report. Based on their
evaluation of such controls and procedures, our Chief Executive Officer and
Chief Financial Officer concluded that our disclosure controls and procedures
are effective to ensure that information required to be disclosed by our
company in the reports we file under the Securities Exchange Act of 1934, as
amended, is recorded, processed, summarized and reported within the time
periods specified in the rules and forms of the Securities and Exchange
Commission and that such information is accumulated and communicated to
management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate to allow timely decisions regarding required disclosure.

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Changes in Internal Control over Financial Reporting

We continue to
evaluate our internal controls and procedures and implement
additional procedures to ensure accurate and consistent reporting of
financial results
from period to period. There have been no significant changes in our internal
controls over financial reporting that occurred during the fourth quarter of
2003 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.

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PART III




ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information with respect to the executive officers and directors of our
company and the identification of our audit committee financial expert is
incorporated by reference from our proxy statement relating to the annual
meeting of shareholders to be held on May 18, 2004. Such proxy statement will be filed with the Securities and Exchange
Commission not later than 120 days subsequent to December 31, 2003.

Information with
respect to compliance with Section 16(a) of the
Securities Exchange Act of 1934 is incorporated by reference from our proxy
statement relating to the annual meeting of shareholders to be held on May 18,
2004.

Our board of directors has adopted a written Code of Ethics, applicable to
our Chief Executive Officer, Chief Financial Officer and Controller. We will
provide a copy of our Code of Ethics to anyone, without charge, upon request.




ITEM 11. EXECUTIVE COMPENSATION

Information with respect to the compensation of our executive officers is
incorporated by reference from our proxy statement relating to our annual
meeting of shareholders to be held on May 18, 2004, except that the
Comparative Performance Graph and the Compensation Committee Report on
Executive Compensation included in the proxy statement are expressly not
incorporated herein by reference. Such proxy statement will be filed with the
Securities and Exchange Commission not later than 120 days subsequent to
December 31, 2003.




ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information with respect to the security ownership of certain beneficial
owners of our common stock and management and with respect to securities
authorized for issuance under equity compensation plans is incorporated by
reference from our proxy statement relating to the annual meeting of
shareholders to be held on May 18, 2004. Such proxy statement will be filed
with the Securities and Exchange Commission not later than 120 days subsequent
to December 31, 2003.




ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information with respect to certain relationships and related transactions
between our company and its executive officers and directors is incorporated by
reference from our proxy statement relating to the annual meeting of
shareholders to be held on May 18, 2004. Such proxy statement will be filed
with the Securities and Exchange Commission not later than 120 days subsequent
to December 31, 2003.




ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information concerning fees paid to and services provided by our
independent auditing firm and information concerning the pre-approval policies
and procedures of our audit committee for audit and non-audit services appears
in our proxy statement relating to our annual meeting of shareholders to be
held on May 18, 2004 and is incorporated herein by reference. Such proxy
statement will be filed with the Securities and Exchange Commission not later
than 120 days subsequent to December 31, 2003.

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PART IV




ITEM 15. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1) and (a)(2) List of Financial Statements and Financial Statement Schedule

The Consolidated Financial Statements of our company required to be
included in Part II, Item 8 are indexed on Page F-1 and submitted as a separate
section of this report.

(a)(3) Exhibits

|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|Number  |  | Description of Exhibit                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|3.1     |  | Amended and Restated Certificate of Incorporation of Province Healthcare
Company, as filed with the Delaware Secretary of State on June 16, 2000
(incorporated by reference to the exhibits filed with the Registrants
Quarterly Report filed on Form 10-Q, for the quarterly period ended June
30, 2000, Commission File No. 0-23639)                                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|3.2     |  | Certificate of Amendment to the Amended and Restated Certificate of
Incorporation of Province Healthcare Company, as filed with the Delaware
Secretary of State on May 22, 2002 (incorporated by reference to the
exhibits filed with the Registrants Registration Statement on Form
S-3/A filed June 11, 2002, Registration No. 333-86578)                                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|3.3     |  | Amended and Restated Bylaws of Province Healthcare Company (incorporated
by reference to the exhibits filed with the Registrants Current Report
on Form 8-K, dated December 12, 2002, Commission File No. 0-23639)                                                                                                                                                                                                                                                                 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|4.1     |  | Form of Common Stock Certificate (incorporated by reference to the
exhibits filed with the Registrants Registration Statement on Form
S-3/A filed June 11, 2002, Registration No. 333-86578)                                                                                                                                                                                                                                                                                       
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|4.2     |  | Indenture, dated as of November 20, 2000 between Province Healthcare
Company and National City Bank, including the forms of Province
Healthcare Companys 41⁄2% Convertible Subordinated Notes due 2005
(incorporated by reference to the exhibits filed with the Registrants
Registration Statement on Form S-3, dated January 24, 2001, Registration
No. 333-54192)                                                                                                                
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|4.3     |  | Registration Rights Agreement, dated as of November 20, 2000, among
Province Healthcare Company and Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Credit Suisse First Boston
Corporation, UBS Warburg LLC, First Union Securities, Inc. and Robertson
Stephens, Inc. as Initial Purchasers (incorporated by reference to the
exhibits filed with the Registrants Registration Statement on Form S-3,
dated January 24, 2001, Registration No. 333-54192)
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|4.4     |  | Indenture, dated as of October 10, 2001, between Province Healthcare
Company and National City Bank, including the forms of Province
Healthcare Companys 41⁄4% Convertible Subordinated Notes due 2008
(incorporated by reference to the exhibits filed with the Registrants
Registration Statement on Form S-3, filed December 20, 2001,
Registration No. 333-75646)                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|4.5     |  | Registration Rights Agreement, dated as of October 10, 2001, among
Province Healthcare Company and Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, First Union Securities, Inc., UBS
Warburg LLC and Banc of America Securities LLC as Initial Purchasers
(incorporated by reference to the exhibits filed with the Registrants
Registration Statement on Form S-3, filed December 20, 2001,
Registration No. 333-75646)                                  

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|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                           
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                                           
|Number  |  | Description of Exhibit                                                                                                                                                                                                                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4.6     |  | Rights Agreement, dated as of January 3, 2003, between Province
Healthcare Company and Wachovia Bank, N.A. (incorporated by reference to
the exhibits filed with the Registrants Current Report on Form 8-K,
dated January 3, 2003, Commission File No. 0-23639)                                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4.7     |  | Subordinated Indenture, dated as of May 27, 2003, between Province
Healthcare Company and U.S. Bank Trust National Association
(incorporated by reference to the exhibits filed with the Registrants
Quarterly Report filed on Form 10-Q, for the quarterly period ended June
30, 2003, Commission File No. 0-23639)                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                           
|4.8     |  | First Supplemental Indenture to Subordinated Indenture, dated as of May
27, 2003, between Province Healthcare Company and U.S. Bank Trust
National Association, as Trustee, with respect to the issuance
of  71⁄2% Senior Subordinated Notes due 2013 (incorporated by reference to
the exhibits filed with the Registrants Quarterly Report filed on Form
10-Q, for the quarterly period ended June 30, 2003, Commission File No.
0-23639)
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.1    |  | Stockholders Agreement, dated as of December 17, 1996, by and among
Brim, Inc., GTCR Fund IV, L.P., Leeway & Co., First Union Corporation of
Virginia, AmSouth Bancorporation, Martin S. Rash, Richard D. Gore,
Principal Hospital Company and certain other stockholders (incorporated
by reference to the exhibits filed with the Registrants Registration
Statement on Form S-1, filed August 27, 1997, Registration No.
333-34421)   
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.2    |  | First Amendment to Stockholders Agreement, dated as of July 14, 1997, by
and among Province Healthcare Company, GTCR Fund IV, L.P., Martin S.
Rash, Richard D. Gore and certain other stockholders (incorporated by
reference to the exhibits filed with the Registrants Registration
Statement on Form S-1/A filed November 13, 1997, Registration No.
333-34421)                                                                       
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.3    |  | Second Amendment to Stockholders Agreement, dated as of September 30,
1997, between Province Healthcare Company, GTCR Fund IV, L.P., Martin S.
Rash, Richard D. Gore and certain other stockholders (incorporated by
reference to the exhibits filed with the Registrants Registration
Statement on Form S-1/A filed November 13, 1997, Registration No.
333-34421)                                                                      
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.4    |  | Registration Agreement, dated as of December 17, 1996, by and among
Brim, Inc., Principal Hospital Company, GTCR Fund IV, L.P., Leeway
&
Co., First Union Corporation of Virginia, AmSouth Bancorporation and
certain other stockholders (incorporated by reference to the exhibits
filed with the Registrants Registration Statement on Form S-1, filed
August 27, 1997, Registration No. 333-34421)                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.5    |  | Senior Management Agreement, dated as of December 17, 1996, between
Brim, Inc., Martin S. Rash, GTCR Fund IV, L.P., Leeway & Co. and
Principal Hospital Company (incorporated by reference to the exhibits
filed with the Registrants Registration Statement on Form S-1, filed
August 27, 1997, Registration No. 333-34421)                                                                                                             
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.6    |  | First Amendment to Senior Management Agreement, dated as of July 14,
1997, between Province Healthcare Company, Martin S. Rash and GTCR Fund
IV, L.P. (incorporated by reference to the exhibits filed with the
Registrants Registration Statement on Form S-1/A filed November 13,
1997, Registration No. 333-34421)                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.7    |  | Second Amendment to Senior Management Agreement, dated as of October 15,
1997, between Province Healthcare Company, Martin S. Rash and GTCR Fund
IV, L.P. (incorporated by reference to the exhibits filed with the
Registrants Registration Statement on Form S-1/A filed November 13,
1997, Registration No. 333-34421)                                                                                                                

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|        |  |                                                                                                                                                                                                                                                                                                                      
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                      
|Number  |  | Description of Exhibit                                                                                                                                                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                      
|10.8    |  | Executive Severance Agreement by and between Province Healthcare Company
and Martin S. Rash, dated October 18, 1999 (incorporated by reference to
the exhibits filed with the Registrants Quarterly Report filed on Form
10-Q, for the quarterly period ended March 31, 2000, Commission File No.
0-23639)(B)       
|        |  |                                                                                                                                                                                                                                                                                                                      
|10.9    |  | Executive Severance Agreement by and between Province Healthcare Company
and James Thomas Anderson, dated October 18, 1999 (incorporated by
reference to the exhibits filed with the Registrants Quarterly Report
filed on Form 10-Q, for the quarterly period ended March 31, 2000,
Commission File No. 0-23639)(B)
|        |  |                                                                                                                                                                                                                                                                                                                      
|10.10   |  | Executive Severance Agreement by and between Province Healthcare Company
and Daniel S. Slipkovich, dated February 1, 2004 (A)(B)                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                      
|10.11   |  | Executive Severance Agreement by and between Province Healthcare Company
and Howard T. Wall, III, dated October 18, 1999 (incorporated by
reference to the exhibits filed with the Registrants Quarterly Report
filed on Form 10-Q, for the quarterly period ended March 31, 2000,
Commission File No. 0-23639) (B) 
|        |  |                                                                                                                                                                                                                                                                                                                      
|10.12   |  | Executive Severance Agreement by and between Province Healthcare Company
and Roberto G. Pantoja, dated January 1, 2004 (A)(B)                                                                                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                                      
|10.13   |  | Executive Severance Agreement by and between Province Healthcare Company
and Samuel H. Moody, dated August 22, 2002 (incorporated by reference to
the exhibits filed with the Registrants Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 2002, Commission File No.
0-23639)(B)          
|        |  |                                                                                                                                                                                                                                                                                                                      
|10.14   |  | Executive Severance Agreement by and between Province Healthcare Company
and Christopher T. Hannon, dated October 23, 2002 (incorporated by
reference to the exhibits filed with the Registrants Annual Report
filed on Form 10-K for the fiscal period ended December 31, 2002) (B)                                
|        |  |                                                                                                                                                                                                                                                                                                                      
|10.15   |  | Province Healthcare Company Amended and Restated Employee Stock Purchase
Plan (incorporated by reference to the exhibits filed with the
Registrants Definitive Proxy Statement on Schedule 14A, filed on April
26, 2002, Commission File No. 0-23639)(B)                                                            
|        |  |                                                                                                                                                                                                                                                                                                                      
|10.16   |  | Province Healthcare Company Amended and Restated 1997 Long-Term Equity
Incentive Plan (incorporated by reference to the exhibits filed with the
Registrants Definitive Proxy Statement on Schedule 14A, filed on April
26, 2002, Commission File No. 0-23639) (B)                                                   
|        |  |                                                                                                                                                                                                                                                                                                                      
|10.17   |  | Lease Agreement, dated October 1, 1996, by and between County of Starke,
State of Indiana, and Principal Knox Company (incorporated by reference
to the exhibits filed with the Registrants Registration Statement on
Form S-1, filed August 27, 1997, Registration No. 333-34421)                                  
|        |  |                                                                                                                                                                                                                                                                                                                      
|10.18   |  | Lease Agreement, dated December 1, 1993, by and between Palo Verde
Hospital Association and Brim Hospitals, Inc. (incorporated by reference
to the exhibits filed with the Registrants Registration Statement on
Form S-1/A filed October 8, 1997, Registration No. 333-34421)                                      
|        |  |                                                                                                                                                                                                                                                                                                                      
|10.19   |  | Lease Agreement, dated May 15, 1986, as amended, by and between Fort
Morgan Community Hospital Association and Brim Hospitals, Inc.
(incorporated by reference to the exhibits filed with the Registrants
Registration Statement on Form S-1/A filed October 8, 1997, Registration
No. 333-34421)                   

46



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|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|Number  |  | Description of Exhibit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10.20   |  | Lease Agreement, dated April 24, 1996, as amended, by and between
Parkview Regional Hospital, Inc. and Brim Hospitals, Inc. (incorporated
by reference to the exhibits filed with the Registrants Registration
Statement on Form S-1/A filed October 8, 1997, Registration No.
333-34421)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10.21   |  | Lease Agreement and Annex, dated June 30, 1997, by and between The Board
of Trustees of Needles Desert Communities Hospital and
Principal-Needles, Inc. (incorporated by reference to the exhibits filed
with the Registrants Registration Statement on Form S-1, filed August
27, 1997, Registration No. 333-34421)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10.22   |  | Lease and Management Agreement and Annex, dated June 9, 1998, by and
between St. Landry Parish Hospital Service District No. 1 and
PHC-Eunice, Inc. (incorporated by reference to the exhibits filed with
the Registrants Annual Report filed on Form 10-K for the fiscal period
ended December 31, 2001, Commission File No. 0-23639)                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10.23   |  | Lease Agreement, dated February 15, 2000, by and between The City of
Ennis, Texas, PRHC-Ennis, L.P. and Province Healthcare Company
(incorporated by reference to the exhibits filed with the Registrants
Annual Report filed on Form 10-K for the fiscal period ended December
31, 2001, Commission File No. 0-23639)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10.24   |  | Lease Agreement and Annex, dated as of December 7, 2001, by and among
Hospital Service District No. 2 of the Parish of St. Mary, State of
Louisiana, PHC-Morgan City, L.P. and Province Healthcare Company.
(incorporated by reference to the exhibits filed with the Registrants
Annual Report filed on Form 10-K for the fiscal period ended December
31, 2001, Commission File No. 0-23639)                                                                                                                                                                                                                                                                                                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10.25   |  | Lease Agreement, dated December 17, 1996, between Brim, Inc. and Encore
Senior Living, L.L.C. (incorporated by reference to the exhibits filed
with the Registrants Registration Statement on Form S-1/A filed October
8, 1997, Registration No. 333-34421)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10.26   |  | Corporate Purchasing Agreement, dated April 21, 1997, between Aligned
Business Consortium Group and Principal Hospital Company (incorporated
by reference to the exhibits filed with the Registrants Registration
Statement on Form S-1, filed August 27, 1997, Registration No.
333-34421)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10.27   |  | First Amendment to Securities Purchase Agreement, dated as of December
31, 1997, between Principal Hospital Company and Leeway & Co.
(incorporated by reference to the exhibits filed with the Registrants
Registration Statement on Form S-1/A filed November 13, 1997,
Registration No. 333-34421)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10.28   |  | Amended and Restated Agreement of Limited Partnership, dated June 30,
1997, between PHC of Delaware, Palestine-Principal G.P., Inc.,
Palestine-Principal, Inc. and Mother Frances Hospital Regional
Healthcare Center (incorporated by reference to the exhibits filed with
the Registrants Annual Report on Form 10-K, for the fiscal period ended
December 31, 2000, Commission File No. 0-23639)                                                                                                                                                                                                                                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10.29   |  | Amended and Restated Participation Agreement, dated as of November 13,
2001, among Province Healthcare Company, as Construction Agent and
Lessee, various parties as Guarantors, Wells Fargo Bank Northwest,
National Association, as the Owner Trustee under the PHC Real Estate
Trust 1998-1, various banks and lending institutions as Holders, various
banks and lending institutions as Lenders, Bank of America, N.A. as
Syndicate Agent, UBS Warburg LLC, as Co-Documentation Agent, Merrill
Lynch, as Co-Documentation Agent, First Union Securities, Inc., as Sole
Book-Runner and Co-Lead Arranger, Bank of America, N.A., as Co-Lead
Manager and First Union National Bank, as Agent (incorporated by
reference to the exhibits filed with the Registrants Annual Report
filed on Form 10-K

47



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##### Table of Contents



|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|Number  |  | Description of Exhibit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        |  | for the fiscal period ended December 31, 2001,
Commission File No. 0-23639)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.30   |  | Amendment No. 1 to Certain Operative Agreements dated as of March 29,
2002, among Province Healthcare Company, as the Lessee and as the
Construction Agent, the various parties thereto from time to time, as
guarantors, Wells Fargo Bank Northwest, National Association (formerly
known as First Security Bank, National Association), as the Owner
Trustee, the various banks and other lending institutions which are
parties thereto from time to time, as holders, the various banks and
other lending institutions which are parties thereto from time to time,
as lenders and First Union National Bank, as the agent for the lenders
and respecting the Security Documents, as the agent for the Lenders and
the Holders, to the extent of their interests (incorporated by reference
to the exhibits filed with the Registrants Quarterly Report filed on
Form 10-Q for the quarterly period ended March 31, 2002, Commission File
No. 0-23639)
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.31   |  | Third Amended and Restated Senior Credit Agreement, dated as of November
13, 2001, among Province Healthcare Company, First Union National Bank,
as Agent and Issuing Bank, and various parties thereto (incorporated by
reference to the exhibits filed with the Registrants Annual Report
filed on Form 10-K for the fiscal period ended December 31, 2001,
Commission File No. 0-23639)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.32   |  | Asset Purchase Agreement, dated April 29, 1998, between Province
Healthcare Company, PHC-Lake Havasu, Inc. and Samaritan Health System
(incorporated by reference to the exhibits filed with the Registrants
Current Report on Form 8-K, dated May 14, 1998, Commission File No.
0-23639)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.33   |  | Asset Sale Agreement, dated July 23, 1999, between Tenet Healthcare
Corporation and Province Healthcare Company (incorporated by reference
to the exhibits filed with the Registrants Current Report on Form 8-K,
dated October 18, 1999, Commission File No. 0-23639)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.34   |  | Amendment No. 1 to Asset Sale Agreement, dated September 29, 1999,
between Tenet Healthcare Corporation and Province Healthcare Company
(incorporated by reference to the exhibits filed with the Registrants
Current Report on Form 8-K, dated October 18, 1999, Commission File No.
0-23639)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.35   |  | Second Amendment to Credit Agreement and Consent, dated March 28, 2003,
among Province Healthcare Company, Wachovia Bank, National Association,
as Agent, and various parties thereto (incorporated by reference to the
exhibits filed with the Registrants Quarterly Report filed on Form
10-Q, for the quarterly period ended March 31, 2003 Commission File No.
0-23639)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.36   |  | Amendment No. 2 to Certain Operative Agreement, dated as of March 28,
2003, among Province Healthcare Company, as the Lessee and as the
Construction Agent, the various parties thereto from time to time, as
guarantors, Wells Fargo Bank Northwest National Association, as the
Owner Trustee, the various banks and other lending institutions which
are parties thereto from time to time, as holders, the various banks and
lending institutions which are parties thereto from time to time, as
lenders, and Wachovia Bank, National Association, as the agent for the
Lenders and respecting the Security Documents, as the agent for the
Lenders and the Holders (incorporated by reference to the exhibits filed
with the Registrants Quarterly Report filed on Form 10-Q, for the
quarterly period ended March 31, 2003 Commission File No. 0-23639)                                                                                            
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.37   |  | Third Amendment to Credit Agreement and Consent, dated May 27, 2003,
among Province Healthcare Company, Wachovia Bank, National Association,
as Agent, and various parties thereto (incorporated by reference to the
exhibits filed with the Registrants Quarterly Report field on Form
10-Q, for the quarterly period ended June 30, 2003, Commission File No.
0-23639)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.38   |  | Fourth Amendment to Credit Agreement and Consent, dated June 30, 2003,
among Province Healthcare                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

48



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##### Table of Contents



|        |  |                                                                                                                                                                                                                                                                           
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                           
|Number  |  | Description of Exhibit                                                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                           
|        |  | Company, Wachovia Bank, National Association,
as Agent, and various parties thereto (incorporated by reference to the
exhibits filed with the Registrants Quarterly Report field on Form
10-Q, for the quarterly period ended June 30, 2003, Commission File No.
0-23639)
|        |  |                                                                                                                                                                                                                                                                           
|10.39   |  | Employment Agreement with John M. Rutledge, dated February 1, 2004 (A)(B)                                                                                                                                                                                                 
|        |  |                                                                                                                                                                                                                                                                           
|21.1    |  | Subsidiaries of the Registrant (A)                                                                                                                                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                           
|23.1    |  | Consent of Ernst & Young LLP (A)                                                                                                                                                                                                                                          
|        |  |                                                                                                                                                                                                                                                                           
|31.1    |  | Certification pursuant to Rule 13a-14(a) under the Securities Exchange
Act of 1934, as amended, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (A)                                                                                                  
|        |  |                                                                                                                                                                                                                                                                           
|31.2    |  | Certification pursuant to Rule 13a-14(a) under the Securities Exchange
Act of 1934, as amended, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (A)                                                                                                  
|        |  |                                                                                                                                                                                                                                                                           
|32.1    |  | Certifications pursuant to Rule 13a-14(b) of the Securities Exchange Act
of 1934, as amended, and 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (C)                                                                        



---

|(A) |  | Filed herewith                             
|--- |  | -------------------------------------------
|   
|(B) |  | Management Compensatory Plan or Arrangement
|   
|(C) |  | Furnished herewith                         
|   
|(b) |  | Reports on Form 8-K                        



| |                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------
| | On October 28, 2003, we filed a Current Report on Form 8-K to announce
financial results for the quarter ended September 30, 2003.



| |                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On December 17, 2003, we filed a Current Report on Form 8-K to announce
the selection of our Companys bid to purchase the 286-bed Memorial
Medical Center in Las Cruces, New Mexico.

49



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##### Table of Contents






SIGNATURES

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

Province Healthcare CompanyBy:
    
    /s/ Roberto G. PantojaRoberto G.
Pantoja
Vice President and Controller


POWER OF ATTORNEY

The undersigned directors of Province Healthcare Company, a Delaware
corporation, do hereby constitute and appoint Martin S. Rash their lawful
attorney and agent with full power and authority to do any and all acts and
things and to execute any and all instruments which said attorney and agent may
determine to be necessary or advisable or required to enable said corporation
to comply with the Securities Exchange Act of 1934, as amended, and any rules
or regulations or requirements of the Securities and Exchange Commission in
connection with this Annual Report on Form 10-K. Without limiting the
generality of the foregoing power and authority, the powers granted include the
power and authority to sign the names of the undersigned directors in the
capacities indicated below to this Annual Report on Form 10-K or amendments or
supplements thereto, and each of the undersigned hereby ratifies and confirms
all that said attorney and agent shall do or cause to be done by virtue hereof.

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

|                                        |  |                                                   |  |               
|--------------------------------------- |  | ------------------------------------------------- |  | --------------
|/s/Martin S. Rash

Martin S. Rash       |  | Chairman of the Board and
Chief Executive Officer |  | March  8, 2004
|                                        |  |                                                   |  |               
|/s/Winfield C. Dunn

Winfield C. Dunn   |  | Director                                          |  | March  8, 2004
|                                        |  |                                                   |  |               
|/s/Paul J. Feldstein

Paul J. Feldstein |  | Director                                          |  | March  8, 2004
|                                        |  |                                                   |  |               
|/s/Michael P. Haley

Michael P. Haley   |  | Director                                          |  | March  8, 2004
|                                        |  |                                                   |  |               
|/s/David R. Klock

David R. Klock       |  | Director                                          |  | March  8, 2004
|                                        |  |                                                   |  |               
|/s/Joseph P. Nolan

Joseph P. Nolan     |  | Director                                          |  | March  8, 2004
|                                        |  |                                                   |  |               
|/s/John M. Rutledge

John M. Rutledge   |  | Director                                          |  | March  8, 2004
|                                        |  |                                                   |  |               
|/s/David L. Steffy

David L. Steffy     |  | Director                                          |  | March  8, 2004

50



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##### Table of Contents



|                                                |  |                                                   |  |               
|----------------------------------------------- |  | ------------------------------------------------- |  | --------------
|/s/Christopher T. Hannon

Christopher T. Hannon |  | Senior Vice President and
Chief Financial Officer |  | March  8, 2004

51



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##### Table of Contents



PROVINCE HEALTHCARE COMPANY
FORM 10-K - ITEM 8 AND ITEM 15(a)(1) INDEX TO FINANCIAL STATEMENTS The
following consolidated financial statements are filed as a part of this
report under Item 8Financial Statements and Supplementary
Data: PageAnnual Financial StatementsReport of
Ernst & Young LLP, Independent Auditors
    
    
    F-2Consolidated Balance Sheets at December 31, 2003 and 2002
    
    
    F-3Consolidated Statements of Income for the Years Ended December 31, 2003, 2002 and 2001
    
    
    F-4Consolidated Statements of Changes in Stockholders Equity for the Years Ended December
31, 2003, 2002 and 2001
    
    
    F-5Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2002 and 2001
    
    
    F-6Notes to Consolidated Financial Statements
    
    
    F-7
 Financial statement schedules are not required under the related instructions
or are inapplicable and therefore have been omitted. F-1




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##### Table of Contents



REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS Board of DirectorsProvince Healthcare Company We have audited the accompanying consolidated balance sheets of Province
Healthcare Company and subsidiaries as of December 31, 2003 and 2002, and the
related consolidated statements of income, changes in stockholders equity, and
cash flows for each of the three years in the period ended December 31, 2003.
These financial statements are the responsibility of the Companys management.
Our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Province
Healthcare Company and subsidiaries at December 31, 2003 and 2002, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2003, in conformity with
accounting principles generally accepted in the United States. As discussed in Note 1 to the consolidated financial statements, the
Company changed, in 2002, its method of accounting for goodwill and other
intangible assets. /s/ Ernst & Young LLPNashville, TennesseeFebruary 10, 2004
 F-2




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##### Table of Contents



PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS(in thousands, except per share amounts) December 31,2003
    
    2002ASSETSCurrent assets:Cash and cash equivalents
    
    $
    46,134
    
    
    $
    14,648Accounts receivable, less allowance for doubtful accounts
of $66,875 in 2003 and $64,762 in 2002
    
    
    111,957
    
    
    
    109,948Inventories
    
    
    18,424
    
    
    
    19,203Prepaid expenses and other
    
    
    11,832
    
    
    
    13,649Assets of discontinued operations
    
    
    14,569
    
    
    
    26,374Total current assets
    
    
    202,916
    
    
    
    183,822Property and equipment, net
    
    
    460,031
    
    
    
    440,358Goodwill
    
    
    309,271
    
    
    
    311,172Unallocated purchase price
    
    
    
    
    
    
    466Other assets
    
    
    36,907
    
    
    
    36,681$
    1,009,125
    
    
    $
    972,499LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    16,343
    
    
    $
    19,735Accrued salaries and benefits
    
    
    28,740
    
    
    
    24,478Accrued expenses
    
    
    14,238
    
    
    
    12,877Current portion of long-term debt
    
    
    743
    
    
    
    974Liabilities of discontinued operations
    
    
    2,749
    
    
    
    4,947Total current liabilities
    
    
    62,813
    
    
    
    63,011Long-term debt, less current portion
    
    
    447,956
    
    
    
    460,370Other liabilities
    
    
    49,573
    
    
    
    33,304Minority interests
    
    
    1,910
    
    
    
    2,612Commitments and contingencies
    
    
    
    
    
    
    Stockholders equity:Preferred stock - $0.01 par value, 100,000 shares
authorized, none issued and outstanding
    
    
    
    
    
    
    Common stock - $0.01 par value; 150,000,000 shares
authorized, 48,841,157 shares and 48,581,549
shares issued and outstanding at December 31, 2003
and 2002, respectively
    
    
    488
    
    
    
    486Additional paid-in-capital
    
    
    306,091
    
    
    
    304,102Retained earnings
    
    
    141,186
    
    
    
    109,567Accumulated other comprehensive loss
    
    
    (892
    )
    
    
    (953
    )Total stockholders equity
    
    
    446,873
    
    
    
    413,202$
    1,009,125
    
    
    $
    972,499
 See accompanying notes. F-3




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##### Table of Contents



PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts) Year Ended December 31,2003
    
    2002
    
    2001Revenues:Net patient revenue
    
    $
    735,841
    
    
    $
    649,954
    
    
    $
    480,627Other
    
    
    26,137
    
    
    
    23,279
    
    
    
    21,460761,978
    
    
    
    673,233
    
    
    
    502,087Expenses:Salaries, wages and benefits
    
    
    287,466
    
    
    
    266,651
    
    
    
    195,261Purchased services
    
    
    69,388
    
    
    
    70,205
    
    
    
    47,700Supplies
    
    
    95,675
    
    
    
    84,524
    
    
    
    56,385Provision for doubtful accounts
    
    
    72,678
    
    
    
    53,059
    
    
    
    44,258Other operating expenses
    
    
    96,568
    
    
    
    77,341
    
    
    
    54,663Rentals and leases
    
    
    9,323
    
    
    
    8,592
    
    
    
    7,134Depreciation and amortization
    
    
    37,753
    
    
    
    32,313
    
    
    
    28,017Interest expense
    
    
    26,262
    
    
    
    21,285
    
    
    
    11,071Minority interests
    
    
    260
    
    
    
    34
    
    
    
    267Loss (gain) on sale of assets
    
    
    86
    
    
    
    (77
    )
    
    
    196Loss on early extinguishment of debt
    
    
    486
    
    
    
    
    
    
    
    Total expenses
    
    
    695,945
    
    
    
    613,927
    
    
    
    444,952Income from continuing operations
before provision for income taxes
    
    
    66,033
    
    
    
    59,306
    
    
    
    57,135Income taxes
    
    
    23,345
    
    
    
    23,731
    
    
    
    24,084Income from continuing operations
    
    
    42,688
    
    
    
    35,575
    
    
    
    33,051Discontinued operations, net of tax:(Loss) earnings from operations
    
    
    (2,117
    )
    
    
    537
    
    
    
    (143
    )Impairment of assets
    
    
    (8,952
    )
    
    
    
    
    
    
    (11,069
    )
    
    
    537
    
    
    
    (143
    )Net income
    
    $
    31,619
    
    
    $
    36,112
    
    
    $
    32,908Earnings (loss) per common share:Basic:Continuing operations
    
    $
    0.88
    
    
    $
    0.74
    
    
    $
    0.70Discontinued operations:(Loss) earnings from operations
    
    
    (0.04
    )
    
    
    0.01
    
    
    
    Impairment of assets
    
    
    (0.18
    )
    
    
    
    
    
    
    Net income
    
    $
    0.65
    
    
    $
    0.75
    
    
    $
    0.70Diluted:Continuing operations
    
    $
    0.86
    
    
    $
    0.72
    
    
    $
    0.68Discontinued operations:(Loss) earnings from operations
    
    
    (0.04
    )
    
    
    0.01
    
    
    
    (0.01
    )Impairment of assets
    
    
    (0.15
    )
    
    
    
    
    
    
    Net income
    
    $
    0.67
    
    
    $
    0.73
    
    
    $
    0.67
 See accompanying notes. F-4




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##### Table of Contents



PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(in thousands, except share amounts) AccumulatedCommon Stock
    
    Additional
    
    
    
    
    
    OtherPaid-In
    
    Retained
    
    ComprehensiveShares
    
    Amount
    
    Capital
    
    Earnings
    
    Loss
    
    TotalBalance at December 31, 2000
    
    
    46,362,882
    
    
    $
    463
    
    
    $
    273,704
    
    
    $
    40,547
    
    
    $
    
    
    
    $
    314,714Exercise of stock options and
related income tax benefit
    
    
    844,339
    
    
    
    9
    
    
    
    13,253
    
    
    
    
    
    
    
    
    
    
    
    13,262Treasury stock
    
    
    (2,319
    )
    
    
    
    
    
    
    (45
    )
    
    
    
    
    
    
    
    
    
    
    (45
    )Issuance of common stock from employee
stock purchase plan
    
    
    284,082
    
    
    
    3
    
    
    
    2,036
    
    
    
    
    
    
    
    
    
    
    
    2,039Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,908
    
    
    
    
    
    
    
    32,908Cumulative effect of change in accounting for
derivative financial instruments,
net of tax of $42
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (58
    )
    
    
    (58
    )Change in fair value of derivatives,
net of tax of $504
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (815
    )
    
    
    (815
    )32,035Balance at December 31, 2001
    
    
    47,488,984
    
    
    
    475
    
    
    
    288,948
    
    
    
    73,455
    
    
    
    (873
    )
    
    
    362,005Exercise of stock options and
related income tax benefit
    
    
    1,031,998
    
    
    
    10
    
    
    
    13,952
    
    
    
    
    
    
    
    
    
    
    
    13,962Treasury stock
    
    
    1,545
    
    
    
    
    
    
    
    45
    
    
    
    
    
    
    
    
    
    
    
    45Issuance of common stock from employee
stock purchase plan
    
    
    59,022
    
    
    
    1
    
    
    
    1,032
    
    
    
    
    
    
    
    
    
    
    
    1,033Other
    
    
    
    
    
    
    
    
    
    
    125
    
    
    
    
    
    
    
    
    
    
    
    125Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,112
    
    
    
    
    
    
    
    36,112Change in fair value of derivatives,
net of tax of $53
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (80
    )
    
    
    (80
    )36,032Balance at December 31, 2002
    
    
    48,581,549
    
    
    
    486
    
    
    
    304,102
    
    
    
    109,567
    
    
    
    (953
    )
    
    
    413,202Exercise of stock options and
related income tax benefit
    
    
    143,882
    
    
    
    1
    
    
    
    828
    
    
    
    
    
    
    
    
    
    
    
    829Issuance of common stock from employee
stock purchase plan and other
    
    
    115,726
    
    
    
    1
    
    
    
    1,161
    
    
    
    
    
    
    
    
    
    
    
    1,162Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31,619
    
    
    
    
    
    
    
    31,619Change in fair value of derivatives,
net of tax of $38
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61
    
    
    
    6131,680Balance at December 31, 2003
    
    
    48,841,157
    
    
    $
    488
    
    
    $
    306,091
    
    
    $
    141,186
    
    
    $
    (892
    )
    
    $
    446,873
 See accompanying notes. F-5




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##### Table of Contents



PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) Year Ended December 31,2003
    
    2002
    
    2001Cash flows from operating activities:Income from continuing operations
    
    $
    42,688
    
    
    $
    35,575
    
    
    $
    33,051Adjustments to reconcile income from continuing operations
to net cash provided by operating activities:Depreciation and amortization
    
    
    37,753
    
    
    
    32,313
    
    
    
    28,017Deferred income taxes
    
    
    14,217
    
    
    
    8,947
    
    
    
    6,191Provision for professional liability
    
    
    5,476
    
    
    
    7,209
    
    
    
    200Loss on early extinguishment of debt
    
    
    486
    
    
    
    
    
    
    
    Loss (gain) of sale of assets
    
    
    86
    
    
    
    (77
    )
    
    
    196Changes in operating assets and liabilities, net of effects
from acquisitions and disposals:Accounts receivable
    
    
    (994
    )
    
    
    6,410
    
    
    
    (13,666
    )Inventories
    
    
    712
    
    
    
    (1,311
    )
    
    
    (1,425
    )Prepaid expenses and other
    
    
    (2,662
    )
    
    
    7,555
    
    
    
    (15,622
    )Accounts payable and accrued expenses
    
    
    (3,992
    )
    
    
    (5,254
    )
    
    
    (2,411
    )Accrued salaries and benefits
    
    
    4,262
    
    
    
    (141
    )
    
    
    829Other
    
    
    8,205
    
    
    
    885
    
    
    
    631Net cash provided by operating activities
    
    
    106,237
    
    
    
    92,111
    
    
    
    35,991Cash flows from investing activities:Purchase of property and equipment
    
    
    (57,013
    )
    
    
    (45,522
    )
    
    
    (70,148
    )Purchase of hospitals and healthcare entities
    
    
    
    
    
    
    (171,157
    )
    
    
    (97,607
    )Net cash used in investing activities
    
    
    (57,013
    )
    
    
    (216,679
    )
    
    
    (167,755
    )Cash flows from financing activities:Proceeds from long-term debt
    
    
    194,199
    
    
    
    134,321
    
    
    
    337,939Repayments of debt
    
    
    (213,049
    )
    
    
    (44,048
    )
    
    
    (178,348
    )Issuance of common stock
    
    
    2,574
    
    
    
    11,037
    
    
    
    11,969Net cash (used in) provided by financing activities
    
    
    (16,276
    )
    
    
    101,310
    
    
    
    171,560Net cash provided by (used in) continuing operations
    
    
    32,948
    
    
    
    (23,258
    )
    
    
    39,796Net cash used in discontinued operations
    
    
    (1,462
    )
    
    
    (1,076
    )
    
    
    (814
    )Increase (decrease) in cash and cash equivalents
    
    
    31,486
    
    
    
    (24,334
    )
    
    
    38,982Cash and cash equivalents at beginning of period
    
    
    14,648
    
    
    
    38,982
    
    
    
    Cash and cash equivalents at end of period
    
    $
    46,134
    
    
    $
    14,648
    
    
    $
    38,982Supplemental cash flow information:Cash paid for interest
    
    $
    23,986
    
    
    $
    19,958
    
    
    $
    9,742Cash paid for income taxes, net
    
    $
    10,322
    
    
    $
    14,848
    
    
    $
    28,185Acquisitions:Assets acquired
    
    $
    
    
    
    $
    181,268
    
    
    $
    109,014Liabilities assumed
    
    
    
    
    
    
    (10,111
    )
    
    
    (11,407
    )Cash paid, net of cash acquired
    
    $
    
    
    
    $
    171,157
    
    
    $
    97,607
 See accompanying notes. F-6




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##### Table of Contents



PROVINCE HEALTHCARE COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003 1.ORGANIZATION AND ACCOUNTING POLICIES Organization Province Healthcare Company (the Company) was founded on February 2,
1996, and is engaged in the business of owning, leasing and managing hospitals
in non-urban communities throughout the United States. At December 31, 2003,
the Company owned or leased 20 general acute care hospitals in 13 states. On
January 5, 2004, the Company signed a letter of intent to permit the Palm Beach
Healthcare District to reacquire Glades General Hospital in Belle Glade,
Florida. This transaction is expected to close in the first half of 2004.
Pursuant to the 2003 plan of divestiture, the operations and non-cash
impairment of assets charge related to this hospital are reported as
discontinued operations. The Companys remaining 19 hospitals are reported as
continuing operations, with a total of 2,189 licensed beds that accounted for
97.9%, 97.8% and 96.9% of its revenues from continuing operations in 2003,
2002, and 2001, respectively. At December 31, 2003, the Company also provided
management services that accounted for 2.1%, 2.2% and 3.1% of its
revenues
from continuing operations in 2003, 2002, and 2001, respectively, to 36
primarily non-urban hospitals in 14 states, with a total of 2,985 licensed
beds. Basis of Consolidation The consolidated financial statements include the accounts of the Company,
its majority-owned subsidiaries and partnerships in which the Company or one of
its subsidiaries is a general partner and has a majority voting interest. All
significant intercompany accounts and transactions have been eliminated in
consolidation. Critical Accounting Policies and Estimates The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and judgments that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
at the dates of the financial statements and the reported amounts of revenues
and expenses during the reporting periods. On an ongoing basis, the Company
evaluates its estimates, including those related to bad debts, contractual
discounts, risk management reserves and intangible assets. The Company bases
its estimates on historical experience and on various other assumptions that
are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. The Company
believes the following critical accounting policies affect its more significant
judgments and estimates used in the preparation of its consolidated financial
statements:  (a)
    
    Allowance for Doubtful Accounts.The Companys ability to
collect outstanding receivables from third-party payors and others is
critical to its operating performance and cash flows. The primary
collection risk lies with uninsured patient accounts or patient
accounts for which a balance remains after primary insurance has
paid. The Companys policy with respect to estimating its allowance
for doubtful accounts is to reserve 50% of all self-pay accounts
receivable at 120 days and 100% of all self-pay accounts at 150 days.
The Company continually monitors its accounts receivable balances
and utilizes cash collections data and other analytical tools to
support the basis for its estimates of the provision for doubtful
accounts. In addition, the Company performs hindsight procedures on
historical collection and write-off experience to determine the
reasonableness of its policy for estimating the allowance for
doubtful accounts. The Company does not pursue collection of amounts
related to patients that qualify for charity care under its
guidelines. Charity care accounts are deducted from gross revenue
and do not affect the provision for doubtful accounts. Significant
changes in payor mix or business office operations, or deterioration
in aging accounts receivable could result in a significant increase
in this allowance.(b)
    
    Allowance for Contractual Discounts.The Company derives a
significant portion of its revenues from Medicare, Medicaid and other
payors that receive discounts from our standard charges. For the
year F-7




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##### Table of Contents



ended December 31, 2003, Medicare, Medicaid and discounted plan
patients accounted for a combined 93.0% of net patient revenue from continuing operations,
compared to 94.9% for the year ended December 31, 2002. The Medicare
and Medicaid regulations and various managed care contracts under which
these discounts must be calculated are often complex and subject to
interpretation and adjustment. The Company utilizes an exhibit system
to estimate the allowance for contractual discounts on a payor -
specific basis, given its interpretation of the applicable regulations
or contract terms. However, the services authorized and provided and
resulting reimbursement, are often subject to interpretation. These
interpretations sometimes result in payments that differ from the
Companys estimates. Additionally, updated regulations and contract
negotiations occur frequently, necessitating our continual review and
assessment of the estimation process. In addition, the Company
reserves 100% of Medicare, Medicaid, and other insurance payors
accounts receivable at 365 days.(c)
    
    Risk Management Reserves. The Company purchased a professional
liability claims-made reporting policy effective January 1, 2003.
This coverage is subject to a $5.0 million self-insured retention per
occurrence for general and professional liability and provides
coverage up to $50.0 million for claims incurred during the annual
policy term. This retention amount increases our exposure for claims
occurring prior to December 31, 2002 and reported on or after January
1, 2003, due to the increased retention amount as compared to prior
years. In 2002, the Company had a claims-made reporting policy
subject to a $750,000 deductible and a $2.0 million self-insured
retention per occurrence, providing coverage up to $51.0 million for claims incurred
during the annual policy term in 2002. In 2001, the Company
maintained insurance for individual malpractice claims exceeding
$50,000 per medical incident, subject to an annual maximum of
$500,000 for claims occurring and reported in 2001. The Company purchased a tail policy that provides an unlimited
claim reporting period for its professional liability for claims incurred in 2000 and prior years.
The Company
estimates its self-insured retention portion of the malpractice risks
using an outside actuary which uses historical claims data, demographic factors, severity factors
and other actuarial assumptions. The Company maintains a reserve to cover both reported
claims and claims that have been incurred but not yet reported within its self-insured retention.Workers compensation claims are insured with a large deductible with
stop loss limits of $100,000 per accident and a $1.9 million and $2.2
million minimum cap on total losses for the 1999 and 2000 years,
respectively, and $250,000 per accident and a $6.6 million and $3.0
million minimum cap on total losses for the 2002 and 2001 years,
respectively. The Company increased the deductible loss amount to
$500,000 per accident effective January 1, 2003. The minimum cap for
total 2003 losses is $12.0 million. The Companys arrangement with the
insurance provider allows it to prepay the expected amounts of annual
workers compensation claims, which is based upon claims experience.
The claims processor tracks payments for the policy year. At the end
of the policy year, the claims processor compares the total amount
prepaid by the Company to the actual amount paid by the claims
processor. This comparison will ultimately result in a receivable from
or a payable to the claims processor.The Company is fully insured in the commercial marketplace for workers
compensation claims prior to January 1, 1999. The Company utilized
loss run reports provided by the claims administrator to determine the
appropriate range of loss reserves for the 1999 year and subsequent
years. The Companys accruals are calculated to cover the risk from
both reported claims and claims that have been incurred but not yet
reported.(d)
    
    Intangible Assets.The Company adopted Statement of Financial
Accounting Standards No. 141, Business Combinations(SFAS No. 141),
effective July 1, 2001 and Statement of Financial Accounting Standards
No. 142, Goodwill and Other Intangible Assets(SFAS No. 142),
effective January 1, 2002. Under SFAS No. 142, goodwill and indefinite
lived intangible assets from acquisitions prior to July 1, 2001 are no
longer amortized effective January 1, 2002, but are subject to annual
impairment tests. In accordance with the new rules, goodwill resulting
from acquisitions after June 30, 2001 has not been amortized. Other
intangible assets will continue to be amortized over their useful
lives.Management of the Company evaluates all acquisitions independently to
determine the appropriate amortization period for identified intangible
assets. Each evaluation includes an analysis of factors such as
historic and projected financial performance, evaluation of the
estimated useful lives of buildings and fixed assets acquired, the
indefinite lives of certificates of need and licenses acquired, the
competition within local markets, and lease terms where applicable. F-8




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##### Table of Contents



Reclassifications As disclosed in Note 2, the operations of Glades General Hospital are
reported as discontinued operations and the consolidated financial statements
for all prior periods have been adjusted to reflect this presentation. In
addition, certain other prior period amounts have been reclassified to conform
to the current year presentation. Such other reclassifications had no material
effect on the financial position and results of operations as previously
reported. Cash Equivalents The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. The Company places
its cash in financial institutions that are federally insured and limits the
amount of credit exposure with any one financial institution. Accounts Receivable The Company receives payment for services rendered from federal and state
agencies (under the Medicare, Medicaid and TRICARE programs), managed care
health plans, commercial insurance companies, employers and patients. During
the years ended December 31, 2003, 2002, and 2001, approximately 48.8%, 56.7%,
and 48.6%, respectively, of the Companys revenues from
continuing operations related to patients
participating in the Medicare and Medicaid programs. Management recognizes
that revenues and receivables from government agencies are significant to its
operations, but it does not believe that there are significant credit risks
associated with these government agencies. Management does not believe that
there are any other significant concentrations of revenues from any particular
payor that would subject it to any significant credit risks in the collection
of its accounts receivable. Inventories Inventories are stated at the lower of cost, determined by the first-in,
first-out method, or market. Property and Equipment Property and equipment are stated at cost. Routine maintenance and
repairs are charged to expense as incurred. Expenditures that increase
capacities or extend useful lives are capitalized. Depreciation expense,
including amortization of assets capitalized under capital leases, is computed
using the straight-line method over the estimated useful lives of the assets.
Leasehold improvements are amortized on a straight-line basis over the lesser
of the terms of the respective leases or their estimated useful lives.
Buildings and improvements are depreciated over estimated useful lives ranging
generally from 20 to 40 years. Estimated useful lives of equipment vary
generally from 3 to 20 years. The Company adopted Statement of Financial Accounting Standards No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets(SFAS No. 144)
effective January 1, 2002. Prior to January 1, 2002, the Company recognized
impairments of long-lived assets in accordance with SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of. In accordance with SFAS No. 144, when events, circumstances or
operating results indicate that the carrying values of certain long-lived
assets and related identifiable intangible assets (excluding goodwill) that are
expected to be held and used might be impaired, the Company considers the
recoverability of assets to be held and used by comparing the carrying amount
of the assets to the present value of future net cash flows expected to be
generated by the assets. If assets are identified as impaired, the impairment
is measured by the amount by which the carrying amount of the assets exceeds
the fair value of the assets as determined by independent appraisals or
estimates of discounted future cash flows. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs to sell. Other Assets Other assets consist primarily of costs associated with the issuance of
debt which are amortized using the interest method over the life of the related
debt, and costs to recruit physicians to the Companys markets, which are
deferred and amortized over the term of the respective physician recruitment
agreement, which is generally three years. Amortization of deferred loan costs
is included in interest expense. Deferred loan costs totaled $15,305,000 (net
of accumulated amortization of $11,940,000) and $11,733,000 (net of accumulated
amortization of $8,518,000) at F-9




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##### Table of Contents



December 31, 2003 and 2002, respectively. Amortization of physician
recruiting costs is included in other operating expenses. Net physician
recruiting costs included in the accompanying consolidated balance sheets at
December 31, 2003 and 2002 totaled $16,975,000 and $18,049,000, respectively. Other Noncurrent Liabilities Other noncurrent liabilities consist primarily of insurance liabilities,
supplemental deferred compensation liability, and deferred income taxes. Minority Interests The consolidated financial statements include all assets, liabilities,
revenues and expenses of less than 100% owned entities controlled by the
Company. Accordingly, the Company has recorded minority interests in the
earnings and equity of such consolidated entities. Patient Revenue The Companys healthcare facilities have entered into agreements with
third-party payors, including government programs and managed care health
plans, under which the facilities are paid based upon established charges, the
cost of providing services, predetermined rates per diagnosis, fixed per diem
rates or discounts from established charges. Net patient revenue is reported at the estimated net realizable amounts
from third-party payors and others for services rendered, including estimated
retroactive adjustments under reimbursement agreements with third-party payors.
Estimated settlements under third-party reimbursement agreements are accrued
in the period the related services are rendered and are adjusted, if necessary,
in future periods when final settlements are determined (See Note 7). The Company provides care without charge to patients who are financially
unable to pay for the healthcare services they receive. Because the Company
does not pursue collection of amounts determined to qualify as charity care,
they are not reported in net patient revenues. Stock Based Compensation The Company, from time to time, grants stock options for a fixed number of
common shares to employees and directors at a fixed exercise price. The Company accounts for employee
stock option grants using the intrinsic value method in accordance with
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees(Opinion 25), and related interpretations, and accordingly,
recognizes no compensation expense for the stock option grants when the
exercise price of the options equals, or is greater than, the market price of
the underlying stock on the date of grant. F-10




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##### Table of Contents



The following proforma information is being presented in accordance with
Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure, which was adopted by the Company
effective January 1, 2003. Had compensation cost for the Companys stock-based
compensation plans been determined based on the fair value at the grant date
for awards under these plans consistent with the methodology prescribed under
SFAS No. 123, Accounting for Stock-Based Compensation(SFAS No. 123), net
income and earnings per share would have been reduced to the pro forma amounts
indicated in the following table (in thousands, except per share data): 2003
    
    2002
    
    2001Net income  as reported
    
    $
    31,619
    
    
    $
    36,112
    
    
    $
    32,908Less pro forma effect of stock option grants
    
    
    (4,744
    )
    
    
    (10,922
    )
    
    
    (8,452
    )Pro forma net income
    
    $
    26,875
    
    
    $
    25,190
    
    
    $
    24,456Earnings per share  as reportedBasic
    
    $
    0.64
    
    
    $
    0.75
    
    
    $
    0.70Diluted
    
    $
    0.67
    
    
    $
    0.73
    
    
    $
    0.67Earnings per share  pro formaBasic
    
    $
    0.55
    
    
    $
    0.52
    
    
    $
    0.52Diluted
    
    $
    0.55
    
    
    $
    0.51
    
    
    $
    0.50
 In accordance with Statement of Financial Accounting Standards No. 128,
Earnings Per Share (SFAS No. 128), the calculation of diluted earnings per share for the year
ended December 31, 2003 using the if converted method includes the impact of
the Companys convertible notes. Since the Company reports discontinued
operations, income from continuing operations has been utilized in determining
whether the convertible notes were dilutive or antidilutive to earnings per
share. The convertible notes were dilutive to earnings per share on income
from continuing operations and were antidilutive to net income for the year
ended December 31, 2003. The convertible notes were antidilutive
to earnings per share on pro forma income from continuing operations
and pro forma net income for the year ended December 31, 2003. Interest Rate Swap Agreements The Company enters into interest rate swap agreements as a means of
managing its interest rate exposure. The differential to be paid or received is
recognized over the life of the agreement as an adjustment to interest expense. Effective January 2001, the Company adopted Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities, as amended (SFAS No. 133). SFAS No. 133 requires that all
derivatives, whether designated in hedging relationships or not, be recognized
on the balance sheet at fair value and requires the recognition of the
resulting gains or losses as adjustments to earnings or other comprehensive
income. In accordance with the provisions of SFAS No. 133, the Company
designated its outstanding interest rate swap agreement as a fair value hedge
and determined that this hedge qualifies for treatment under the short-cut
method of measuring effectiveness. Under the provisions of SFAS No. 133, this
hedge is determined to be perfectly effective and there is no requirement to
periodically evaluate effectiveness. This derivative and the related hedged
debt amount has been recognized in the consolidated financial statements at its
respective fair value. Recently Issued Accounting Pronouncements In January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46, Consolidation of Variable Interest Entities(FIN 46)
to expand upon and strengthen existing accounting guidance that addresses when
a company should include in its financial statements the assets, liabilities
and activities of another entity. Until now, a company generally has included
another entity in its consolidated financial statements only if it controlled
the entity through voting interests. FIN 46 changes that guidance by requiring
a variable interest entity, as defined, to be consolidated by a company if that
company is subject to a majority of the risk of loss from the variable interest
entitys activities, or is entitled to receive a majority of the entitys
residual returns, or both. FIN 46 also requires disclosure about variable
interest entities that the company is not required to consolidate but in which
it has a significant variable interest. On December 24, 2003, the FASB issued
a revision of FIN 46 that replaced the original interpretation and codified
proposed modifications and other decisions previously issued through certain
FASB Staff Positions, including the deferral of the effective date of applying
FIN 46 to certain variable interests. The revised FIN 46 requires the Company
to apply the provisions of FIN 46 immediately to any special purpose entities
and to any variable interest entities created after January 31, 2003.
Application of the provisions will be required for all other variable interest
entities in financial statements for periods ending after March 15, 2004. The
Company does not anticipate any effect on its consolidated financial position
or operating results from the application of FIN 46. F-11




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2. DISCONTINUED OPERATIONS In the fourth quarter of 2003, management of the Company approved a plan
of divestiture for Glades General Hospital (Glades) in Belle Glade, Florida,
and on January 5, 2004, the Company signed a letter of intent to permit the
Palm Beach Healthcare District to reacquire Glades. This transaction is
expected to close in the first half of 2004. Pursuant to this plan of
divestiture, the operations of Glades are reported as discontinued operations
and the consolidated financial statements for all prior periods have been
adjusted to reflect this presentation. Operating results for Glades for the
years ended December 31, 2003, 2002 and 2001 are presented in the following
table (in thousands): Year Ended December 31,2003
    
    2002
    
    2001Revenues
    
    $
    29,710
    
    
    $
    31,114
    
    
    $
    28,652Operating expenses
    
    
    30,926
    
    
    
    27,643
    
    
    
    25,868Depreciation and amortization
    
    
    1,563
    
    
    
    1,918
    
    
    
    2,162Interest expense
    
    
    478
    
    
    
    672
    
    
    
    1,019Impairment charge
    
    
    13,773
    
    
    
    
    
    
    
    Total expenses
    
    
    46,740
    
    
    
    30,233
    
    
    
    29,049Income before provision for income taxes
    
    
    (17,030
    )
    
    
    881
    
    
    
    (397
    )Income taxes (benefit)
    
    
    (5,961
    )
    
    
    344
    
    
    
    (254
    )(Loss) earnings from discontinued operations
    
    $
    (11,069
    )
    
    $
    537
    
    
    $
    (143
    )
 In connection with the decision to sell Glades, the Company wrote off
goodwill associated with the hospital, wrote
off the net book value of physician recruiting costs and wrote down the
long-lived assets of Glades to their estimated net realizable value, less
cost to sell. These charges are included in the impairment charge
recorded in 2003. F-12




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The major classes of assets and liabilities of discontinued
operations in the consolidated balance sheets as of December 31, 2003 and
2002 are as follows (in thousands): Year Ended December 31,2003
    
    2002Accounts receivable, net
    
    $
    5,309
    
    
    $
    7,483Inventories
    
    
    529
    
    
    
    632Prepaid expenses and other current assets
    
    
    1,928
    
    
    
    979Property and equipment, net
    
    
    2,969
    
    
    
    7,021Goodwill
    
    
    
    
    
    
    8,218Other assets
    
    
    
    
    
    
    2,041Deferred income taxes
    
    
    3,834
    
    
    
    Total assets of discontinued operations
    
    
    14,569
    
    
    
    26,374Accounts payable
    
    
    552
    
    
    
    658Accrued salaries and benefits
    
    
    715
    
    
    
    902Accrued expenses
    
    
    500
    
    
    
    321Long-term debt
    
    
    982
    
    
    
    1,900Deferred income taxes
    
    
    
    
    
    
    1,166Total liabilities of discontinued operations
    
    
    2,749
    
    
    
    4,947Net assets of discontinued operations
    
    $
    11,820
    
    
    $
    21,427
 3.ACQUISITIONS AND GOODWILL 2001 Acquisitions In 2001, the Company acquired five hospitals: Selma Regional Medical
Center, acquired in July 2001; Ashland Regional Medical Center, acquired in
August 2001; Vaughan Regional Medical Center, acquired in October 2001; Medical
Center of Southern Indiana, acquired in October 2001; and Teche Regional
Medical Center, acquired in December 2001. In the second quarter of 2002, the Company consolidated the operations of
Selma Regional Medical Center and Vaughan Regional Medical Center. The
consolidation of the operations of these hospitals resulted in a regional
hospital (Vaughan Regional Medical Center) that provides more intensive
services to the large area it serves. 2002 Acquisitions In May 2002, the Company acquired Memorial Hospital of Martinsville and
Henry County in Martinsville, Virginia, for approximately $129.2 million,
including working capital. To finance this acquisition, the Company borrowed
$86.0 million under its revolving credit facility and used approximately $43.2
million of available cash. This is the Companys first Virginia hospital and
is the only hospital in the county, serving a population in excess of 100,000. In June 2002, the Company acquired Los Alamos Medical Center in Los
Alamos, New Mexico, for approximately $39.0 million, including working capital.
To finance this acquisition, the Company borrowed $37.0 million under its
revolving credit facility and used $2.0 million from available cash. This is
the Companys first New Mexico hospital and is the only hospital in the
community, serving a population of approximately 50,000. F-13




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The foregoing acquisitions were accounted for using the purchase method of
accounting. The operating results of the hospitals acquired in 2002 and 2001
have been included in the accompanying consolidated statements of income from
the respective dates of acquisition. Pro Forma Acquisition Information The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed at the date of acquisition for the hospital
acquisitions completed in 2002 (in thousands): Accounts receivable
    
    $
    12,913Inventories
    
    
    2,177Prepaid expenses and other
    
    
    119Total current assets acquired
    
    
    15,209Property, plant and equipment
    
    
    63,457Unallocated purchase price
    
    
    466Goodwill
    
    
    101,349Other
    
    
    787Total assets acquired
    
    
    181,268Total liabilities assumed
    
    
    10,111Net assets acquired
    
    $
    171,157
 The following pro forma information reflects the operations of the
hospitals acquired in 2002 and 2001, as if the respective transactions had
occurred as of the first day of the fiscal year immediately preceding the year
of the acquisitions (in thousands, except per share data): 2002
    
    2001Revenues
    
    $
    716,821
    
    
    $
    703,517Net income
    
    
    38,112
    
    
    
    35,454Earnings per share:Basic
    
    $
    0.79
    
    
    $
    0.75Diluted
    
    
    0.77
    
    
    
    0.73
 The pro forma results of operations do not purport to represent what the
Companys results 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. Pro Forma Goodwill Information Had the Company been accounting for its goodwill under SFAS No. 142 during
the year ended December 31, 2001, the Companys pro forma net income and
earnings per share would have been as follows (in thousands, except per share data): Reported net income
    
    $
    32,908Add: Goodwill amortization, net of tax
    
    
    4,198Proforma adjusted net income
    
    $
    37,106Basic earnings per share:Reported net income
    
    $
    0.70Add: Goodwill amortization, net of tax
    
    
    0.09Proforma adjusted net income
    
    $
    0.79Diluted earnings per share:Reported net income
    
    $
    0.67Add: Goodwill amortization, net of tax
    
    
    0.09Proforma adjusted net income
    
    $
    0.76
 F-14




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##### Table of Contents



4.PROPERTY AND EQUIPMENT Property
and equipment consists of the following (in thousands): December 31,2003
    
    2002Land
    
    $
    23,344
    
    
    $
    21,458Land improvements
    
    
    5,292
    
    
    
    5,106Leasehold improvements
    
    
    19,577
    
    
    
    17,337Buildings and improvements
    
    
    335,787
    
    
    
    313,635Equipment
    
    
    192,793
    
    
    
    159,754576,793
    
    
    
    517,290Less accumulated depreciation and amortization
    
    
    (122,562
    )
    
    
    (85,822
    )454,231
    
    
    
    431,468Construction-in-progress (estimated cost to complete at
December 31, 2003 - $85,042)
    
    
    5,800
    
    
    
    8,890$
    460,031
    
    
    $
    440,358
 Depreciation expense totaled approximately $37,256,000, $32,204,000 and
$21,753,000 in 2003, 2002 and 2001, respectively. Assets under capital leases
were $6,206,000 and $59,180,000, net of accumulated amortization of $5,631,000
and $11,965,000 at December 31, 2003 and 2002, respectively. Interest is
capitalized in connection with construction projects at the Companys
facilities. The capitalized interest is recorded as part of the asset to which
it relates and is depreciated over the assets estimated useful life. In 2003
and 2002, $712,000 and $942,000 of interest cost, respectively, was
capitalized. 5.LONG-TERM DEBT Long-term debt consists of the following (in thousands): December 31,2003
    
    2002Credit facility
    
    $
    
    
    
    $
    94,000Senior subordinated notes
    
    
    196,634
    
    
    
    Convertible subordinated notes
    
    
    248,470
    
    
    
    322,500445,104
    
    
    
    416,500Obligations under capital leases (see Note 10)
    
    
    3,595
    
    
    
    44,844448,699
    
    
    
    461,344Less current portion
    
    
    (743
    )
    
    
    (974
    )$
    447,956
    
    
    $
    460,370
 Credit Facility The Company maintains a bank senior credit facility
(Credit Facility) of $250,000,000. At December 31,
2003, the Company had outstanding letters of credit of $3,565,000, reducing the
amount available under the Credit Facility to $246,435,000. The loans under the Credit Facility bear interest, at the Companys
option, at the adjusted base rate or at the adjusted LIBOR rate. The interest
rate ranged from 3.54% to 5.04% during 2003. The Company pays a commitment
fee, which varies from one-half to three-eighths of one percent of the unused
portion, depending on the Companys compliance with certain financial ratios.
The Company may prepay any principal amount outstanding under the Credit
Facility at any time before the maturity date of November 13, 2006. F-15




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The Credit Facility contains limitations on the Companys ability to incur
additional indebtedness (including contingent obligations), sell material
assets, retire, redeem or otherwise reacquire its capital stock, acquire the
capital stock or assets of another business, and pay dividends. The Credit
Facility also requires the Company to maintain a specified net worth and meet
or exceed certain coverage, leverage, and indebtedness ratios. Indebtedness
under the Credit Facility is secured by substantially all assets of the
Company. In
March, May and June 2003, the Company amended the Credit Facility to (i) add
additional hospitals as collateral security, (ii) obtain consent for various
transactions, including the issuance of $200,000,000 aggregate
principal amount of 71⁄2% Senior Subordinated
Notes due 2013, repurchase of a portion of the outstanding 41⁄2% Convertible
Subordinated Notes due 2005, and the interest rate swap agreement on
a portion of the
71⁄2% Senior Subordinated Notes, and (iii) increase the flexibility of
certain leverage and joint venture investment covenants. 71⁄2% Senior Subordinated Notes In May 2003, the Company completed its public offering of $200,000,000
aggregate principal amount of 71⁄2% Senior Subordinated Notes due June 1,
2013 (the 71⁄2% Senior Subordinated Notes). Net proceeds of the offering totaling
$194,212,000 were used to repay $114,300,000 in existing borrowings under the
Credit Facility and to repurchase $74,030,000 of the Companys
41⁄2% Convertible Subordinated Notes.
The 71⁄2% Senior Subordinated Notes bear interest from May 27, 2003 at the rate of 71⁄2% per year, payable semi-annually on June 1 and December 1, beginning on
December 1, 2003. The Company may redeem all or a portion of the
71⁄2% Senior
Subordinated Notes on or after June 1, 2008, at the then current redemption prices,
plus accrued and unpaid interest. In addition, at any time prior to June 1,
2006, the Company may redeem up to 35% of the aggregate principal amount of the
71⁄2% Senior Subordinated Notes within 60 days of one or more
common stock offerings
with the net proceeds of such offerings at a redemption price of 107.5% of the
principal amount, plus accrued and unpaid interest. Note holders may require
the Company to repurchase all of the holders notes at 101% of their principal
amount plus accrued and unpaid interest in some circumstances involving a
change of control. The 71⁄2% Senior Subordinated Notes are unsecured and
subordinated to the Companys existing and future senior
indebtedness. The  71⁄2% Senior Subordinated Notes rank equal in right of
payment to the Companys 41⁄2% Convertible Subordinated Notes
due 2005 and its 41⁄4% Convertible Subordinated Notes due 2008.
The 71⁄2% Senior Subordinated Notes effectively rank junior to the
Companys subsidiary liabilities. The
indenture contains limitations on the Companys ability to incur additional
indebtedness, sell material assets, retire, redeem or otherwise reacquire its
capital stock, acquire the capital stock or assets of another business, and pay
dividends. 41⁄2% Convertible Subordinated Notes In
2000, the Company sold $150,000,000 aggregate principal amount of
41⁄2% Convertible Subordinated Notes
due November 20, 2005 (the 41⁄2% Notes). The 41⁄2% Notes bear interest
from November 20, 2000 at the rate of 41⁄2% per year, payable semi-annually
on May 20 and November 20, beginning on May 20, 2001. The 41⁄2% Notes are
convertible at the option of the holder at any time on or prior to maturity
into shares of the Companys common stock at a conversion price of $26.45 per
share. The conversion price is subject to adjustment. The Company may redeem
all or a portion of the 41⁄2% Notes on or after November 20, 2003, at the
then current redemption prices, plus accrued and unpaid interest. Note holders
may require the Company to repurchase all of the holders notes at 100% of
their principal amount plus accrued and unpaid interest in some circumstances
involving a change of control. In 2003, the Company repurchased $74,030,000 of the 41⁄2% Notes from the
proceeds from the sale of the 71⁄2% Senior Subordinated Notes as
discussed above. The Company recorded a
$486,000 pretax loss associated with the early extinguishment of debt related
to the repurchase of the 41⁄2% Notes. The 41⁄2% Notes are unsecured obligations and rank junior in right of
payment to all of the Companys existing and future senior
indebtedness. The 41⁄2% Notes rank equal in right of payment to
the Companys 41⁄4% Convertible Subordinated Notes due 2008
and its 71⁄2% Senior Subordinated Notes due 2013. The 41⁄2%
Notes effectively rank junior to the Company's subsidiary liabilities. The
indenture does not contain any financial covenants. A total of 2,872,760
shares of common stock have been reserved for issuance upon conversion of the
remaining 41⁄2% Notes. 41⁄4% Convertible Subordinated Notes In October 2001, the Company sold $172,500,000 of Convertible Subordinated
Notes due October 10, 2008 (the 41⁄4% Notes). Net proceeds of
approximately $166,400,000 were used to reduce the outstanding balance on the
revolving line of credit and for acquisitions. The 41⁄4% Notes bear interest
from October 10, 2001 at the rate of 41⁄4% per year, payable semi-annually on
April 10 and October 10, beginning on April 10, 2002. The 41⁄4% Notes are F-16




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##### Table of Contents



convertible at the option of the holder at any time on or prior to
maturity into shares of the Companys common stock at a conversion price of
$27.70 per share. The conversion price is subject to adjustment. The Company
may redeem all or a portion of the 41⁄4% Notes on or after October 10, 2004,
at the then current redemption prices, plus accrued and unpaid interest. Note
holders may require the Company to repurchase all of the holders notes at 100%
of their principal amount plus accrued and unpaid interest in some
circumstances involving a change of control. The 41⁄4% Notes are unsecured
and subordinated to the Companys existing and future senior indebtedness.
The 41⁄4% Notes are ranked equal in right
of payment to the Companys 41⁄2% Notes due in 2005 and its 71⁄2% Senior
Subordinated Notes due 2013. The 41⁄4% Notes effectively rank
junior to the Companys subsidiary liabilities. The indenture does not contain
any financial covenants. A total of 6,226,767 shares of common stock have been
reserved for issuance upon conversion of the 41⁄4% Notes. Interest Rate Swap Agreements Interest rate swap agreements are used to manage the Companys interest
rate exposure under the Credit Facility. In 1998, the Company entered into an
interest rate swap agreement, which effectively converted for a five-year
period $45,000,000 of floating-rate borrowings to fixed-rate borrowings. In
January 2001, the Company terminated $16,500,000 of the $45,000,000 swap
agreement, leaving a notional amount of $28,500,000 converted to fixed-rate
borrowings. The Company secured a 5.625% fixed interest rate on the swap
agreement, which was subsequently amended to a 4.45% fixed interest rate during
2002. In May 2003, the Company terminated the remainder of the previously
existing swap agreement. In July 2003,
the Company entered into an interest
rate swap agreement which effectively converted for a ten-year period
$100,000,000 of the $200,000,000 fixed rate borrowings under the
71⁄2% Senior
Subordinated Notes to floating-rate borrowings. The Company secured a LIBOR
plus 2.79% floating interest rate over the term of the interest rate swap
agreement. The Senior Subordinated Notes are recorded net of the $3,366,000
fair value adjustment of the interest rate swap. The interest rate swap
agreement is a fair value hedge. The outstanding agreement exposes the Company
to credit losses in the event of non-performance by the counterparty to the
financial instrument. The Company anticipates that the counterparty will fully
satisfy its obligations under the contract. Aggregate Maturities Aggregate maturities of long-term debt at December 31, 2003, excluding
capital leases (see Note 10), are as follows (in thousands): 2004
    
    $
    2005
    
    
    75,9702006
    
    
    2007
    
    
    2008
    
    
    172,500Thereafter
    
    
    196,634$
    445,104
 6.STOCKHOLDERS EQUITY Common Stock On April 30, 2002, the Company effected a three-for-two stock split, in
the form of a 50% stock dividend, to stockholders of record on April 20, 2002.
The stock split resulted in the issuance of 15.9 million shares of common stock
and a transfer between additional paid-in capital and common stock of $159,000. All historical references to
common share, earnings per share amounts and conversion rights under debt instruments
included in the consolidated financial statements and notes thereto have been
restated to reflect the three-for-two split. Preferred Share Purchase Rights To establish a new shareholders rights plan, on December 30, 2002, the
Board of Directors declared a dividend distribution of one Preferred Share
Purchase Rights (Rights) on each outstanding share of the Companys common
stock. The dividend distribution was payable to shareholders of record on
January 10, 2003. Under certain circumstances, each Right will entitle
shareholders to buy one ten-thousandth of a share of newly created Series A
Junior Participating Preferred Stock of the Company at an exercise price of
$75.00. The Rights are redeemable at $.01 F-17




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##### Table of Contents



per Right at any time before a person has acquired 15% or more of the
Companys outstanding common stock. The Rights Plan will expire on December 31, 2012. The Rights have certain anti-takeover effects. The rights will cause
substantial dilution to a person or group that attempts to acquire the Company
on terms not determined by the Board of Directors to be in the best interest of
all shareholders. The Rights should not interfere with any merger or other
business combination approved by the Board of Directors. Stock Options In March 1997, the Companys Board of Directors and shareholders approved
the 1997 Long-Term Equity Incentive Plan (the Plan). The Company has
reserved 12,620,286 shares for issuance under the Plan. Under the Plan,
options to purchase shares may be granted to officers, employees, and
directors. The options have a maximum term of ten years and generally vest in
five equal annual installments. Options are generally granted at not less than
market price on the date of grant. The following is a summary of option transactions during 2003, 2002 and
2001: Number of
    
    OptionOptions
    
    Price RangeBalance at December 31, 2000
    
    
    3,811,467
    
    
    $
    2.03
    
    
    
    
    
    
    $
    19.95Options granted
    
    
    2,710,550
    
    
    
    16.05
    
    
    
    
    
    
    
    23.00Options exercised
    
    
    (844,340
    )
    
    
    2.03
    
    
    
    
    
    
    
    19.95Options forfeited
    
    
    (457,799
    )
    
    
    2.03
    
    
    
    
    
    
    
    19.95Balance at December 31, 2001
    
    
    5,219,878
    
    
    
    2.03
    
    
    
    
    
    
    
    23.00Options granted
    
    
    2,492,327
    
    
    
    10.80
    
    
    
    
    
    
    
    23.50Options exercised
    
    
    (1,031,997
    )
    
    
    2.03
    
    
    
    
    
    
    
    23.50Options forfeited
    
    
    (1,008,489
    )
    
    
    2.03
    
    
    
    
    
    
    
    23.50Balance at December 31, 2002
    
    
    5,671,719
    
    
    
    2.03
    
    
    
    
    
    
    
    23.00Options granted
    
    
    1,454,150
    
    
    
    7.71
    
    
    
    
    
    
    
    13.52Options exercised
    
    
    (143,882
    )
    
    
    2.03
    
    
    
    
    
    
    
    11.50Options forfeited
    
    
    (214,212
    )
    
    
    6.72
    
    
    
    
    
    
    
    23.50Balance at December 31, 2003
    
    
    6,767,775
    
    
    $
    2.03
    
    
    
    
    
    
    $
    23.50
 F-18




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The following table summarizes information concerning outstanding and
exercisable options at December 31, 2003: Options Outstanding
    
    Options ExercisableWeightedAverage
    
    Weighted
    
    
    
    
    
    WeightedRemaining
    
    Average
    
    
    
    
    
    AverageNumber
    
    Contractual Life
    
    Exercise
    
    Number
    
    ExerciseRange of Exercise Prices
    
    Outstanding
    
    (years)
    
    Price
    
    Exercisable
    
    Price$2.03 - $7.17
    
    
    589,492
    
    
    
    4.9
    
    
    $
    6.70
    
    
    
    464,032
    
    
    $
    6.657.71 - 7.71
    
    
    1,315,450
    
    
    
    9.2
    
    
    
    7.71
    
    
    
    
    
    
    
    8.95 - 10.80
    
    
    596,839
    
    
    
    7.2
    
    
    
    9.69
    
    
    
    364,939
    
    
    
    9.2111.50 - 11.50
    
    
    685,733
    
    
    
    6.3
    
    
    
    11.50
    
    
    
    366,276
    
    
    
    11.5011.56 - 16.40
    
    
    730,460
    
    
    
    7.6
    
    
    
    15.76
    
    
    
    265,964
    
    
    
    15.9116.67 - 16.71
    
    
    797,376
    
    
    
    7.5
    
    
    
    16.69
    
    
    
    669,653
    
    
    
    16.6918.20 - 18.67
    
    
    746,438
    
    
    
    8.4
    
    
    
    18.27
    
    
    
    166,977
    
    
    
    18.3119.00 - 21.08
    
    
    572,562
    
    
    
    8.0
    
    
    
    20.27
    
    
    
    380,930
    
    
    
    20.5823.00 - 23.00
    
    
    37,466
    
    
    
    7.6
    
    
    
    23.00
    
    
    
    14,984
    
    
    
    23.0023.50 - 23.50
    
    
    695,959
    
    
    
    8.4
    
    
    
    23.50
    
    
    
    663,767
    
    
    
    23.50$2.03 - $23.50
    
    
    6,767,775
    
    
    
    7.7
    
    
    $
    14.05
    
    
    
    3,357,522
    
    
    $
    15.76
 At December 31, 2002 and 2001, respectively, 2,637,553 and 1,751,881
options were exercisable. At December 31, 2003, the Company had options
representing 2,357,548 shares available for future grant. Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, Accounting for Stock Based Compensation, and has been
determined as if the Company had accounted for its employee stock options under
the fair value method of that Statement. The fair value for these options was
estimated at the date of grant using a Black-Scholes option pricing model with
the following weighted-average assumptions for 2003, 2002 and 2001,
respectively: risk-free interest rate of 2.47%, 4.11% and 4.89%; dividend yield
of 0%; volatility factor of the expected market price of the Companys common
stock of .634, .594 and .603; and a weighted-average expected life of the
option of 4.0 years, 3.9 years, and 4.2 years. The estimated weighted average
fair values of shares granted during 2003, 2002 and 2001, using the
Black-Scholes option pricing model, were $4.04, $9.46 and $9.51, respectively. The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. Because changes in the subjective input assumptions can materially
affect the fair value estimate, in managements opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options. For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options vesting period. The Companys
pro forma information is summarized in Note 1. Employee Stock Purchase Plan In May 1998 the Companys Board adopted, and in June 1998 the stockholders
approved, the Province Healthcare Company Employee Stock Purchase Plan (the
ESPP). Under the ESPP, employees may purchase shares of common stock at 85%
of market price on the first day of the year or 85% of the market price on the
last day of the year, whichever is lower. The shares are purchased each year
with funds withheld from employees through payroll deductions from January 1
through December 31. A total of 1,125,000 shares of Common Stock have been
reserved for issuance under the ESPP. Participation in the ESPP commenced June
1, 1998. Shares issued under the ESPP totaled 126,874, 59,022 and 284,082 in
2003, 2002 and 2001, respectively. F-19




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##### Table of Contents



7.PATIENT REVENUE The Company has agreements with third-party payors that provide for
payments to the Company at amounts different from its established rates. A
summary of the payment arrangements with major third-party payors follows:  
    
    MedicareInpatient acute hospital services rendered to
Medicare program beneficiaries are paid at prospectively determined
rates per diagnosis related group (DRG). These DRG rates vary
according to a patient classification system that is based on
clinical, diagnostic, and other factors. Outpatient services are
generally reimbursed under the outpatient prospective payment system,
which pays a fixed rate for a given bundle of outpatient services.
These bundles are known as Ambulatory Payment Classifications or
APCs. Inpatient nonacute services, related to Medicare
beneficiaries are paid based on a cost reimbursement methodology
subject to various cost limits. The Company is reimbursed for
cost-based services at a tentative rate, with final settlement
determined after submission of annual cost reports by the Company and
audits thereof by the Medicare fiscal intermediary. The Companys
classification of patients under the Medicare program and the
appropriateness of their admission are subject to an independent
review. The majority of the Companys Medicare cost reports have been
audited by the Medicare fiscal intermediary through December 31,
2000.
    
    MedicaidInpatient services rendered to the recipients under
the Medi-Cal program (Californias Medicaid program) are reimbursed
either under contracted rates or reimbursed for cost reimbursable
items at a tentative rate with final settlement determined after
submission of annual cost reports by the Company and audits thereof
by Medi-Cal. The Company leases two hospitals in California, and its
Medi-Cal cost reports have been audited by the Medi-Cal fiscal
intermediary through December 31, 2001. The Medicaid programs of the
other states in which the Company owns or leases hospitals are
prospective payment systems which generally do not have retroactive
cost report settlement procedures.
    
    OtherThe Company also has entered into payment agreements
with certain commercial insurance carriers, health maintenance
organizations and preferred provider organizations. The basis for
payment to the Company under these agreements includes prospectively
determined rates per discharge, discounts from established charges,
and prospectively determined daily rates. In 2003, 2002 and 2001, the Company owned or leased three hospitals in
Texas, which accounted for 16.6%, 17.6% and 26.0% of net patient revenue from
continuing operations, respectively. In 2003, 2002 and 2001, the Company owned
one hospital in Arizona, which accounted for 11.1%, 12.3% and 16.5% of net
patient revenue from continuing operations, respectively. Final determination of amounts earned under the Medicare and Medicaid
programs often occur in subsequent years because of audits by the programs,
rights of appeal and the application of numerous technical provisions.
Differences between original estimates and subsequent revisions (including
final settlements) are included in the consolidated statements of income in the
period in which the revisions are made, and resulted in an increase in net
patient revenue of $5,482,000 in 2003, a decrease in net patient revenue of
$908,000 in 2002, and an increase in net patient revenue of $539,000 in 2001. F-20




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##### Table of Contents



8.INCOME TAXES The provision for income taxes for continuing operations consists of the
following amounts (in thousands): 2003
    
    2002
    
    2001Current:Federal
    
    $
    8,327
    
    
    $
    13,333
    
    
    $
    16,092State
    
    
    801
    
    
    
    1,451
    
    
    
    1,8019,128
    
    
    
    14,784
    
    
    
    17,893Deferred:Federal
    
    
    13,314
    
    
    
    8,089
    
    
    
    5,617State
    
    
    903
    
    
    
    858
    
    
    
    57414,217
    
    
    
    8,947
    
    
    
    6,191$
    23,345
    
    
    $
    23,731
    
    
    $
    24,084
 The differences between the Companys effective income tax rate of 35.4%,
40.0%, and 42.2% for 2003, 2002 and 2001, respectively, and the statutory
federal income tax rate of 35.0% are as follows (in thousands): 2003
    
    2002
    
    2001Statutory federal rate
    
    $
    23,111
    
    
    
    35.0
    %
    
    $
    20,757
    
    
    
    35.0
    %
    
    $
    19,997
    
    
    
    35.0
    %State income taxes, net of federal income tax benefit
    
    
    1,108
    
    
    
    1.7
    %
    
    
    1,501
    
    
    
    2.6
    %
    
    
    1,543
    
    
    
    2.7
    %Permanent differences
    
    
    280
    
    
    
    0.4
    %
    
    
    239
    
    
    
    0.4
    %
    
    
    508
    
    
    
    0.9
    %Other
    
    
    (1,154
    )
    
    
    (1.7
    %)
    
    
    1,234
    
    
    
    2.0
    %
    
    
    2,036
    
    
    
    3.6
    %$
    23,345
    
    
    
    35.4
    %
    
    $
    23,731
    
    
    
    40.0
    %
    
    $
    24,084
    
    
    
    42.2
    %
 The components of the Companys deferred tax assets and (liabilities) for
continuing operations are as follows (in thousands): December 31,2003
    
    2002Depreciation and amortization
    
    $
    (33,653
    )
    
    $
    (17,998
    )Accounts receivable
    
    
    (4,230
    )
    
    
    386Accruals and reserves
    
    
    1,978
    
    
    
    3,038Insurance reserves
    
    
    4,789
    
    
    
    105Third party settlements
    
    
    2,224
    
    
    
    1,436Operating leases
    
    
    (2,201
    )
    
    
    (1,893
    )Capital lease interest
    
    
    683
    
    
    
    665Other
    
    
    582
    
    
    
    (1,312
    )Net deferred tax liability
    
    $
    (29,828
    )
    
    $
    (15,573
    )
 In the accompanying consolidated balance sheets, net current deferred tax
liabilities of $1,999,000 and net current deferred tax assets of $3,609,000 are
included in accrued expenses and prepaid expenses and other at December 31,
2003 and 2002, respectively. Net noncurrent deferred tax liabilities of
$27,829,000 and $19,182,000 are included in other liabilities at December 31,
2003 and 2002, respectively. The Company recorded a deferred tax liability of $38,000 related to
interest rate swap agreements during 2003. The expense of the deferred taxes
is recorded in comprehensive income. The Company has been and is currently being examined by federal and
various state tax authorities. The completed examinations are not expected to
have a negative impact on the financial condition or results of operations of
the Company. In 2003, the Company recorded a reduction in its provision for
income taxes of approximately $2,300,000 due to the final and favorable
resolution of examinations on certain issues by taxing authorities of audits that have been
ongoing for over one year. F-21




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##### Table of Contents



9.EARNINGS PER SHARE The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share data): 2003
    
    2002
    
    2001Earnings per common share:Income from continuing operations
    
    $
    42,688
    
    
    $
    35,575
    
    
    $
    33,051Add convertible notes interest, net of tax
    
    
    8,325
    
    
    
    
    
    
    
    Income from continuing operations
    
    
    51,013
    
    
    
    35,575
    
    
    
    33,051Discontinued operations
    
    
    (11,069
    )
    
    
    537
    
    
    
    (143
    )Net income
    
    $
    39,944
    
    
    $
    36,112
    
    
    $
    32,908Weighted average shares:Weighted average shares - basic
    
    
    48,692
    
    
    
    48,146
    
    
    
    47,091Dilution for employee stock options
    
    
    613
    
    
    
    1,307
    
    
    
    1,795Dilution for convertible notes
    
    
    10,243
    
    
    
    
    
    
    
    Weighted-average shares - diluted
    
    
    59,548
    
    
    
    49,453
    
    
    
    48,886Basic earnings per common share:Income from continuing operations
    
    $
    0.88
    
    
    $
    0.74
    
    
    $
    0.70Discontinued operations
    
    
    (0.22
    )
    
    
    0.01
    
    
    
    Net income
    
    $
    0.65
    
    
    $
    0.75
    
    
    $
    0.70Diluted earnings per common share:Income from continuing operations
    
    $
    0.86
    
    
    $
    0.72
    
    
    $
    0.68Discontinued operations
    
    
    (0.19
    )
    
    
    0.01
    
    
    
    (0.01
    )Net income
    
    $
    0.67
    
    
    $
    0.73
    
    
    $
    0.67
 In
accordance with SFAS No. 128, the calculation of diluted earnings per share for the year
ended December 31, 2003 using the if converted method includes the impact of
the Companys convertible notes. Since the Company reports discontinued
operations, income from continuing operations has been utilized in determining
whether the convertible notes were dilutive or antidilutive to earnings per
share. The convertible notes were dilutive to earnings per share on income
from continuing operations and were antidilutive to net income for the year
ended December 31, 2003. The effect of the convertible notes to purchase 5,672,160 and 6,226,767
shares of common stock, and related interest expense, were not included in the
computation of diluted earnings per share in 2002 and 2001, because their
effect would have been anti-dilutive. 10.LEASES The Company leases various buildings, office space and equipment. The
leases expire at various times and have various renewal options. These leases
are classified as either capital leases or operating leases based on the terms
of the respective agreements. Future minimum payments at December 31, 2003, by
year and in the aggregate, under capital leases and noncancellable operating
leases with initial terms of one year or more consist of the following (in
thousands): F-22




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##### Table of Contents



Capital
    
    OperatingLeases
    
    Leases2004
    
    $
    1,037
    
    
    $
    6,8102005
    
    
    518
    
    
    
    5,9602006
    
    
    469
    
    
    
    5,3142007
    
    
    472
    
    
    
    5,0022008
    
    
    474
    
    
    
    4,570Thereafter
    
    
    2,115
    
    
    
    15,610Total minimum lease payments
    
    
    5,085
    
    
    
    43,266Amount representing interest (at rates ranging from 3.5% to 21.8%)
    
    
    (1,490
    )Present value of net minimum lease payments
(including $743 classified as current)
    
    $
    3,595
 11.COMMITMENTS AND CONTINGENCIES Commitments The Company is obligated to construct a new facility at its Eunice,
Louisiana location contingent upon the existing facility meeting specified
operating targets. At December 31, 2003, the specified operating targets had
not been met. A replacement facility, if constructed, at Eunice is estimated
to cost approximately $25,300,000. In 2003, the Company began
construction of a new hospital in Bluffton, South Carolina. This new hospital is currently estimated to cost
approximately $32,700,000, of which approximately $3,200,000 has been incurred
at December 31, 2003. In 2004, the Company will begin construction of a new
hospital in Ft. Mojave, Arizona. This new hospital is currently estimated to
cost approximately $30,000,000. General Liability Claims The
Company is subject to claims and suits arising in the ordinary course
of business, including claims for damages for personal injuries,
employment-related claims, breach of management contracts and for wrongful
restriction of, or interference with, physicians staff privileges. In certain
of these actions, plaintiffs may seek punitive or other damages against the
Company, which are generally not covered by insurance. In managements opinion,
the Company is currently not a party to any proceeding that would have a
material adverse effect on the Companys results of operations or financial
condition. Acquisitions The Company has acquired and will continue to acquire, hospitals with
prior operating histories. The hospitals that the Company acquires may have
unknown or contingent liabilities, including liabilities for failure to comply
with healthcare laws and regulations. Although the Company obtains contractual
indemnification from sellers covering these matters, such indemnification may
be insufficient to cover material claims or liabilities for past activities of
acquired hospitals. Physician Commitments In order to recruit and retain physicians to the communities it serves,
the Company has committed to provide certain financial assistance in the form
of recruiting agreements with various physicians. In consideration for a
physician relocating to one of its communities and agreeing to engage in
private practice for a specified period of time, the Company may loan certain
amounts of money to a physician, generally not to exceed a period of one year,
to assist in establishing his or her practice. The actual amount of such
commitments to be subsequently advanced to physicians often depends
on the financial results of the physicians practice during the guarantee period. Amounts advanced under the recruiting
agreements are generally forgiven pro rata over a period of three years
contingent upon the physician continuing to practice in the respective
community. Estimated future commitment payments for physicians under
recruiting agreements in effect at December 31, 2003 are approximately
$18,491,000. F-23




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##### Table of Contents



12.RETIREMENT PLANS The Company sponsors defined contribution employee benefit plans which
cover substantially all employees. Employees may contribute a percentage of
eligible compensation subject to Internal Revenue Service limits. The plans
call for the Company to make matching contributions, based on either a
percentage of employee contributions or a discretionary amount as determined by
the Company. Contributions by the Company to the plans totaled $3,198,000,
$2,854,000 and $2,109,000 for the years ended December 31, 2003, 2002 and
2001, respectively. The Company sponsors a nonqualified supplemental deferred compensation
plan for selected management employees. As determined by the Board of
Directors, the plan provides a benefit of 1% to 3% of the employees
compensation. The participants amount is fully vested, except in those
instances where the participants employment terminates for any reason other
than retirement, death or disability, in which case the participant forfeits a
portion of the employers contribution depending on length of service. Plan
expenses totaled $148,000, $226,000 and $380,000 for the years ended December
31, 2003, 2002 and 2001, respectively. 13.FAIR VALUES OF FINANCIAL INSTRUMENTS Cash and Cash EquivalentsThe carrying amount reported in the balance
sheets for cash and cash equivalents approximates fair value. Accounts Receivable and Accounts PayableThe carrying amount reported in
the balance sheets for accounts receivable and accounts payable approximates
fair value. Long-Term ObligationsThe carrying amount reported in the balance sheets
for long-term obligations approximates fair value. The fair value of the
Companys long-term obligations is estimated using discounted cash flow
analyses, based on the Companys current incremental borrowing rates for
similar types of borrowing arrangements. Interest Rate Swap AgreementThe fair value of the Companys interest
rate swap agreement is $3,366,000 at December 31, 2003, based on quoted market
prices for similar debt issues. 14. ALLOWANCES FOR DOUBTFUL ACCOUNTS A summary of activity in the Companys allowance for doubtful accounts is
as follows (in thousands): AccountsBalance at
    
    Provision for
    
    Allowances
    
    Written Off
    
    Balance atBeginning of
    
    Doubtful
    
    Acquired in
    
    Net of
    
    End ofPeriod
    
    Accounts
    
    Acquisitions
    
    Recoveries
    
    PeriodYear ended December 31, 2001
    
    $
    7,124
    
    
    $
    44,258
    
    
    $
    11,899
    
    
    $
    (18,584
    )
    
    $
    44,697Year ended December 31, 2002
    
    $
    44,697
    
    
    $
    53,059
    
    
    $
    10,729
    
    
    $
    (43,723
    )
    
    $
    64,762Year ended December 31, 2003
    
    $
    64,762
    
    
    $
    72,678
    
    
    $
    
    
    
    $
    (70,565
    )
    
    $
    66,875
 F-24




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##### Table of Contents



15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) Quarterly financial information for the years ended December 31, 2003 and
2002 is summarized below (in thousands, except per share data): QuarterFirst
    
    Second
    
    Third
    
    Fourth2003Revenues
    
    $
    186,464
    
    
    $
    187,870
    
    
    $
    188,529
    
    
    $
    199,115Income from continuing operations
    
    $
    10,039
    
    
    $
    10,110
    
    
    $
    10,417
    
    
    $
    12,122Discontinued operations
    
    
    (188
    )
    
    
    (449
    )
    
    
    (610
    )
    
    
    (9,822
    )Net income
    
    $
    9,851
    
    
    $
    9,661
    
    
    $
    9,807
    
    
    $
    2,300Basic earnings (loss) per share:Income from continuing operations
    
    $
    0.21
    
    
    $
    0.22
    
    
    $
    0.21
    
    
    $
    0.24Discontinued operations
    
    
    (0.01
    )
    
    
    (0.01
    )
    
    
    (0.01
    )
    
    
    (0.19
    )Net income
    
    $
    0.20
    
    
    $
    0.20
    
    
    $
    0.20
    
    
    $
    0.05Diluted earnings (loss) per share:Income from continuing operation
    
    $
    0.20
    
    
    $
    0.21
    
    
    $
    0.21
    
    
    $
    0.24Discontinued operations
    
    
    
    
    
    
    (0.01
    )
    
    
    (0.01
    )
    
    
    (0.17
    )Net income
    
    $
    0.20
    
    
    $
    0.20
    
    
    $
    0.20
    
    
    $
    0.072002Revenues
    
    $
    157,729
    
    
    $
    166,287
    
    
    $
    175,859
    
    
    $
    173,358Income from continuing operations
    
    $
    11,003
    
    
    $
    10,754
    
    
    $
    9,364
    
    
    $
    4,454Discontinued operations
    
    
    689
    
    
    
    197
    
    
    
    62
    
    
    
    (411
    )Net income
    
    $
    11,692
    
    
    $
    10,951
    
    
    $
    9,426
    
    
    $
    4,043Basic earnings per share:Income from continuing operations
    
    $
    0.23
    
    
    $
    0.23
    
    
    $
    0.19
    
    
    $
    0.09Discontinued operations
    
    
    0.01
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    $
    0.24
    
    
    $
    0.23
    
    
    $
    0.19
    
    
    $
    0.09Diluted earnings per share:Income from continuing operation
    
    $
    0.22
    
    
    $
    0.22
    
    
    $
    0.19
    
    
    $
    0.09Discontinued operations
    
    
    0.01
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    $
    0.23
    
    
    $
    0.22
    
    
    $
    0.19
    
    
    $
    0.09
 F-25