<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
         EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
                                       OR

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
         EXCHANGE ACT OF 1934

                         COMMISSION FILE NUMBER 0-27640

                             RENAL CARE GROUP, INC.
               (Exact Name of Company as Specified in its Charter)

           DELAWARE                                     62-1622383
(State or other Jurisdiction of                      (I.R.S. Employer
Incorporation or Organization)                      Identification No.)

                        2100 WEST END AVENUE, SUITE 800,
                           NASHVILLE, TENNESSEE 37203
          (Address, Including Zip Code, of Principal Executive Offices)

       Registrant's Telephone Number, Including Area Code: (615) 345-5500

        Securities Registered Pursuant to Section 12(B) of the Act: None

           Securities Registered Pursuant to Section 12(G) of the Act:
                          Common Stock, $0.01 Par Value
                                (TITLE OF CLASS)

         Indicate by check mark whether the Company (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 Company
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 the Company'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. [ ]

         The aggregate market value of the voting stock held by non-affiliates
of the Company was $1,577,525,251 as of March 20, 2002, based upon the closing
price of such stock as reported on the New York Stock Exchange ("New York Stock
Exchange") on that day (assuming for purposes of this calculation, without
conceding, that all executive officers and directors are affiliates). There were
49,812,942 shares of common stock, $0.01 par value, issued and outstanding at
March 20, 2002.

                       DOCUMENTS INCORPORATED BY REFERENCE

         Portions of the Registrant's Proxy Statement for its 2002 Annual
Meeting of Stockholders are incorporated by reference in Part III of this Annual
Report.


<PAGE>


                                     PART I

FORWARD LOOKING STATEMENTS

         Some of the information in this annual report on Form 10-K contains
forward-looking statements that involve substantial risks and uncertainties. In
many instances you can identify these statements by forward-looking words such
as "may," "will," "expect," "anticipate," "believe," "intend," "estimate" and
"continue" or similar words. You should read these statements carefully for the
following reasons:

         -        the statements discuss our future expectations;

         -        the statements contain projections of our future earnings or
                  of our financial condition; and

         -        the statements state other "forward-looking" information.

         We believe it is important to communicate our expectations to our
investors. There may be events in the future, however, that we cannot accurately
predict or over which we have no control. The risk factors discussed on pages 17
to 22 of this annual report on Form 10-K, as well as any cautionary language in
or incorporated by reference into this annual report on Form 10-K, provide
examples of risks, uncertainties and events that may cause our actual results to
differ materially from the expectations we describe in our forward-looking
statements. The SEC allows us to "incorporate by reference" the information we
file with them, which means we can disclose important information to you by
referring you to those documents. Before you invest in our common stock, you
should be aware that the occurrence of any of the events described in the above
risk factors, elsewhere in or incorporated by reference into this annual report
on Form 10-K and other events that we have not predicted or assessed could have
a material adverse effect on our earnings, financial condition and business. If
the events described above or other unpredicted events occur, then the trading
price of our common stock could decline and you may lose all or part of your
investment.

ITEM 1. BUSINESS

GENERAL

         Renal Care Group, Inc. provides dialysis services to patients with
chronic kidney failure, also known as end-stage renal disease ("ESRD"). As of
December 31, 2001, Renal Care Group provided dialysis and ancillary services to
approximately 18,800 patients through 238 outpatient dialysis centers in 26
states, in addition to providing acute dialysis services to more than 120
hospitals. Renal Care Group was formed in 1996 by leading nephrologists with the
objective of creating a company with the clinical and financial capability to
manage the full range of care for ESRD patients on a cost-effective basis. As of
December 31, 2001, there were 306 nephrologists with privileges to practice at
the Company's outpatient dialysis centers.

         In Renal Care Group's dialysis facilities, ESRD patients receive
dialysis treatments, generally three times a week, in a technologically advanced
outpatient setting. According to the Centers for Medicare & Medicaid Services
("CMS"), formerly known as the Health Care Financing Administration, there were
more than 3,800 facilities providing dialysis in the United States at the end of
1999. In the past, many outpatient dialysis facilities were owned by practicing
nephrologists and comprised an integral component of their practice, because of
the critical role that dialysis plays in the treatment of ESRD patients. Over
the last several years, however, the dialysis services industry has been
consolidating. As a result, Renal Care Group believes that approximately 65% of
outpatient dialysis centers are now owned by multi-center dialysis companies,
approximately 17% are owned by independent physicians, small chains and other
small operators, and approximately 18% are hospital-based centers.

         Renal Care Group is a Delaware corporation; its principal executive
offices are located at 2100 West End Avenue, Suite 800, Nashville, Tennessee
37203; and its telephone number is (615) 345-5500.


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INDUSTRY OVERVIEW

END-STAGE RENAL DISEASE

         ESRD is a state of advanced kidney failure. ESRD is irreversible and,
without a kidney transplant, ultimately lethal. It is most commonly a result of
complications associated with diabetes, hypertension, certain renal and
hereditary diseases, aging and other factors. In order to sustain life, ESRD
patients require either dialysis for the remainder of their lives or a
successful kidney transplant. By the end of 1998, dialysis was the primary
treatment for approximately 71% of all ESRD patients, and the remaining 29% of
ESRD patients had a functioning kidney transplant.

         According to United States Renal Data System Coordinating Center
("USRDS") estimates, the total direct medical payments for ESRD exceeded $16.7
billion during 1998. Of the total direct medical payments for ESRD,
approximately $12.0 billion was paid by the federal government through the
Medicare program. As a result of legislation enacted in 1972, the federal
government provides Medicare benefits to patients who are diagnosed with ESRD
regardless of their age or financial circumstances, if they are eligible for
Social Security.

         According to CMS data, the number of ESRD patients in the United States
who need dialysis grew from approximately 66,000 in 1982 to approximately
260,000 in 1999. Based on USRDS data, the ESRD incidence rate among
Medicare-eligible patients was approximately 308 patients per million in 1998 as
compared to 111 patients per million in 1984.

         Based on these historical trends, USRDS forecasts indicate that the
total number of ESRD patients, including those with functioning transplants,
will grow from approximately 324,000 in 1998 to 660,000 in 2010. The growth in
the number of ESRD patients results principally from the aging of the population
along with better treatment of, and better survival rates for, diabetes and
other illnesses that lead to chronic kidney disease, reduced somewhat by
declines in incidence among patients with high blood pressure as a result of
better treatments for high blood pressure. In addition, as a result of improved
technology, older patients and patients who could not previously tolerate
dialysis due to other illnesses can now receive life-sustaining dialysis
treatment.

TREATMENT OPTIONS FOR END-STAGE RENAL DISEASE

         Currently, there are three treatment options for ESRD:

         -        hemodialysis, which is performed either in a hospital setting,
                  an outpatient facility or a patient's home,

         -        peritoneal dialysis, which is generally performed in the
                  patient's home, and

         -        kidney transplant surgery.

         According to CMS data, in 1998 approximately 90% of patients on
dialysis in the United States received hemodialysis in an outpatient setting,
and approximately 10% received hemodialysis or peritoneal dialysis in their
homes.

         Hemodialysis is the most common form of ESRD treatment. It is generally
performed either in a freestanding center or in a hospital. The process of
hemodialysis uses a dialyzer, essentially an artificial kidney, to remove
certain toxins, fluid and chemicals from the patient's blood and another device
that controls external blood flow and monitors the patient's vital signs. The
dialysis process occurs across a semi-permeable membrane that divides the
dialyzer into two chambers. While the blood is circulated through one chamber, a
pre-mixed dialysis fluid is circulated through the adjacent chamber. The toxins
and excess fluid contained in the patient's blood cross the membrane into the
dialysis fluid. Hemodialysis usually takes about four hours and is generally
administered three times per week for the life of the patient or until the
patient receives a transplant.

         Peritoneal dialysis is typically performed by the patient at home and
uses the patient's abdominal cavity to eliminate fluids and toxins in the
patient's blood. There are several forms of peritoneal dialysis. Continuous
ambulatory peritoneal dialysis and continuous cyclic peritoneal dialysis are the
most common. Under each method, the patient's blood is circulated across the
peritoneal membrane into the dialysis solution, which removes toxins and excess
fluid from the patient's blood. Patients treated at


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home are monitored monthly either by a visit from a staff person from a
designated outpatient dialysis center or by a visit by the patient to a dialysis
center.

         Kidney transplants, when successful, are the most desirable form of
therapy for ESRD patients. However, the shortage of suitable donors severely
limits the availability of this procedure as a treatment option. Only about 6%
of ESRD patients receive kidney transplants each year.

NEPHROLOGY PRACTICE

         Caring for ESRD patients is typically the primary clinical activity of
a nephrologist. Other clinical activities of a nephrologist include the
post-surgical care of kidney transplant patients, the diagnosis and treatment of
kidney diseases in patients who are at risk for developing ESRD, and the
diagnosis, treatment and management of clinical disorders including
hypertension, kidney stones and autoimmune diseases. Because of the complexity
involved in treating patients with chronic kidney disease, the nephrologist
typically assumes the role of primary care physician for the ESRD patient. While
some nephrologists practice independently or are members of multi-specialty
groups, most nephrologists practice in small single-specialty groups. A
nephrology group's practice often covers a relatively large geographic service
area. Outside metropolitan areas, a large geographic area may be served by only
one nephrology group. Most nephrologists also have a significant office
practice, consult on numerous hospitalized patients who are not on dialysis and
follow the clinical outcomes of kidney transplant patients.

OPERATIONS

LOCATION, CAPACITY AND USE OF FACILITIES

         As of December 31, 2001, Renal Care Group operated 238 outpatient
dialysis centers in 26 states with 4,047 certified dialysis stations and
provided inpatient dialysis services to 120 acute care hospitals. During 2001,
Renal Care Group provided 2,686,181 hemodialysis treatments. Renal Care Group
estimates that on average its centers were operating at approximately 63% of
capacity as of December 31, 2001, based on the assumption that a dialysis center
is able to provide up to three treatments a day per station, six days a week.

OPERATION OF FACILITIES

         Renal Care Group's dialysis centers provide outpatient hemodialysis and
related services to ESRD patients. Renal Care Group's centers use
technologically advanced dialysis equipment to provide effective and efficient
dialysis. The Company's centers generally contain between 10 and 30 dialysis
stations, a nurses' station, a patient waiting area, examination rooms, a supply
room, a water treatment space to purify water used in hemodialysis treatments, a
dialyzer reprocessing room, staff work areas, offices and a staff lounge. Many
of Renal Care Group's centers also have designated areas for training patients
in home dialysis.

         For Renal Care Group's dialysis centers to be eligible to participate
in the Medicare ESRD program, a qualified physician or group of physicians must
act as medical director for each center and must supervise medical aspects of
the center's operations. An administrator or manager manages each center. The
administrator or manager is typically a registered nurse who is responsible for
the day-to-day operations of the center and oversight of the staff. The staff of
each center typically includes registered nurses, licensed practical or
vocational nurses, patient care technicians, social workers, registered
dietitians, a unit clerk and biomedical equipment technicians. Renal Care Group
works to staff each center in a manner that allows the scheduling of personnel
to be adjusted according to the number of patients receiving treatments.

HOME DIALYSIS

         All of Renal Care Group's centers offer home dialysis, either home
hemodialysis, peritoneal dialysis or both. As of December 31, 2001,
approximately 12% of Renal Care Group's patients received home dialysis. Renal
Care Group's home dialysis services consist of providing equipment and supplies,
training, patient monitoring and follow-up assistance to patients who receive
dialysis treatments in their homes. The Company believes that home dialysis is
important to providing a full range of dialysis care and continues to work to
expand its home dialysis program.


                                       4
<PAGE>

INPATIENT CARE

         Some of Renal Care Group's centers provide inpatient dialysis services
to hospitals in their service areas. As of December 31, 2001, Renal Care Group
provided inpatient services to more than 120 hospitals. Under these
arrangements, Renal Care Group typically provides equipment, supplies and
personnel to perform hemodialysis and peritoneal dialysis in connection with the
hospital's inpatient services. These inpatient dialysis services are typically
required for patients with acute renal failure resulting from accidents, medical
and surgical complications, patients in the early stage of renal failure and
ESRD patients who need to be in the hospital for other reasons. Most of Renal
Care Group's hospital contracts specify predetermined fees per dialysis
treatment. The Company believes that such fees may be subject to re-negotiation
in the future as competition increases among dialysis providers and as the
health care industry becomes more influenced by managed care and subject to
capitated arrangements.

UNIVERSITY DIVISION

         Renal Care Group currently manages the dialysis programs at Vanderbilt
University Medical Center and is the owner or managing partner of programs at
the Cleveland Clinic Foundation, MetroHealth (a hospital affiliated with Case
Western Reserve University), St. Louis University Hospital, Froedtert Hospital
(a hospital affiliated with Medical College of Wisconsin), Northwestern Memorial
Hospital of Chicago, and Elmhurst Memorial Hospital. Renal Care Group expects
these affiliations will expand its patient base and provide opportunities for
the development of new centers. Furthermore, Renal Care Group expects these
affiliations to provide access to outcomes research and highly trained
nephrologists who may become medical directors at Renal Care Group's centers.

NEPHROLOGISTS

         A key factor in the success of a dialysis center is the local
nephrologist. An ESRD patient generally seeks treatment at a center where his or
her nephrologist has practice privileges. Consequently, the Company relies on
its ability to satisfy the needs of referring nephrologists in order to gain new
patients and to retain existing patients. As of December 31, 2001, there were
306 nephrologists with privileges to practice at the Company's outpatient
dialysis centers.

MEDICAL DIRECTORS

         To satisfy the requirements of the Medicare ESRD program, Renal Care
Group generally engages practicing, board-certified or board-eligible
nephrologists to serve as medical directors for its centers. Each medical
director provides services under an independent contractor agreement with the
Company. Medical directors are responsible for the administration and monitoring
of the Company's patient care policies, including patient education,
administration of dialysis treatment, development and training programs and
assessment of all patients. Medical directors play an important role in quality
assurance activities and in coordinating the delivery of care to maintain ESRD
patients' general level of health and to avoid medical complications that might
require hospitalization.

         Renal Care Group's typical medical director agreement has a term of
seven years with three-year renewal options. Renal Care Group pays medical
directors fees that are consistent with the fair market value of the required
supervisory services. These medical director fees are the result of arms-length
negotiations. Most of the Company's medical director agreements also include
non-competition clauses with specific limitations on the medical director's
ability to compete with Renal Care Group for certain periods of time and in
certain geographic areas.

ANCILLARY SERVICES

         Renal Care Group provides a variety of ancillary services to treat ESRD
patients. The most significant ancillary service is the administration of
erythropoietin (also known as Epogen(R) or EPO). EPO is a bio-engineered protein
that stimulates the production of red blood cells. It is used in connection with
all forms of dialysis to treat anemia, a complication experienced by almost all
ESRD patients. EPO is manufactured by a single supplier, Amgen Inc., and there
are no substitute products available to dialysis providers in the United States.
Other ancillary services offered by Renal Care Group, depending on medical
appropriateness, include tests for bone deterioration, electrocardiograms, nerve
conduction studies to test for deterioration of a patient's nerves, Doppler flow
testing for the effectiveness of the patient's vascular access for dialysis, and
blood transfusions. Renal Care Group, through its RenaLab subsidiary, also
provides clinical laboratory services for its dialysis operations.


                                       5
<PAGE>

QUALITY ASSURANCE

         Integral to Renal Care Group's operating philosophy is the
understanding that providing superior care is in the best interest not only of
patients but also of the Company's stockholders. Better patient care results in
improved mortality and morbidity and a greater number of treatments, as
patients' life spans increase and the number of days patients spend in hospitals
declines. In order to optimize therapy and improve outcomes, Renal Care Group
maintains a quality assurance program. Renal Care Group establishes, maintains
and monitors quality criteria for its clinical operations and monitors patient
outcomes in all of its centers.

MEDICAL ADVISORY BOARD

         Renal Care Group's Medical Advisory Board oversees the development and
implementation of clinical protocols and the review of patient outcomes. The
Medical Advisory Board is chaired by Renal Care Group's Chief Medical Officer
and is composed of 12 nephrologists who are medical directors of one or more of
the Company's centers. The Medical Advisory Board is responsible for
establishing, implementing and monitoring the Company's quality assurance
policies and procedures and for reviewing and recommending clinical treatment
protocols, policies and procedures. The Medical Advisory Board also works to
identify therapy deficiencies and to evaluate technological changes. The Medical
Advisory Board's ultimate objective is to assist Renal Care Group in developing
and communicating a protocol-driven clinical management model that will enable
the Company to provide optimal care to its patients and, ultimately, to manage
effectively the financial risk associated with providing ESRD services on a
capitated basis.

QUALITY CRITERIA

         Continuous quality improvement is Renal Care Group's primary clinical
objective. Working to achieve this objective, Renal Care Group regularly
evaluates the prescribed dialysis treatments and patients' key physiological
parameters. The Company's corporate Quality Assurance Coordinator is a
registered nurse who oversees Renal Care Group's quality assurance program. In
addition, each center has a quality assurance committee that typically includes
the medical director, the center administrator and nurses, as well as other
technical personnel. These committees monitor the quality of care in the centers
and oversee compliance with applicable regulations.

OUTCOMES DATA

         Renal Care Group believes that an important factor in managing end
stage renal disease successfully is the development of clinical pathways and
treatment protocols. To develop, review and maintain these pathways and
protocols, Renal Care Group maintains a broad database of treatment-specific
outcomes information. The Company's Quality Assurance Coordinator oversees the
collection of patient outcomes and cost data in the Company's centers. Renal
Care Group makes these data available to the Medical Advisory Board and
affiliated physicians to assist in developing, implementing and evaluating
clinical pathways to enhance patient outcomes while working to control the cost
of care. The Company believes that the implementation of such clinical pathways
will assist in improving the overall quality and operating efficiencies of its
dialysis centers.

PATIENT INVOLVEMENT

         Renal Care Group also works to improve the quality of care by providing
training to ESRD patients both before and after they begin a course of dialysis.
The Company works to train patients to participate in their own care to the
fullest extent possible. In addition, in some of its centers, Renal Care Group,
affiliated physicians and patients form "self-care" units in which self-reliance
is fostered through instruction and support.

CORPORATE COMPLIANCE PROGRAM

         Renal Care Group has developed and maintains a company-wide corporate
compliance program as part of its commitment to comply fully with all applicable
laws and regulations and to maintain high standards of conduct by Renal Care
Group's associates. A purpose of the program is to heighten associates' and
affiliated professionals' awareness of the importance


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of complying with all applicable laws and regulations in an increasingly
complicated regulatory environment and to take steps promptly to identify and
resolve instances of non-compliance.

         The compliance program has been authorized and mandated by Renal Care
Group's Board of Directors. It addresses general compliance issues and areas of
particular sensitivity. As part of the program Renal Care Group has published a
code of conduct setting forth standards of conduct and principles of business
ethics to be followed by the Company and each employee and affiliated
professional. The code of conduct is regularly reviewed and updated. A
Compliance Committee comprised of officers and senior managers of Renal Care
Group and a full-time Compliance Officer administer the corporate compliance
program. The Compliance Committee and Compliance Officer report to the Audit and
Compliance Committee of the Company's Board of Directors.

         The Company has also developed and maintains a compliance program
specific to its laboratory subsidiary, RenaLab. This program mandates
laboratory-specific compliance standards, policies and procedures. The
laboratory compliance program is administered by a laboratory compliance
committee, composed of officers and senior managers of Renal Care Group and
RenaLab. This committee includes the Renal Care Group Compliance Officer and a
part-time RenaLab Compliance Officer. This committee and the RenaLab Compliance
Officer report to the RenaLab Board of Directors and the Audit and Compliance
Committee of Renal Care Group's Board of Directors.

REIMBURSEMENT

SOURCES OF NET PATIENT REVENUE

         The following table sets forth information regarding the sources of
Renal Care Group's net patient revenue:

<TABLE>
<CAPTION>
                                                           YEAR ENDED DECEMBER 31,
                                                     ----------------------------------
                                                     1999          2000          2001
                                                     -----         -----         -----
<S>                                                  <C>           <C>           <C>
Medicare ....................................           57%           53%           49%
Medicaid ....................................            4             5             6
Commercial and other payors .................           33            36            40
Hospital inpatient dialysis services ........            6             6             5
                                                     -----         -----         -----
         Total ..............................          100%          100%          100%
                                                     =====         =====         =====
</TABLE>

MEDICARE

         The Social Security Act provides that most U.S. citizens and resident
aliens with ESRD are entitled to Medicare coverage. If a physician finds that an
eligible person has ESRD, then he or she will be entitled to Medicare coverage
(i) beginning the third month after the month in which a regular course of
dialysis is initiated; or (ii) as early as the month in which a kidney
transplant candidate is hospitalized for the transplant if certain conditions
are met.

         For Medicare purposes, ESRD is defined as kidney impairment that
appears irreversible and permanent and that requires a regular course of
dialysis or a kidney transplant to maintain life. For a period of 30 months,
Medicare coverage is generally secondary for patients who have qualifying health
insurance. After this 30-month period, Medicare becomes the primary coverage for
patients, and the patient's other health insurance generally pays applicable
Medicare coinsurance payments and deductibles.

         Under the Medicare ESRD program, Medicare reimbursement rates per
outpatient dialysis treatment are fixed under a composite rate structure. The
Medicare ESRD composite rate may be changed by legislation or rulemaking.
Effective on January 1, 2000, Congress increased the Medicare composite rate by
1.2%. An increase of 2.4% in the composite rate was approved and implemented in
2001. No increase in the composite rate has been approved for 2002. Although
Medicare reimbursement limits the allowable charge per treatment, it provides
Renal Care Group with predictable and recurring treatment revenue for its
outpatient dialysis services that are covered by the composite rate.

         The Medicare ESRD composite rate for outpatient dialysis services
averaged $131 per treatment in freestanding facilities during 2001. The Medicare
ESRD composite rate is subject to regional differences based on certain factors,
including


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labor costs. CMS or Congress may periodically adjust Medicare reimbursement
rates, including the ESRD composite rate, based on certain factors, including
legislation, executive and congressional budget reduction and control processes,
inflation and costs incurred in rendering the services. Historically,
adjustments in the Medicare ESRD composite rate have had little relationship to
the cost of conducting business.

         The Medicare ESRD composite rate applies to a designated group of
outpatient dialysis services, including the dialysis treatment, supplies used
for such treatment, certain laboratory tests and certain medications, and most
of the home dialysis services provided by Renal Care Group. Some other services,
laboratory tests and drugs are eligible for separate reimbursement under
Medicare and are not part of the composite rate. These separately reimbursed
items include specific drugs such as EPO, some physician-ordered tests provided
to dialysis patients and some home dialysis services. Renal Care Group generally
submits Medicare claims monthly and is usually paid within 30 days of the
submission.

CHANGES IN THE MEDICARE ESRD COMPOSITE RATE

         Effective January 1, 2000 and January 1, 2001, Congress increased the
Medicare ESRD composite rate by 1.2% each year. An additional increase of 1.2%
took effect April 1, 2001. The April 1, 2001 increase included an adjustment
factor that made that 1.2% increase effective for all of calendar year 2001.
Accordingly, the net result of the 1.2% increases on January 1, 2001 and April
1, 2001, plus the April adjustment factor, was an effective increase of 2.4% for
calendar year 2001. Previously, the Medicare ESRD composite rate was unchanged
from commencement of the program in 1972 until 1983. From 1983 through December
1990, numerous congressional actions resulted in net reductions of the average
Medicate ESRD composite rate from approximately $138 per treatment in 1983 to
approximately $125 per treatment in 1986. As a result of the January 2001 and
April 1, 2001 increases in the Medicare ESRD composite rate, the Company's
average rate per dialysis treatment was $131 during 2001.

         The Medicare ESRD composite rate has been the subject of a number of
reports and studies. During 2000, Congress directed a study of the ESRD
composite rate structure, which is due in June 2002. This study will review
items included in the composite rate and items that are currently separately
billable (such as EPO and certain laboratory services) and will analyze whether
the composite rate should be subject to an annual inflationary update. Pending
this study, the Prospective Payment Assessment Commission, also known as PROPAC,
has recommended that the ESRD composite rate for 2003 be increased by 2.6%.
PROPAC is a body that makes recommendations to Congress concerning Medicare
reimbursement rates. Congress is not required to implement any of these
recommendations and could either raise or lower the reimbursement rate or change
the items covered by the composite rate.

         During recent congressional sessions, there have been various proposals
for the reform of numerous aspects of Medicare. Renal Care Group is unable to
predict what, if any, future changes may occur in the Medicare ESRD composite
rate. Any reductions in the Medicare ESRD composite rate or change in the items
covered by the composite rate (such as EPO or certain laboratory services) could
have a material adverse effect on Renal Care Group's earnings, financial
condition and business.

MEDICARE REIMBURSEMENT FOR EPO

         Renal Care Group also derives a significant portion of its revenue and
earnings from the administration of EPO. Medicare reimbursement for EPO has been
fixed at $10 per 1,000 units since 1994. The Secretary of the Department of
Health and Human Services has the authority to determine the Medicare
reimbursement rate for EPO. In 1997, the Department for Health and Human
Services Office of Inspector General conducted a review of EPO reimbursement and
recommended a $1 reduction per 1,000 units in Medicare reimbursement for EPO.
The Clinton Administration's proposed budgets for fiscal years 1998, 1999, 2000
and 2001 proposed a $1 reduction. None of these proposals passed. Renal Care
Group is unable to predict whether any changes in EPO reimbursement will occur.
Approximately 25% of Renal Care Group's revenue in 2001 was generated from the
administration of EPO; therefore, any reduction in Medicare reimbursement for
EPO could have a material adverse effect on Renal Care Group's earnings,
financial condition and business.

         CMS also places limits on EPO reimbursement based on patients'
hematocrit levels. Hematocrit is a measure of a patient's anemia. Currently, if
a patient's hematocrit is below 36%, CMS approves Medicare reimbursement for EPO
without specific documentation of medical necessity. If a patient's average
hematocrit over a three-month period is higher than 36%, Medicare reimbursement
is contingent on medical necessity, and Medicare's contractors may review claims
in these instances.


                                       8
<PAGE>

Renal Care Group is unable to predict whether any changes in EPO reimbursement
based on hematocrit levels will occur. Any reduction in Medicare reimbursement
for EPO could have a material adverse effect on Renal Care Group's earnings,
financial condition and business.

MEDICAID REIMBURSEMENT

         Medicaid programs are health care programs partially funded by the
federal government that are administered by the states. These programs generally
provide coverage for uninsured patients whose income and assets fall below
levels determined by the states. The programs also serve as supplemental
insurance programs for the Medicare co-insurance portion and provide coverage
for certain items (for example, oral medications) that are not covered by
Medicare. State regulations generally follow Medicare reimbursement levels and
coverage without any coinsurance amounts. Some states, however, require
beneficiaries to pay a share of the cost based upon their income or assets.
Renal Care Group is a licensed ESRD Medicaid provider in all of the states in
which it does business.

         Some of the states in which Renal Care Group does business have higher
dialysis reimbursement rates for Medicaid patients that are higher than Medicare
rates. Representatives of CMS and some of these states have indicated that the
states should consider reducing these higher reimbursement levels, and at least
one of these states, Washington, has proposed, but not implemented, a reduction
in Medicaid reimbursement. Any reduction in Medicaid reimbursement could have a
material adverse effect on Renal Care Group's earnings, financial condition and
business.

PRIVATE REIMBURSEMENT/ACUTE CARE CONTRACTS

         Before Medicare becomes a patient's primary payor, the patient's own
insurance plan or other health care coverage, if any, pays for his or her ESRD
treatments. Reimbursement rates from these private payors are generally
significantly higher than the rate set by Medicare. Renal Care Group has
negotiated managed care contracts with some managed care payors at rates that
are higher than the Medicare ESRD composite rate. Rates under these managed care
contracts are, however, generally lower than those Renal Care Group charges
other private payors. After Medicare becomes a patient's primary payor, private
secondary payors generally reimburse Renal Care Group for the patient's
copayment of 20% of the applicable Medicare rate. Renal Care Group also receives
payments from hospitals under its acute care contracts at rates generally higher
than the Medicare ESRD composite rate. Rates under these acute care contracts
are the result of arms-length negotiations between the hospital and Renal Care
Group and approximate fair market value of the services provided by the Company.

GOVERNMENT REGULATION

GENERAL

         Federal, state, and local governments extensively regulate Renal Care
Group's operations, including the operation of the dialysis centers and
laboratory owned by Renal Care Group. Applicable federal and state statutes and
regulations require Renal Care Group to meet various standards relating, among
other things, to licensure, billing and reimbursement, management of dialysis
centers, patient care personnel, maintenance of proper records, confidentiality
of medical records, equipment and quality assurance programs, and the treatment
and disposal of biomedical waste. In addition, Renal Care Group's laboratory
operations are subject, among other laws, to the federal Clinical Laboratory
Improvement Amendments of 1988, also known as CLIA. Renal Care Group's dialysis
centers and laboratory are subject to periodic inspection by state and federal
agencies to determine if they satisfy applicable requirements. In addition,
through certificate of need, or CON, programs, some states regulate the
development or expansion of health care facilities and services, including
dialysis centers. Renal Care Group's operations also are subject to regulations
of the Occupational Safety and Health Administration, also known as OSHA,
concerning workplace safety and employee exposure to blood and other potentially
infectious materials.

         Renal Care Group is subject to federal and state laws governing, among
other things, the relationships between Renal Care Group and physicians and
other health care providers, patient referrals, and false claims. See
"Government Regulation--Anti-Kickback Statute," "Government Regulation--Stark
Law" and "Government Regulation--Civil Monetary Penalties." The federal
government, many states, and private third-party payors have made combating
fraud and abuse in the health care industry a high priority. As a result,
scrutiny and investigation of health care providers and their relationships with
physicians and other referral sources has increased significantly.


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         Renal Care Group believes it substantially complies with applicable
federal and state laws. However, if a state or the federal government finds that
Renal Care Group has not complied with these laws, then Renal Care Group could
be required to change its way of operating. Any changes could have a negative
impact on the Company. To date, the dialysis centers owned by Renal Care Group
have maintained their licenses and Medicare and Medicaid certifications. Any
loss of certification to participate in the Medicare and Medicaid programs or
loss of any required state or federal licenses or certifications would have a
negative effect on Renal Care Group. Renal Care Group believes that the health
care services industry will continue to be subject to extensive regulation at
the federal, state, and local levels. Renal Care Group cannot predict the scope
and effect of future regulation of its business and cannot predict whether
health care reform will require Renal Care Group to change its operations or
whether such reform will have a negative impact on Renal Care Group.

         The Company cannot predict whether it will be held responsible for
actions previously taken by acquired companies or facilities before Renal Care
Group purchased them. Renal Care Group also cannot predict whether its
operations, or the previous operations of acquired companies or facilities, will
be reviewed or challenged by the government. Any review or challenge of its
operations could have a negative impact on Renal Care Group.

MEDICARE AND MEDICAID CERTIFICATION AND REIMBURSEMENT

         To receive reimbursement from federal health care programs for dialysis
and laboratory services, the dialysis centers and laboratory operated by Renal
Care Group must be certified as meeting certain requirements. For example, to
receive Medicare reimbursement, Renal Care Group's dialysis centers and
laboratory must be certified by the Centers for Medicare and Medicaid Services.
All of the dialysis centers operated by Renal Care Group and its laboratory
operations are certified under the Medicare program and many state Medicaid
programs. In connection with its participation in Medicare, Renal Care Group
must comply with conditions of coverage, including requirements concerning
personnel, management, patient care, patient rights, medical records and
physical environment. Renal Care Group must also comply with extensive billing
rules governing, among other things, medical necessity and documentation. See
"Government Regulation--False Claims Act" and "Government Regulation--Civil
Monetary Penalties."

         CMS has announced that it is in the process of revising the current
Medicare conditions of coverage for ESRD services. Proposed revisions have not
been published. Renal Care Group cannot predict when proposed rules will be
published or finalized or what, if any, changes CMS might make to the current
conditions of coverage. Renal Care Group also cannot predict whether it will be
able to meet any new or revised conditions of coverage. Any changes to the
Medicare conditions of coverage for ESRD facilities could require Renal Care
Group to change its operations and could have a negative effect on the business
and profitability of Renal Care Group. Any reduction in governmental payments
for dialysis services or any reduction or elimination of coverage of dialysis
services by a governmental party would have a negative impact on Renal Care
Group's business.

         The HHS Office of Inspector General, also known as the OIG, issued
reports in the summer of 2000 recommending greater oversight of the quality of
care in dialysis facilities. Any increased oversight could lead to increased
requirements and greater scrutiny of dialysis facilities, including those owned
by Renal Care Group.

THE ANTI-KICKBACK STATUTE

         Under Medicare, Medicaid, and other government-funded health care
programs such as the CHAMPUS program, federal and state governments enforce a
federal law called the Anti-Kickback Statute. The Anti-Kickback Statute
prohibits any person from offering, paying, soliciting or receiving any type of
benefit (1) in exchange for the referral of a patient covered by Medicare,
Medicaid or other federally-subsidized program or (2) for the leasing,
purchasing, ordering or arranging for or recommending the lease, purchase or
order of any item, good, facility or service covered by the programs.
Remuneration prohibited by the Anti-Kickback Statute includes the payment or
transfer of anything of value. Many states have similar anti-kickback statutes
that are not necessarily limited to items or services for which payment is made
by a federal or state health care program.

         Any person or entity that violates the Anti-Kickback Statute may be
penalized. These penalties include criminal fines of up to $25,000 per violation
and imprisonment. In addition, the government may impose civil penalties of up
to $50,000 per violation, plus three times total remuneration offered, paid,
solicited or received. Further, the Secretary of the Department of Health and
Human Services, HHS, has the authority to exclude or bar individuals or entities
who violate the Anti-Kickback Statute from participating in Medicare and
Medicaid.


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         The Anti-Kickback Statute is a broad law. Courts have stated that,
under certain circumstances, the Anti-Kickback Statute is violated when just one
purpose, as opposed to the primary purpose, of a payment is to induce referrals.
To clarify what acts or arrangements will not be subject to prosecution by the
Office of Inspector General of HHS or the United States Attorney, HHS adopted a
set of safe harbor regulations and continues to publish clarifications to these
safe harbors. If an arrangement meets all of the requirements of a safe harbor,
it will not be considered to violate the Anti-Kickback Statute.

         The types of arrangements covered by safe harbors include certain
investments in companies whose stock is traded on a national exchange, certain
small company investments in which physician ownership is limited, rental of
space, rental of equipment, personal services and management contracts, sales of
physician practices, physician referral services, warranties, discounts,
payments to employees, group purchasing organizations, and waivers of
beneficiary deductibles and co-payments. Each type of arrangement must meet a
number of specific requirements in order to enjoy the benefits of the applicable
safe harbor. Meeting the requirements of a safe harbor will protect an
arrangement from enforcement action by the government. However, the fact that an
arrangement does not meet the requirements of a safe harbor does not mean that
the arrangement is necessarily illegal or will be prosecuted under the
Anti-Kickback Statute.

         The OIG has issued a Special Fraud Alert concerning the pricing of
laboratory testing at ESRD centers. Medicare pays for laboratory tests provided
to ESRD patients in two different ways. Some laboratory tests are considered
routine, and Medicare includes payment for those tests in the ESRD composite
rate paid to the dialysis center. Some laboratory testing is not included in the
composite rate, and these tests are billed by the laboratory directly to
Medicare. In the Special Fraud Alert, the OIG stated it is aware of cases where
a laboratory offers to perform tests included in the composite rate at a price
below fair market value. In exchange, the ESRD facility agrees to refer all or
most of its non-composite rate tests to the laboratory. The OIG identified such
an arrangement as raising issues under the Anti-Kickback Statute. Renal Care
Group believes that its arrangements with laboratories reflect fair market value
and comply with the Anti-Kickback Statute.

         Renal Care Group seeks to satisfy as many safe harbor requirements as
possible when it is structuring its business arrangements. However, not all of
Renal Care Group's arrangements satisfy all elements of a safe harbor.
Management believes that Renal Care Group has a reasonable basis for concluding
that it substantially complies with the Anti-Kickback Statute and other
applicable related federal and state laws and regulations. The Company believes
that its current arrangements with physicians including nephrologists owning
Renal Care Group's common stock, medical directors, laboratories, suppliers,
hospitals, and other sources of referrals to its dialysis centers and its acute
dialysis services agreements with hospitals materially comply with the
Anti-Kickback Statute. However, a government agency might take a position
contrary to the interpretations made by Renal Care Group or may require the
Company to change its practices. If an agency were to take such a position, it
could adversely affect Renal Care Group.

THE STARK LAW

         Congress has also passed significant prohibitions against certain
physician referrals of patients for health care services. These prohibitions are
commonly known as the Stark Law. The Stark Law prohibits a physician from making
referrals for particular health care services (called designated health
services) to entities with which the physician, or an immediate family member of
the physician, has a financial relationship. If an arrangement is covered by the
Stark Law, the requirements of a Stark Law exception must be met for the
physician to be able to make referrals to the entity for designated health
services.

         The term "financial relationship" is defined very broadly to include
most types of ownership or compensation relationships. The Stark Law also
prohibits the entity receiving the referral from seeking payment under the
Medicare and Medicaid programs for services rendered pursuant to a prohibited
referral. If an entity is paid for services rendered pursuant to a prohibited
referral, it may incur civil penalties and could be excluded from participating
in Medicare or Medicaid.

         As originally enacted, the Stark Law restricted referrals for clinical
laboratory services. This version of the Stark Law is also called Stark I.
Effective January 1, 1995, the Stark Law was expanded to include physical
therapy services; occupational therapy services; radiology services, including
magnetic resonance imaging (MRI), computerized axial tomography (CAT) scans, and
ultrasound services; radiation therapy services and supplies; durable medical
equipment and supplies; parenteral and enteral nutrients, equipment, and
supplies; prosthetics, orthotics, and prosthetic devices and supplies; home
health services; outpatient prescription drugs; and inpatient and outpatient
hospital services. This version of the Stark Law is also known as Stark II.


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         The Stark Law defines a financial relationship to include (1) a
physician's ownership or investment interest in an entity and (2) a compensation
relationship between a physician and an entity. Under the Stark Law, financial
relationships include both direct and indirect relationships. Renal Care Group
has compensation arrangements with its medical directors or the professional
practices of the medical directors. The medical directors or their practices may
also own shares, and options to purchase shares, of common stock of Renal Care
Group. In addition, other physicians who refer patients to Renal Care Group's
centers may own stock of Renal Care Group. If so, the medical directors and
other physicians would have a financial relationship with Renal Care Group.
Accordingly, these physicians would not be able to refer patients to Renal Care
Group's dialysis centers for designated health services unless a Stark Law
exception applies.

         Dialysis is not listed as a designated health service under the Stark
Law. However, the definition of "designated health services" includes some items
and services that are components of dialysis or which may be provided to
patients by Renal Care Group in connection with their dialysis services. On
January 4, 2001, HHS issued final regulations to the Stark II provisions of the
Stark Law. These regulations became effective on January 4, 2002. The final
regulations exclude from the definition of covered designated health services
those services that are reimbursed by Medicare as part of a composite rate. The
final regulations also contain an exception under the Stark Law for clinical
laboratory services that are included in the Medicare ESRD composite rate.
Therefore, services that are included in the Medicare ESRD composite rate are
not covered by the Stark Law.

         Further, the Stark II final regulations exclude from the referral
prohibition EPO and other drugs required as part of dialysis if certain
requirements are met. If the requirements are met, this exception applies
whether or not these drugs are included in the Medicare ESRD composite rate.

         The final regulations also exclude from the definition of "inpatient
hospital services" any dialysis services provided by a hospital that is not
certified by CMS to provide outpatient dialysis services. This rule would have
the effect of excluding from the Stark Law prohibition, any dialysis services
provided by Renal Care Group under an acute dialysis contract with a hospital,
if that hospital is not certified to provide outpatient dialysis. The final
Stark II regulations exclude from the definition of "durable medical equipment"
all equipment and supplies used in connection with home dialysis. These Stark II
regulations exclude most of the items and services connected with dialysis from
the Stark Law prohibitions.

         HHS has accepted comments to the Stark II final rules and has stated
that it will issue further regulations to the Stark Law in the future. Renal
Care Group cannot predict whether HHS will revise the final regulations or will
adopt additional regulations that affect Renal Care Group's business.

         If the Stark Law applies to the relationships between Renal Care Group
and its referring physicians, there are exceptions to the Stark Law which, if
certain requirements are met, would permit such physicians to refer patients to
Renal Care Group for designated health services. The Stark Law contains
exceptions for certain physician ownership or investment interests in entities
and certain physician compensation arrangements with entities. The exceptions
for compensation arrangements include employment relationships, personal
services contracts, and space and equipment leases. If a compensation
arrangement between a physician, or immediate family member, and an entity
satisfies all requirements for a Stark Law exception, then the Stark Law will
not prohibit the physician from referring patients to the entity for designated
health services. Renal Care Group believes its compensation arrangements with
physicians who refer to Renal Care Group meet the requirements for an exception
under the Stark Law. For example, the Company believes that its agreements with
medical directors or their professional practices materially satisfy the Stark
Law exception for personal services agreements.

         The Stark Law also includes an exception for a physician's ownership or
investment interest in certain entities through the ownership of stock. If a
physician owns stock in an entity, and the stock is listed on a national
exchange or is quoted on the Nasdaq Stock Market and the ownership meets certain
other requirements, then the Stark Law will not apply to prohibit the physician
from referring to the entity for designated health services. The requirements
for this Stark Law exception include a requirement that the entity issuing the
stock have at least $75.0 million in stockholders' equity at the end of its most
recent fiscal year or on average during the previous three fiscal years. As of
March 26, 2002, Renal Care Group had stockholders' equity of more than $$519.4
million. Renal Care Group believes that physician ownership of Renal Care Group
stock satisfies this Stark Law exception.


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         If an entity violates the Stark Law, it could be subject to civil
penalties of up to $15,000 per prohibited claim and may be excluded from
Medicare and Medicaid. If the Stark Law applies to the relationships between
Renal Care Group and its referring physicians and no exceptions under the Stark
Law are available, then Renal Care Group will be required to restructure these
relationships or refuse to accept referrals for designated health services from
these physicians. If Renal Care Group is found to have submitted claims to
Medicare for services provided pursuant to a referral prohibited by the Stark
Law, then Renal Care Group will be required to repay amounts it received from
Medicare for those services and could be subject to civil monetary penalties. If
Renal Care Group is required to repay amounts to Medicare or is subject to
fines, the Company could be harmed.

         Many states have physician relationship and referral statutes that are
similar to the Stark Law. Renal Care Group believes it is in substantial
compliance with applicable state laws on physician relationships and referrals.
However, any finding that Renal Care Group is not in compliance with these state
laws could require the Company to change its operations and could have a
negative impact on Renal Care Group.

THE HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT OF 1996

         In an effort to combat health care fraud, Congress included several
anti-fraud measures in the Health Insurance Portability and Accountability Act
of 1996, also called HIPAA. Among other things, HIPAA broadened the scope of
certain fraud and abuse laws, extended criminal penalties for Medicare and
Medicaid fraud to other federal health care programs, and expanded the authority
of the OIG, to exclude persons and entities from participating in the Medicare
and Medicaid programs. HIPAA also extended the Medicare and Medicaid civil
monetary penalty provisions to other federal health care programs, increased the
amounts of civil monetary penalties, and established a criminal health care
fraud statute.

         Federal health care offenses under HIPAA include health care fraud and
making false statements relating to health care matters. Under HIPAA, among
other things, any person or entity that knowingly and willfully defrauds or
attempts to defraud a health care benefit program is subject to a fine,
imprisonment or both. Also under HIPAA, any person or entity that knowingly and
willfully falsifies or conceals or covers up a material fact or makes any
materially false or fraudulent statements in connection with the delivery of or
payment of health care services by a health care benefit plan is subject to a
fine, imprisonment or both.

         HIPAA also required the OIG, to issue advisory opinions to outside
parties regarding the interpretation and applicability of the Anti-Kickback
Statute and other OIG health care fraud and abuse sanctions. An OIG advisory
opinion only applies to the people or entities that requested it. However,
advisory opinions are published and made available to the public, and they
provide guidance on those practices the OIG believes may violate federal law.
Renal Care Group has not requested any advisory opinions from the OIG. However,
the OIG has issued several advisory opinions addressing practices of companies
owning ESRD centers.

         In advisory opinions addressing practices of companies owning ESRD
centers, the OIG has advised ESRD companies that they may not pay policy
premiums for Medicare supplemental insurance for patients, even patients with
proven financial hardship. Prior to the adoption of HIPAA and the issuance of
these OIG opinions, Renal Care Group had paid premiums for Medicare supplemental
insurance for some patients with demonstrated financial need. The Company
stopped making such payments following the adoption of HIPAA. Consistent with
the advisory opinions, the Company has made grants to charitable foundations
that may, but are not required to, make premium payments on behalf of ESRD
patients. Renal Care Group believes, but cannot promise, that its current
practices regarding supplemental insurance substantially comply with the general
principles expressed by the OIG in these advisory opinions. In 2000, HHS issued
proposed regulations that would permit dialysis facilities to pay for
supplemental insurance premiums on behalf of ESRD patients if certain
requirements are satisfied. Final regulations have not been issued. Renal Care
Group cannot predict when final regulations will be published or whether it will
be able to meet the requirements of the regulations when issued.

         On August 17, 2000, HHS published final regulations governing
electronic transactions involving health information. These regulations are part
of the administrative simplification provisions of HIPAA. These regulations are
commonly referred to as the Transaction Standards rule. The rule establishes
standards for eight of the most common health care transactions by reference to
technical standards promulgated by recognized standards publishing
organizations. Under the new standards, any party transmitting or receiving
health transactions electronically must send and receive data in a single
format, rather than the large number of different data formats currently used.
Until recently, compliance with these


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regulations was required by October 16, 2002. Pursuant to a new law, health care
providers, health care clearinghouses and large health plans who submit a
compliance extension plan to HHS by October 15, 2002 will have until October 16,
2003 to comply. Health care providers, health care clearinghouses and large
health plans who do not submit a compliance extension plan to HHS by the
deadline must comply with these requirements by October 16, 2002. The
Transaction Standards rule applies to Renal Care Group in connection with
submitting and processing health claims. The Transaction Standards rule also
applies to many of our payors and to our relationships with those payors. Since
many of our payors may not be able to accept transactions in the format required
by the Transaction Standards rule by the original compliance date, Renal Care
Group intends to file a compliance extension plan with HHS. Renal Care Group
intends to comply with the Transaction Standards rule by the date that it is
required to comply.

         On December 28, 2000, HHS published final regulations implementing
HIPAA that adopted standards for privacy of individually identifiable health
information. The regulations cover health care providers, health care
clearinghouses and health plans, as well as their business associates. The
regulations, among other things, require companies:

         -        to obtain patient consent before using or disclosing protected
                  health information for treatment, payment and health care
                  operations,

         -        to obtain patient authorization prior to other uses or
                  disclosures,

         -        to respond to requests from patients for access to their
                  information,

         -        to respond to patient requests for amendments of their
                  information,

         -        to designate a privacy officer, to use and disclose only the
                  minimum necessary information to accomplish a particular
                  purpose, and

         -        to establish policies and procedures with respect to uses and
                  disclosures of protected health information.

         These regulatory requirements impose significant administrative and
financial obligations on companies that use or disclose individually
identifiable information relating to the health of a patient. Renal Care Group's
current processes for receiving, using and disclosing patient information were
designed to maintain patient privacy and therefore already include many of the
HIPAA-required privacy elements. However, Renal Care Group continues to study
these new regulations and may be required to change some of its practices to
comply fully with them.

         The effective date of these privacy regulations is April 14, 2001, and
most covered entities are required to comply with the regulatory requirements by
April 14, 2003. Renal Care Group intends to comply with the privacy regulations
by the required compliance date.

         On August 12, 1998, HHS published proposed regulations implementing
HIPAA that governs the security of health information. When, and if, the
proposed security regulations are finalized, Renal Care Group intends to comply
with them by the required compliance date.

THE FALSE CLAIMS ACT

         The federal False Claims Act gives the federal government an additional
way to police false bills or requests for payment for health care services.
Under the False Claims Act, the government may fine any person who knowingly
submits, or participates in submitting, claims for payment to the federal
government that are false or fraudulent, or that contain false or misleading
information. Any person who knowingly makes or uses a false record or statement
to avoid paying the federal government may also be subject to fines under the
False Claims Act. Under the False Claims Act, the term "person" means an
individual, company, or corporation. The federal government has used the False
Claims Act widely to prosecute fraud against Medicare and other governmental
programs in areas such as coding errors, billing for services not provided and
submitting false cost reports. The False Claims Act has also been used to
prosecute people or entities that bill services at a higher reimbursement rate
than is allowed and billing for care that is not medically necessary.


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         The penalty for violation of the False Claims Act ranges from $5,000 to
$10,000 for each fraudulent claim plus three times the amount of damages caused
to the government as a result of each fraudulent claim. In addition to the False
Claims Act, the federal government may use several criminal statutes to
prosecute the submission of false or fraudulent claims for payment to the
federal government. Many states have similar false claims statutes that impose
liability for the types of acts prohibited by the False Claims Act.

CIVIL MONETARY PENALTIES

         The Secretary of HHS may impose civil monetary penalties on any person
or entity that presents or causes to be presented certain ineligible claims for
medical items or services. The amount of penalties varies, depending on the
offense, from $2,000 to $50,000 per violation. HHS can impose penalties for
false or fraudulent claims and those that include services not provided as
claimed. In addition, HHS may impose penalties on claims:

         -        for physician services the person or entity knew or should
                  have known were rendered by a person who was unlicensed, or
                  misrepresented either (1) his or her qualifications in
                  obtaining his or her license or (2) his or her certification
                  in a medical specialty;

         -        were furnished by a person who was, at the time the claim was
                  made, excluded from the program to which the claim was made;
                  or

         -        that show a pattern of medically unnecessary items or
                  services.

         Penalties also may be imposed on a person or entity that violates rules
regarding the assignment of payments, that knowingly gives false or misleading
information that could reasonably influence the discharge of patients from a
hospital, or that offers inducements to beneficiaries for program services.
Persons who have been excluded from the program and who retain ownership in a
participating entity, or who contract with excluded persons, may be penalized.
Penalties also are applicable in certain other cases, including violations of
the federal Anti-Kickback Statute, payments to limit certain patient services
and improper execution of statements of medical necessity.

GOVERNMENT INVESTIGATIONS

         Last year, the federal government continued to investigate practices of
health care providers, including providers of dialysis. Renal Care Group expects
that the number of government investigations of dialysis providers will continue
to increase in 2002. The OIG has indicated in its 2002 Work Plan that it will be
focusing this year on a number of areas of ESRD services, including medical
necessity, accuracy of coding for services outside the ESRD composite rate,
payments for EPO, and home dialysis billing.

         The federal government also continues to investigate practices of
laboratories. Each of the laboratories owned and operated by the major dialysis
providers, including the laboratory owned and operated by Renal Care Group, has
been the subject of a government investigation. These laboratories, including
our laboratory, could be the subject of future investigations.

         Renal Care Group has developed and implemented a compliance program
that is designed to prevent violations of the law. The existence of an effective
compliance program may reduce the severity of civil and criminal penalties for
certain offenses. Renal Care Group believes its compliance program is effective.

HEALTH CARE LEGISLATION

         Congress may enact legislation in the future which may significantly
change the Medicare ESRD program or reduce the amount that Medicare and Medicaid
will pay for services offered by Renal Care Group. Federal and state statutes or
regulations may be enacted to impose additional requirements on Renal Care Group
to continue to provide services to ESRD patients, to provide new services, or to
maintain eligibility to participate in federal and state payment programs. Any
new legislation or regulations, or new interpretations of existing statutes and
regulations, governing reimbursement to Renal Care Group or the manner in which
Renal Care Group provides services to patients could have a material impact on
Renal Care Group and could adversely affect its profitability.


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COMPETITION

         The dialysis industry is highly competitive. Competition for qualified
physicians to act as medical directors is also significant. According to CMS,
there were more than 3,800 outpatient facilities providing dialysis in the
United States at the end of 1999. Renal Care Group believes that approximately
65% are currently owned by multi-center dialysis companies, approximately 18%
are owned by independent physicians, small chains and other small operators, and
approximately 17% are hospital-affiliated centers. The largest multi-center
dialysis company is Fresenius Medical Care, Inc. A.G. Other large competitors
include DaVita, Inc. and Gambro Healthcare, Inc. In addition, Fresenius and
Gambro are both vertically integrated providers that manufacture and sell
dialysis equipment and supplies, which gives them certain competitive
advantages. There are also a number of health care providers that have entered
or may decide to enter the dialysis business. Some of Renal Care Group's
competitors have substantially greater financial resources than Renal Care Group
and may compete with the Company for acquisitions, development and/or management
of dialysis centers and nephrology practices. Renal Care Group believes that
competition for acquisitions has, over time, increased the cost of acquiring
dialysis centers. Renal Care Group may also experience competition from centers
established by former medical directors or other referring physicians. There can
be no assurance that Renal Care Group will compete effectively with any such
competitors.

INSURANCE

         Renal Care Group maintains professional liability insurance and general
liability insurance policies for all of its operations. Renal Care Group also
maintains insurance in amounts it deems adequate to cover property and casualty
risks, workers' compensation, and directors and officers liability. However,
there can be no assurance that the aggregate amount and types of Renal Care
Group's insurance are adequate to cover all risks it may incur or that insurance
will be available in the future.

EMPLOYEES

         At December 31, 2001 Renal Care Group employed 5,274 full-time
employees and 288 part-time employees. Of the total employees, 158 were employed
at the Company's headquarters and 5,404 were employed at the Company's
facilities or regional business offices. In management's opinion, employee
relations are good.


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RISK FACTORS

         You should carefully consider the risks described below before
investing in Renal Care Group. The risks and uncertainties described below ARE
NOT the only ones facing Renal Care Group. Other risks and uncertainties that we
have not predicted or assessed may also adversely affect our company.

         If any of the following risks occur, our earnings, financial condition
or business could be materially harmed, and the trading price of our common
stock could decline, resulting in the loss of all or part of your investment.

IF MEDICARE OR MEDICAID CHANGES ITS PROGRAMS FOR DIALYSIS, OUR REVENUE AND
EARNINGS COULD DECREASE

         If the government changes the Medicare, Medicaid or similar government
programs or the rates paid by those programs for our services, then our revenue
and earnings may decline. We estimate that approximately 57% of our net revenue
for 1999, 53% of our net revenue for 2000 and 49% of our net revenue for 2001
consisted of reimbursements from Medicare, including the administration of EPO
to treat anemia. We also estimate that approximately 4% of our net revenue for
1999, 5% of our net revenue for 2000 and 6% of our net revenue for 2001
consisted of reimbursements from Medicaid or comparable state programs. Some of
the Medicaid programs reimburse us at rates higher than those paid by Medicare,
and some of these programs have proposed reductions or have announced that they
are considering reductions. Any action to reduce those higher Medicaid
reimbursement rates would adversely affect our revenue and earnings. Any of the
following actions in connection with government programs could cause our revenue
and earnings to decline:

         -        a reduction of the amount paid to us under government
                  programs;

         -        an increase in the costs associated with performing our
                  services that are subject to inflation, such as labor and
                  supply costs, without a corresponding increase in
                  reimbursement rates;

         -        the inclusion of some or all ancillary services, for which we
                  are now reimbursed separately, in the flat composite rate for
                  a standard dialysis treatment; or

         -        changes in laws, or the interpretations of laws, which could
                  cause us to modify our operations.

         Specifically, Congress and the Centers for Medicare & Medicaid
Services, or CMS, formerly known as Health Care Financing Administration, have
proposed reviewing and potentially recalculating the average wholesale prices of
certain drugs, including some drugs that we bill for outside of the flat
composite rate. CMS has indicated that it believes the average wholesale prices
on which it currently bases reimbursement are too high and that Medicare
reimbursement for these drugs is, therefore, too high. Because we are unable to
predict accurately whether reimbursement will be changed and, if so, by how
much, we are unable to quantify what the net effect of changes in reimbursement
for these drugs would have on our revenue and earnings.

IF REIMBURSEMENT FOR EPO DECREASES, THEN WE COULD BE LESS PROFITABLE

         If government or private payors decrease reimbursement rates for EPO,
for which we are currently reimbursed separately outside of the flat composite
rate, our revenue and earnings will decline. EPO is a bio-engineered hormone
that is used to treat anemia. Revenues from the administration of EPO were
approximately 26% of our net revenue for both 1999 and 2000 and 25% of our net
revenue for 2001. Most of our payments for EPO come from government programs.
For the year ended December 31, 2001, Medicare and Medicaid reimbursement
represented approximately 55% of the total revenue we derived from EPO. A
reduction in the reimbursement rate for EPO could materially and adversely
affect our revenue and earnings.


                                       17
<PAGE>

IF AMGEN RAISES THE PRICE FOR EPO OR IF EPO BECOMES IN SHORT SUPPLY, THEN WE
COULD BE LESS PROFITABLE

         EPO is produced by a single manufacturer, Amgen Inc., and there are no
substitute products currently marketed to dialysis providers in the United
States. In May 2001, Amgen announced a 3.9% increase in the price of EPO. This
price increase did not affect our earnings in 2001 because our contract with
Amgen had pricing protection through 2001. This price increase will, however,
adversely affect our earnings in 2002 by up to $0.05 per share. In addition,
Amgen implemented a 3.9% increase in the price of EPO in February 2000. That
price increase adversely affected our earnings in 2000. If Amgen imposes
additional EPO price increases or if Amgen or other factors interrupt the supply
of EPO, then our revenue and earnings will decline.

IF AMGEN MARKETS ARANESP FOR ESRD PATIENTS, THEN WE COULD BE LESS PROFITABLE

         Amgen has developed and obtained FDA approval for a new drug to treat
anemia marketed as Aranesp(R) (darbepoetin alfa). Aranesp(R) is a longer acting
form of bio-engineered protein that, like EPO, can be used to treat anemia. EPO
is usually administered in conjunction with each dialysis treatment. Aranesp(R)
can remain effective for between two and three weeks. As of this date Amgen has
not announced its plans for marketing Aranesp(R). If Amgen markets Aranesp(R)
for the treatment of dialysis patients, then our earnings could be materially
and adversely affected by either of the following factors:

         -        Our margins realized from the administration of Aranesp(R)
                  could be lower than the margin realized on the administration
                  of EPO; or

         -        Physicians could decide to administer Aranesp(R) in their
                  offices, and we would not recognize revenue or profit from the
                  administration of EPO or Aranesp(R).

IF PAYMENTS BY PRIVATE INSURERS, HOSPITALS OR MANAGED CARE ORGANIZATIONS
DECREASE, THEN OUR REVENUE AND EARNINGS COULD DECREASE

         If private insurers, hospitals or managed care organizations reduce
their rates or we experience a significant shift in our revenue mix toward
additional Medicare or Medicaid reimbursement, then our revenue and earnings
will decline. We estimate that approximately 39% of our net revenue for 1999,
42% of our net revenue for 2000 and 45% of our net revenue for 2001, were
derived from sources other than Medicare and Medicaid. In general, payments we
receive from private insurers and hospitals for our services are at rates
significantly higher than the Medicare or Medicaid rates. Additionally, payments
we receive from managed care organizations are at rates higher than Medicare and
Medicaid rates but lower than those paid by private insurers. As a result, any
of the following events could have a material adverse effect on our revenue and
earnings:

         -        any number of economic or demographic factors could cause
                  private insurers, hospitals or managed care companies to
                  reduce the rates they pay us;

         -        a portion of our business that is currently reimbursed by
                  private insurers or hospitals may become reimbursed by managed
                  care organizations, which currently have lower rates for our
                  services; or

         -        the scope of coverage by Medicare or Medicaid under the flat
                  composite rate could expand and, as a result, reduce the
                  extent of our services being reimbursed at the higher
                  private-insurance rates.

IF WE ARE UNABLE TO MAKE ACQUISITIONS IN THE FUTURE, OUR RATE OF GROWTH WILL
SLOW

         Much of our historical growth has come from acquisitions. Although we
intend to continue to pursue growth through the acquisition of dialysis centers,
we may be unable to continue to identify and complete suitable acquisitions at
prices we are willing to pay or we may be unable to obtain the necessary
financing. Further, due to the increased size of our Company since its
formation, the amount that acquired businesses contribute to our revenue and
profits will likely be smaller on a percentage basis. Also, as a result of
consolidation in the dialysis industry, the four largest providers of outpatient
dialysis services own approximately 65% of the total number of outpatient
dialysis facilities in the United States. We compete with these other companies
to identify and complete suitable acquisitions. We expect this competition to
intensify in light of the smaller pool of available acquisition candidates and
other market forces. As a result, we believe it will be more difficult for us to
acquire


                                       18
<PAGE>

suitable companies on favorable terms. Further, the businesses we acquire may
not perform well enough to justify our investment. If we are unable to make
additional acquisitions on suitable terms, then we may not meet our growth
expectations.

IF WE FAIL TO INTEGRATE ACQUIRED COMPANIES, WE WILL BE LESS PROFITABLE

         We have grown significantly by acquisitions of other dialysis providers
since our formation in February 1996. We have completed some of our acquisitions
as recently as December 2001. We intend to pursue acquisitions of more dialysis
businesses in the future. We are unable to predict the number and size of any
future acquisitions. We face significant challenges in integrating an acquired
company's management and other personnel, clinical operations, and financial and
operating systems with ours, often without the benefit of continued services
from key personnel of the acquired company. We may be unable to integrate the
businesses we acquire successfully or to achieve anticipated benefits from an
acquisition in a timely manner, which could lead to substantial costs and delays
or other operational, technical or financial problems, including diverting
management's attention from our existing business. Any of these results could
damage our profitability and our prospects for future growth.

IF WE COMPLETE FUTURE ACQUISITIONS, WE MAY DILUTE EXISTING STOCKHOLDERS BY
ISSUING MORE OF OUR COMMON STOCK OR WE MAY INCUR ADDITIONAL EXPENSES RELATED TO
DEBT AND GOODWILL, WHICH COULD REDUCE OUR EARNINGS

         We may issue equity securities in future acquisitions that could be
dilutive to our shareholders. We also may incur additional debt in future
acquisitions. On June 29, 2001, the Financial Accounting Standards Board
approved rules that eliminate the pooling-of-interests accounting method. The
elimination of the pooling-of-interests method results in the recording of
goodwill for all acquisitions after June 30, 2001. Under these new rules
goodwill and other intangible assets with indefinite lives will not be amortized
to expense; however, we will be required to review all such assets at regular
intervals and to charge an appropriate amount to expense when impairment is
identified. If we are required under these new rules to write off a significant
portion of our intangible assets at one time, then there could be a material
adverse impact on our stock price. Interest expense on additional debt incurred
to fund our acquisitions may significantly reduce our profitability.

IF ACQUIRED BUSINESSES HAVE UNKNOWN LIABILITIES, THEN WE COULD BE EXPOSED TO
LIABILITIES THAT COULD HARM OUR BUSINESS AND PROFITABILITY

         Businesses we acquire may have unknown or contingent liabilities,
including liabilities for failure to comply with health care laws. Although we
generally attempt to identify practices that may give rise to unknown or
contingent liabilities and conform them to our standards after the acquisition,
private plaintiffs or governmental agencies may still assert claims. Even though
we generally seek to obtain indemnification from prospective sellers, unknown
and contingent liabilities may not be covered by indemnification or may exceed
contractual limits or the financial capacity of the indemnifying party.

IF OUR REFERRING PHYSICIANS STOP REFERRING TO OUR CENTERS OR WERE PROHIBITED
FROM REFERRING FOR REGULATORY REASONS, OUR REVENUE AND EARNINGS WOULD DECLINE

         Our dialysis centers depend on referrals from local nephrologists.
Typically, one or a few physicians' patients make up all or a significant
portion of the patient base at each of our dialysis centers, and the loss of the
patient base of one or more referring physicians could have a material adverse
effect on the operations of that center. The loss of the patient base of a
significant number of referring physicians could cause our revenue and earnings
to decline. In many instances, the primary referral sources for our centers are
physicians who are also stockholders and serve as medical directors of our
centers. If stock ownership or the medical director relationship were deemed to
violate applicable federal or state law, including fraud and abuse laws and laws
prohibiting self-referrals, the physicians owning our stock or acting as medical
directors could be forced to stop referring patients to our centers. Further, we
may not be able to renew or renegotiate our medical director agreements
successfully, which could result in a loss of patients since dialysis patients
are typically treated at a center where their physician serves as a medical
director.


                                       19
<PAGE>

IF OUR BUSINESS IS ALLEGED OR FOUND TO VIOLATE HEATH CARE OR OTHER APPLICABLE
LAWS, OUR REVENUE AND EARNINGS COULD DECREASE

         We are subject to extensive federal, state and local regulation
regarding the following:

         -        fraud and abuse prohibitions under health care reimbursement
                  laws;

         -        prohibitions and limitations on patient referrals;

         -        billing and reimbursement, including false claims prohibitions
                  under health care reimbursement laws;

         -        collection, use, storage and disclosure of patient health
                  information, including the federal Health Insurance
                  Portability and Accountability Act of 1996, referred to as
                  HIPAA, and state law equivalents of HIPAA;

         -        facility licensure;

         -        health and safety requirements;

         -        environmental compliance; and

         -        medical and toxic waste disposal.

         Much of this regulation, particularly in the areas of fraud and abuse
and patient referral, is complex and open to differing interpretations. Due to
the broad application of the statutory provisions and the absence in many
instances of regulations or court decisions addressing the specific arrangements
by which we conduct our business, including our arrangements with medical
directors, physician stockholders and physician joint venture partners,
governmental agencies could challenge some of our practices under these laws.

         New regulations governing electronic transactions and the collection,
use, storage, and disclosure of health information impose significant
administrative and financial obligations on our business. If, after the required
compliance date, we are found to have violated these restrictions, we could be
subject to:

         -        criminal or civil penalties;

         -        claims by persons who believe their health information has
                  been improperly used or disclosed; and

         -        administrative penalties by payors.

         Government investigations of health care providers, including dialysis
providers, have continued to increase. We have been the subject of
investigations in the past, and the government may investigate our business in
the future. One of our competitors, DaVita, Inc., has announced that it is the
subject of an investigation by the U.S. Attorney for the Eastern District of
Pennsylvania, and another competitor, Gambro Healthcare, Inc., has announced
that it is the subject of an investigation by the U.S. Attorney's Office in St.
Louis, Missouri. If any of our operations are found to violate applicable laws,
we may be subject to severe sanctions or be required to alter or discontinue the
challenged conduct or both. If we are required to alter our practices, we may
not be able to do so successfully. If any of these events occur, our revenue and
earnings could decline.


                                       20
<PAGE>

CHANGES IN THE HEALTH CARE DELIVERY, FINANCING OR REIMBURSEMENT SYSTEMS COULD
ADVERSELY AFFECT OUR BUSINESS

         The health care industry in the United States remains in a period of
change and uncertainty. Health care organizations, public or private, may
dramatically change the way they operate and pay for services. Our business is
designed to function within the current health care financing and reimbursement
system. During the past several years, the health care industry has been subject
to increasing levels of government regulation of, among other things,
reimbursement rates and capital expenditures. In addition, proposals to reform
the health care system have been considered by Congress. These proposals, if
enacted, could further increase government regulation of or other involvement in
health care, lower reimbursement rates and otherwise change the operating
environment for health care companies. We cannot predict the likelihood of those
events or what impact they may have on our business.

THE DIALYSIS BUSINESS IS HIGHLY COMPETITIVE. IF WE DO NOT COMPETE EFFECTIVELY IN
OUR MARKETS, WE COULD LOSE MARKET SHARE AND OUR RATE OF GROWTH COULD SLOW

         The dialysis industry is rapidly consolidating. There is a small number
of large dialysis companies that compete for the acquisition of outpatient
dialysis centers and the development of relationships with referring physicians.
Several of our competitors are part of larger companies that also manufacture
dialysis equipment, which allows them to benefit from lower equipment costs.
Several of our competitors, including these equipment manufacturers, are
significantly larger than we are and have greater financial resources and more
established operations We cannot assure you that we will be able to compete
effectively with any of our competitors.

IF WE LOSE ANY OF OUR EXECUTIVE OFFICERS, OR ARE UNABLE TO ATTRACT AND RETAIN
QUALIFIED MANAGEMENT PERSONNEL AND MEDICAL DIRECTORS, OUR ABILITY TO RUN OUR
BUSINESS COULD BE ADVERSELY AFFECTED, AND OUR REVENUE AND EARNINGS COULD DECLINE

         We are dependent upon the services of our executive officers Sam A.
Brooks, Jr., our Chairman, Chief Executive Officer and President, and Raymond
Hakim, M.D., Ph.D., R. Dirk Allison and Gary Brukardt, each an Executive Vice
President. Mr. Brooks, Dr. Hakim and Mr. Brukardt have each been with Renal Care
Group since its formation. The services of Mr. Brooks and these three Executive
Vice Presidents would be very difficult to replace. We do not carry key-man life
insurance on any of our officers. Further, our growth will depend in part upon
our ability to attract and retain skilled employees, for whom competition is
intense. We also believe that our future success will depend on our ability to
attract and retain qualified physicians to serve as medical directors of our
dialysis centers. We have entered into medical director agreements with the
physicians serving as medical directors of our dialysis centers, most of which
contain noncompetition covenants of varying durations.

IF WE ARE LIABLE FOR DAMAGES IN LITIGATION, OUR INSURANCE MAY NOT BE SUFFICIENT
TO COVER SUCH POTENTIAL DAMAGES

         On August 30, 2000, 19 patients were hospitalized and one patient died
shortly after becoming ill while receiving treatment at one of our dialysis
centers in Youngstown, Ohio. One of the 19 hospitalized patients also died some
time later. Eleven lawsuits had been filed against us as of December 31, 2001,
and other suits could be brought in the future. While management believes Renal
Care Group's insurance should be adequate to cover these events, if we are found
liable for damages in litigation stemming from these illnesses, our present
insurance coverage may not be sufficient to cover such damages.

IF OUR BOARD OF DIRECTORS DOES NOT APPROVE AN ACQUISITION OR CHANGE IN CONTROL
OF RENAL CARE GROUP, OUR SHAREHOLDERS MAY NOT REALIZE THE FULL VALUE OF THEIR
STOCK

         Our certificate of incorporation and bylaws contain a number of
provisions that may delay, deter or inhibit a future acquisition or change in
control of Renal Care Group that is not first approved by our board of
directors. This could occur even if our shareholders receive an attractive offer
for their shares or if a substantial number or even a majority of our
shareholders believe the takeover may be in their best interest. These
provisions are intended to encourage any person interested in acquiring Renal
Care Group to negotiate with and obtain approval from our board of directors
prior to pursuing the transaction. Provisions that could delay, deter or inhibit
a future acquisition or change in control of Renal Care Group include the
following:


                                       21
<PAGE>

         -        a staggered board of directors that would require two annual
                  meetings to replace a majority of the board of directors;

         -        restrictions on calling special meetings at which an
                  acquisition or change in control might be brought to a vote of
                  the shareholders;

         -        blank check preferred stock that may be issued by our board of
                  directors without shareholder approval and that may be
                  substantially dilutive or contain preferences or rights
                  objectionable to an acquiror; and

         -        a poison pill that would substantially dilute the interest
                  sought by an acquiror.

         These provisions could also discourage bids for our common stock at a
premium and cause the market price of our common stock to decline.

OUR STOCK PRICE IS VOLATILE AND AS A RESULT, THE VALUE OF YOUR INVESTMENT MAY GO
DOWN FOR REASONS UNRELATED TO THE PERFORMANCE OF OUR BUSINESS

         Our common stock is traded on the New York Stock Exchange. The market
price of our common stock has been volatile, ranging from a low of $23.43 per
share to a high of $33.89 per share during the year ended December 31, 2001. The
market price for our common stock could fluctuate substantially based on a
variety of factors, including the following:

         -        future announcements concerning us, our competitors or the
                  health care market;

         -        the threat of litigation or government investigation;

         -        changes in government regulations; and

         -        changes in earnings estimates by analysts.

         Furthermore, stock prices for many companies fluctuate widely for
reasons that may be unrelated to their operating results. These fluctuations,
coupled with changes in demand or reimbursement levels for our services and
general economic, political and market conditions, could cause the market price
of our common stock to decline.


                                       22
<PAGE>

ITEM 2. PROPERTIES

PROPERTIES

         As of December 31, 2001, Renal Care Group operated dialysis centers in
26 states, of which 208 are located in leased facilities and 30 are owned. The
following is a summary of Renal Care Group's outpatient dialysis centers by
state.

      OUTPATIENT FACILITIES BY STATE
<TABLE>
<S>                                             <C>
Alabama ................................          5
Alaska .................................          2
Arizona ................................         26
Arkansas ...............................         11
Colorado ...............................          2
Florida ................................          7
Idaho ..................................          1
Illinois ...............................         16
Indiana ................................         20
Kansas .................................         11
Kentucky ...............................          1
Louisiana ..............................          1
Michigan ...............................          5
Mississippi ............................         32
Missouri ...............................          7
Nebraska ...............................          1
New Jersey .............................          3
New Mexico .............................          3
Ohio ...................................         16
Oklahoma ...............................          3
Oregon .................................         10
Pennsylvania ...........................          6
Tennessee ..............................          3
Texas ..................................         35
Washington .............................          9
Wisconsin ..............................          2
                                             ------
TOTAL ..................................        238
                                             ======
</TABLE>

         Some of Renal Care Group's centers are leased from physicians who
practice at the center and who are stockholders of the Company. Renal Care
Group's leases generally have terms ranging from one to 15 years and typically
contain renewal options. The size of Renal Care Group's centers ranges from
approximately 1,000 to 22,500 square feet. Renal Care Group leases office space
in Nashville, Tennessee for its corporate headquarters under a lease that
expires in July 2002. The Company is currently negotiating to secure office
space subsequent to this expiration date. The Company leases other office space
in and around Nashville, Tennessee for certain billing and computer operations.
Renal Care Group considers its physical properties to be in good operating
condition and suitable for the purposes for which they are being used.

         Expansion or relocation of Renal Care Group's dialysis centers is
subject to compliance with conditions relating to participation in the Medicare
ESRD program. In states that require a certificate of need, approval of an
application submitted by the Company is necessary for expansion of an existing
dialysis center or development of a new center.

         Renal Care Group generally owns the equipment used in its outpatient
centers. Renal Care Group considers its equipment generally to be in good
operating condition and suitable for the purposes for which it is being used.


                                       23
<PAGE>

ITEM 3. LEGAL PROCEEDINGS

         On August 30, 2000, 19 patients were hospitalized and one patient died
shortly after becoming ill while receiving treatment at one of Renal Care
Group's dialysis centers in Youngstown, Ohio. One of the 19 hospitalized
patients also died some time later.

         In March 2001, Renal Care Group was sued in Mahoning County, Ohio by
one of the affected patients for injuries related to the August 30, 2000
illnesses. Additional suits have been filed, and as of December 31, 2001, a
total of 11 suits were pending. The suits allege negligence, medical malpractice
and product liability. Additional defendants are named in each of the suits.
Additional defendants in some of the suits include the water system vendors who
installed and maintained the water system in the dialysis center. Renal Care
Group has denied the allegations and has filed cross-claims against the water
system vendors. Renal Care Group intends to pursue these cross-claims
vigorously.

         These suits are styled:    Mary E. Beaumier v. Physicians Dialysis
                                      Centers, Inc., et al.
                                    Renee Chesney, et al. v. Physicians Dialysis
                                      Centers, Inc., et al.
                                    Lonnie M. Dukes v. Physicians Dialysis
                                      Centers, Inc., et al.
                                    Clifford Hickson v. Physicians Dialysis
                                      Centers, Inc., et al.
                                    Joanne Hight, et al. v. Physicians Dialysis
                                      Centers, Inc., et al.
                                    Andrew Kraynack, et al. v. Physicians
                                      Dialysis Centers, Inc., et al.
                                    Kay F. Lingo v. Physicians Dialysis Centers,
                                      Inc., et al.
                                    Charles J. Lowry, Sr. v. Physicians Dialysis
                                      Centers, Inc., et al.
                                    Lawrence Payne v. Physicians Dialysis
                                      Centers, Inc., et al.
                                    William E. Repasky, et al. v. Physicians
                                      Dialysis Centers, Inc., et al.
                                    James Thomas v. Physicians Dialysis Centers,
                                      Inc., et al.


         Additional suits arising out of these illnesses may be filed in the
future. Management believes that Renal Care Group's insurance should be adequate
to cover these illnesses and does not anticipate a material adverse effect on
the Company's consolidated financial position or results of operation.

         On December 12, 2000, the Company reached an agreement in principle
with the U.S. Attorney for the Southern District of Mississippi to settle claims
arising out of alleged inadequacies in physician documentation related to lab
tests performed by its laboratory subsidiary, RenaLab, Inc. The terms of such
agreement provided that the Company pay $1.98 million to the Medicare program.
While this amount was accrued in 2000, the Company paid the amount in January
2002, when the Company and the government finalized the terms of a corporate
integrity agreement.

         In addition, the Company is subject to claims and suits in the ordinary
course of business, including those arising from patient treatment, which claims
and suits the Company believes will be covered by its liability insurance.

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

         No matter was submitted to a vote of stockholders during the fourth
quarter of 2001.


                                       24
<PAGE>

                                     PART II

ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

PRICE RANGE OF COMMON STOCK

         The Company's common stock was traded on the Nasdaq National Market
System under the symbol "RCGI" from February 7, 1996 until November 11, 2001, at
which time the Company's common stock began trading on the New York Stock
Exchange under the symbol "RCI". The following table sets forth the quarterly
high and low closing sales prices as reported on the Nasdaq National Market
System and the New York Stock Exchange for the last two fiscal years.

<TABLE>
<CAPTION>

              2000                                HIGH              LOW
              ----                              ---------        ---------
<S>                                             <C>              <C>
First quarter ..........................        $  27.875        $  16.375
Second quarter .........................        $  25.375        $  19.750
Third quarter ..........................        $  28.250        $  14.500
Fourth quarter .........................        $  28.625        $  17.125


<CAPTION>
              2001                                HIGH              LOW
              ----                              ---------        ---------
<S>                                             <C>              <C>
First quarter ..........................        $  27.438        $  23.813
Second quarter .........................        $  32.890        $  23.430
Third quarter ..........................        $  33.890        $  26.800
Fourth quarter .........................        $  33.110        $  29.000

</TABLE>

HOLDERS

         As of March 1, 2002, the approximate number of registered stockholders
was 175 and approximately 9,500 beneficial owners.

DIVIDEND POLICY

         Renal Care Group has never paid any cash dividend on its capital stock.
Renal Care Group currently anticipates that all of its earnings will be retained
to finance the growth and development of its business or to repurchase common
stock. Renal Care Group therefore, does not anticipate that any cash dividend
will be declared or paid on the common stock in the foreseeable future. Any
future declaration of dividends will be subject to the discretion of Renal Care
Group's Board of Directors and its review of Renal Care Group's earnings,
financial condition, capital requirements and surplus, contractual restrictions
to pay such dividends and other factors the Board of Directors deems relevant.


                                       25
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

         The selected financial data for the years ended December 31, 1997,
1998, 1999, 2000 and 2001 are derived from the audited consolidated financial
statements of the Company and its subsidiaries. The consolidated financial
statements and related notes to Consolidated Financial Statements for the years
ended December 31, 1999, 2000 and 2001, together with the related Report of
Independent Auditors are included elsewhere in this annual report on Form 10-K.
The following data should be read in conjunction with the financial statements
and related notes and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" that appear elsewhere in this annual report
on Form 10-K.

                             SELECTED FINANCIAL DATA
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                          YEAR ENDED DECEMBER 31,
                                                     --------------------------------------------------------------
                                                        1997         1998         1999         2000         2001
                                                     ----------   ----------   ----------   ----------   ----------
<S>                                                  <C>          <C>          <C>          <C>          <C>
INCOME STATEMENT DATA:
Net revenue ....................................     $  274,518   $  441,063   $  541,895   $  622,575   $  755,082
Patient care costs .............................        189,284      292,113      351,367      402,009      489,271
General and administrative expenses ............         27,827       43,894       51,315       57,104       64,530
Provision for doubtful accounts ................          8,072       13,484       14,632       16,949       20,290
Depreciation and amortization ..................         12,070       22,241       27,835       32,321       38,945
Restructuring charge ...........................             --           --           --        9,235           --
Merger expenses ................................            300        1,000        4,300        3,766           --
                                                     ----------   ----------   ----------   ----------   ----------
Total operating costs and expenses .............        237,553      372,732      449,449      521,384      613,036
                                                     ----------   ----------   ----------   ----------   ----------
Income from operations .........................         36,965       68,331       92,446      101,191      142,046
Interest expense, net ..........................          1,976        6,558        6,224        5,015        2,636
                                                     ----------   ----------   ----------   ----------   ----------
Income before income taxes and minority interest         34,989       61,773       86,222       96,176      139,410
Minority interest ..............................            955        3,492        7,768       10,011       15,478
                                                     ----------   ----------   ----------   ----------   ----------
Income before income taxes .....................         34,034       58,281       78,454       86,165      123,932
Provision for income taxes .....................         12,736       21,601       31,367       34,706       47,331
                                                     ----------   ----------   ----------   ----------   ----------
Net income .....................................     $   21,298   $   36,680   $   47,087   $   51,459   $   76,601
                                                     ==========   ==========   ==========   ==========   ==========
Basic net income per share .....................     $     0.57   $     0.84   $     1.05   $     1.12   $     1.59
                                                     ==========   ==========   ==========   ==========   ==========
Basic weighted average shares outstanding ......         37,398       43,740       45,015       46,048       48,113
                                                     ==========   ==========   ==========   ==========   ==========
Diluted net income per share ...................     $     0.54   $     0.79   $     1.00   $     1.07   $     1.52
                                                     ==========   ==========   ==========   ==========   ==========
Diluted weighted average shares outstanding ....         39,496       46,367       47,052       47,948   $   50,483
                                                     ==========   ==========   ==========   ==========   ==========
</TABLE>

<TABLE>
<CAPTION>
                                                                              DECEMBER 31,
                                                       1997         1998         1999         2000         2001
                                                    ----------   ----------   ----------   ----------   ----------
<S>                                                 <C>          <C>          <C>          <C>          <C>
BALANCE SHEET DATA:
Working capital .................................   $   22,045   $   47,851   $   73,651   $  108,915   $  102,839
Total assets ....................................      311,661      433,687      500,906      582,672      652,257
Long-term debt ..................................       49,844       90,928       79,690       58,316        3,776
Stockholders' equity ............................      191,720      248,180      311,839      394,122      510,251
</TABLE>


                                       26
<PAGE>

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

         The following discussion should be read in conjunction with the
Company's Consolidated Financial Statements, including the notes thereto,
contained elsewhere in this annual report on Form 10-K.

OVERVIEW

         Renal Care Group provides dialysis services to patients with chronic
kidney failure. As of December 31, 2001, the Company provided dialysis and
ancillary services to approximately 18,800 patients through 238 outpatient
dialysis centers in 26 states, in addition to providing acute dialysis services
in 120 hospitals. During 2001, the Company also provided limited wound care and
diabetic care services; however, Renal Care Group exited these businesses during
the second quarter of 2001.

         For the comparison discussion that follows, the selected financial data
include the financial information of some companies acquired in previously
reported transactions that were accounted for as poolings-of-interests. Because
the companies added in pooling transactions were independent and not operated by
Renal Care Group's management before the dates of acquisition, the historical
results of such companies before they were acquired may not be indicative of
future performance.

         Renal Care Group's net revenue has been derived primarily from the
following sources:

         -        outpatient hemodialysis services;

         -        ancillary services associated with outpatient dialysis,
                  primarily the administration of erythropoietin (also known as
                  Epogen (R) or EPO) and other drugs;

         -        home dialysis services;

         -        inpatient hemodialysis services provided to acute care
                  hospitals and skilled nursing facilities;

         -        laboratory services; and

         -        management contracts with hospital-based and medical
                  university dialysis programs.

         Patients with end-stage renal disease typically receive three dialysis
treatments each week in an outpatient setting, with reimbursement for these
services provided primarily by the Medicare ESRD program based on rates
established by the Centers for Medicare and Medicaid Services. For the year
ended December 31, 2001, approximately 55% of the Company's net revenue was
derived from reimbursement under the Medicare and Medicaid programs. Medicare
reimbursement is subject to rate and other legislative changes by Congress and
periodic changes in regulations, including changes that may reduce payments
under the ESRD program. Effective on both January 1, 2000 and January 1, 2001,
Congress increased the Medicare composite rate by 1.2% each year. An additional
increase of 1.2% took effect April 1, 2001. The April 1, 2001 increase included
an adjustment factor that made that 1.2% increase effective for all of 2001.
Accordingly, the net result of the 1.2% increases on January 1, 2001 and April
1, 2001, plus the April adjustment factor, was an effective increase of 2.4% for
calendar year 2001. Neither Congress nor CMS approved an increase in the
composite rate for 2002.

         The Medicare composite rate applies to a designated group of outpatient
dialysis services, including the dialysis treatment, supplies used for such
treatment, certain laboratory tests and medications, and most of the home
dialysis services provided by Renal Care Group. Certain other services,
laboratory tests, and drugs are eligible for separate reimbursement under
Medicare and are not part of the composite rate, including specific drugs such
as EPO and certain physician-ordered tests provided to dialysis patients.

         For patients with private health insurance, dialysis is typically
reimbursed at rates higher than Medicare during the first 30 months of
treatment. After that period Medicare becomes the primary payor. Reimbursement
for dialysis services provided pursuant to a hospital contract is negotiated
with the individual hospital and generally is higher on a per treatment
equivalent basis than the Medicare composite rate. Because dialysis is a
life-sustaining therapy used to treat a chronic disease, utilization is
predictable and is not subject to seasonal fluctuations.


                                       27
<PAGE>

         Renal Care Group derives a significant portion of its net revenue and
net income from the administration of EPO. EPO is manufactured by a single
company, Amgen. In May 2001, Amgen implemented its second increase of 3.9% in as
many years. This increase did not affect Renal Care Group's results of
operations in 2001 because Renal Care Group's contract with Amgen included price
protection for all of 2001. Management believes this 2001 increase will
adversely affect earnings in 2002 by up to $0.05 per share, if Renal Care Group
is unable to mitigate the price increase through its contract with Amgen or
other means. Based on the status of discussions with Amgen and the Company's
contract with Amgen for the year 2002, management believes that Renal Care Group
may be able to mitigate between 20% and 25% of this adverse effect; however, the
Company can give no assurances in regard to its ability to mitigate the price
increase.

CRITICAL ACCOUNTING POLICIES

         On December 12, 2001, the Securities and Exchange Commission issued a
financial reporting release, FR-60, Cautionary Advice Regarding Disclosure About
Critical Accounting Policies. In accordance with FR-60, management has
identified the following accounting policies that it considers critical to the
business of Renal Care Group. These policies were identified based on their
importance to the Consolidated Financial Statements as well as on the degrees of
subjectivity and complexity involved in these policies. In addition to these
critical policies, a summary of significant accounting policies is included in
the notes to the Company's Consolidated Financial Statements, contained
elsewhere in this annual report on Form 10-K.

Net Revenue and Contractual Provisions

         The Company recognizes revenues net of contractual provisions as
services are provided. Contractual provisions represent the difference between
Renal Care Group's gross billed charges and the amount the Company expects to
receive. Under the Medicare ESRD program, Medicare reimbursement rates for
outpatient dialysis treatments are fixed under a composite rate structure. The
composite rate applies to a designated group of outpatient dialysis services,
including the dialysis treatment, supplies for such treatment, certain
laboratory tests and certain medications. There are other drugs, laboratory
tests and services that are eligible for separate reimbursement outside the
composite rate. Most state Medicaid plans follow similar reimbursement
methodologies used by the Medicare program, but other payors, such as private
insurance plans and managed care payors, reimburse Renal Care Group under
established contractual arrangements. Each of these payor sources provides
unique challenges to the process of recording contractual provisions.

         Renal Care Group has made significant investments in human resources
and information systems, which enable its computerized billing systems to
estimate the appropriate amount of contractual provisions to record as services
are provided. Actual levels of reimbursement, however, are sometimes difficult
to determine due to the complexity of the applicable regulations or payor
contracts. As a result, Renal Care Group may in fact collect more or less than
the amount expected when the services are provided. In addition, regulations and
contracts may be changed, making system updates and maintenance necessary for an
accurate estimation of net revenue. As a result, management may make adjustments
to the contractual provisions estimated by the system based on actual collection
experience and other factors.

Provision for Doubtful Accounts

         Collecting its outstanding receivable balances is critical to the
success of the Company. Renal Care Group's primary source of collection risk is
related to the portion of its gross charges for which the patient is
responsible. The patients' responsibility is typically 15-20% of gross charges.
The Company records its estimate of the provision for doubtful accounts in the
period in which the revenue is recognized based on management's estimate of the
net collectibility of the accounts receivable. Management estimates and monitors
the net collectibility of accounts receivable based upon a variety of factors,
including the analysis of payor mix, subsequent collection analysis and review
of detailed accounts receivable agings. Significant changes in payor mix or
business office operations of Renal Care Group could have a significant impact
on Renal Care Group's results of operations and cash flows.


                                       28
<PAGE>

Self Insurance Accruals

         From time to time, Renal Care Group is subject to medical malpractice
or workers compensation claims or lawsuits in the ordinary course of business.
To mitigate a portion of this risk, the Company maintains insurance for
malpractice claims exceeding certain individual and aggregate amounts and
workers compensation claims exceeding certain individual and aggregate amounts.
The Company estimates its self-insured retention portion of these malpractice
and workers compensation risks using historical claims data, demographic factors
and other assumptions. The estimated accrual for malpractice and workers
compensation claims could be significantly affected if current and future
occurrences differ from historical claims trends. While management monitors
current claims closely and considers outcomes when estimating its insurance
accruals, the complexity of the claims and the wide range of potential outcomes
often complicate the Company's ability to make precise estimates.

Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of

         Renal Care Group reviews its long-lived assets and identifiable
intangibles for impairment whenever management identifies events or changes in
circumstances that indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. The computation of future net cash flows is often
complex and includes subjective assumptions. If management determines that
assets are impaired, then impairment is equal to 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.

RESULTS OF OPERATIONS

         The following table sets forth results of operations (in thousands) for
the periods indicated and the percentage of net revenue represented by the
respective financial line items:

<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                                           --------------------------------------------------------------------
                                                   1999                     2000                   2001
                                           --------------------    --------------------    --------------------
<S>                                        <C>            <C>      <C>            <C>      <C>            <C>
Net revenue ............................   $  541,895     100.0%   $  622,575     100.0%   $  755,082     100.0%
Patient care costs .....................      351,367      64.8       402,009      64.6       489,271      64.8
General and administrative expenses ....       51,315       9.5        57,104       9.2        64,530       8.5
Provision for doubtful accounts ........       14,632       2.7        16,949       2.7        20,290       2.7
Depreciation and amortization ..........       27,835       5.1        32,321       5.2        38,945       5.2
Restructuring charge ...................           --        --         9,235       1.5            --        --
Merger expenses ........................        4,300       0.8         3,766       0.6            --        --
                                           ----------   -------    ----------   -------    ----------   -------
Total operating costs and expenses .....      449,449      82.9       521,384      83.7       613,036      81.2
                                           ----------   -------    ----------   -------    ----------   -------
Income from operations .................       92,446      17.1       101,191      16.3       142,046      18.8
Interest expense, net ..................        6,224       1.1         5,015       0.8         2,636       0.3
Minority interest ......................        7,768       1.4        10,011       1.6        15,478       2.0
                                           ----------   -------    ----------   -------    ----------   -------
Income before income taxes .............       78,454      14.5        86,165      13.8       123,932      16.4
Income tax expense .....................       31,367       5.8        34,706       5.6        47,331       6.3
                                           ----------   -------    ----------   -------    ----------   -------
Net income .............................   $   47,087       8.7%   $   51,459       8.3%   $   76,601      10.1%
                                           ==========   =======    ==========   =======    ==========   =======
</TABLE>


                                       29
<PAGE>

YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

         Net Revenue. Net revenue increased from $622.6 million for the year
ended December 31, 2000 to $755.1 million for the year ended December 31, 2001,
an increase of $132.5 million, or 21.3%. This increase resulted primarily from
an 11.1% increase in the number of treatments from 2,418,619 in 2000 to
2,686,181 in 2001 and an increase in the average net revenue per dialysis
treatment. The growth in treatments was the result of the acquisition and
development of various dialysis facilities and a 5.4% increase in same-center
treatments for 2001 over 2000. In addition, average net revenue per dialysis
treatment increased 10.8% from $251 in 2000 to $278 in 2001. The increase in
revenue per treatment was generally due to the implementation of price increases
to commercial payors implemented beginning in the fourth quarter of 2000, a
stronger payor mix in two businesses acquired in the fourth quarter of 2000, the
effect of the 2.4% increase in the Medicare ESRD composite rate and increases in
the utilization of certain drugs.

         Patient Care Costs. Patient care costs consist of costs directly
related to the care of patients, including direct labor, drugs and other medical
supplies, and operational costs of facilities. Patient care costs increased from
$402.0 million for the year ended December 31, 2000 to $489.3 million for the
year ended December 31, 2001, an increase of 21.7%. This increase was due
principally to the increase in the number of treatments performed during the
period, which was reflected in corresponding increases in the use of labor,
drugs and supplies. Patient care costs as a percentage of net revenue increased
from 64.6% in 2000 to 64.8% in 2001. Patient care costs per treatment increased
9.6% from $166 in 2000 to $182 in 2001. These increases were due to increased
labor costs to address wage pressures in many of the Company's markets, the
increase in the utilization of certain drugs and generally higher patient care
costs in two businesses acquired in the fourth quarter of 2000. Management
expects continued labor wage pressures and increases in medical malpractice
costs to occur in 2002.

         General and Administrative Expenses. General and administrative
expenses include corporate office costs and facility costs not directly related
to the care of patients, including facility administration, accounting, billing
and information systems. General and administrative expenses increased from
$57.1 million for the year ended December 31, 2000 to $64.5 million for the year
ended December 31, 2001, an increase of 13.0%. General and administrative
expenses as a percentage of net revenue decreased from 9.2% in 2000 to 8.5% in
2001, primarily as the result of leveraging general and administrative costs
over a larger base of business as acquisitions have been integrated without a
corresponding increase in general and administrative expense.

         Provision for Doubtful Accounts. The provision for doubtful accounts is
determined as a function of payor mix, billing practices, and other factors.
Renal Care Group reserves for doubtful accounts in the period in which the
revenue is recognized based on management's estimate of the net collectibility
of the accounts receivable. Management estimates the net collectibility of
accounts receivable based upon a variety of factors. These factors include, but
are not limited to, analyzing revenues generated from payor sources, performing
subsequent collection testing and regularly reviewing detailed accounts
receivable agings. The provision for doubtful accounts increased from $16.9
million in 2000 to $20.3 million in 2001, an increase of approximately $3.4
million, or 20.1%. The provision for doubtful accounts as a percentage of net
revenue remained consistent at 2.7% in both 2000 and 2001.

         Depreciation and Amortization. Depreciation and amortization increased
from $32.3 million for the year ended December 31, 2000 to $38.9 million for the
year ended December 31, 2001, an increase of 20.4%. This increase was due to the
start-up of dialysis facilities, the normal replacement costs of dialysis
facilities and equipment, the purchase of information systems and the
amortization of the goodwill and other intangible assets associated with
acquisitions closed prior to June 30, 2001, that were accounted for as
purchases.

         Restructuring Charge. The Company recorded a restructuring charge of
$9.2 million during 2000. The charge resulted from the Company's decision to
cease providing wound care services and to focus on its core dialysis business.
The restructuring charge principally represented impairment charges for goodwill
and property and equipment associated with the wound care business along with
anticipated severance costs, contract termination costs and other associated
charges. During the second quarter of 2001, the Company sold certain assets and
transferred certain liabilities associated with the wound care business in a
transaction with a third party. Proceeds from this transaction equaled the net
book value of the assets sold less liabilities transferred; accordingly, no gain
or loss was recognized in 2001.

         Merger Expenses. Merger expenses of $3.8 million for the year ended
December 31, 2000, represent legal, accounting and employee severance costs and
related benefits and other costs associated with the assimilation and transition
of the merger with Renal Disease Management by Physicians, Inc.


                                       30
<PAGE>

         Income from Operations. Income from operations increased from $101.2
million for the year ended December 31, 2000 to $142.0 million for the year
ended December 31, 2001, an increase of 40.3%. Income from operations as a
percentage of net revenue increased from 16.3% in 2000 to 18.8% in 2001 largely
as a result of the factors discussed above.

         Interest Expense, Net. Interest expense of $2.6 million for the
year-ended December 31, 2001 decreased $2.4 million compared to $5.0 million for
the year ended December 31, 2000. The decrease was the result of lower average
borrowings as the Company successfully repaid all amounts due under its
outstanding line of credit, which amounts were $54.0 million at the beginning of
the year.

         Minority Interest. Minority interest represents the proportionate
equity interest of other partners in the Company's consolidated entities that
are not wholly owned whose financial results are included in the Company's
consolidated results. Minority interest as a percentage of net revenue increased
to 2.0% in 2001 from 1.6% in 2000. This increase was the result of the continued
expansion of the operations of Renal Care Group's joint ventures, primarily
those in Ohio, Washington, and Oregon, as well as an increase in the number of
facilities operated as joint ventures.

         Provision for Income Taxes. Income tax expense increased from $34.7
million in 2000 to $47.3 million in 2001, an increase of $12.6 million or 36.3%.
The increase is a result of pre-tax earnings increasing by 43.8%. The Company's
effective tax rate decreased from 40.3% in 2000 to 38.2% in the current year.
This decrease is primarily the result of certain non-deductible costs in 2000
that resulted from the restructuring charge described above and certain
non-deductible merger costs incurred in 2000.

         Net Income. Net income increased from $51.5 million in 2000 to $76.6
million in 2001, an increase of $25.1 million or 48.7%. This increase is a
result of the items discussed above.

YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999

         Net Revenue. Net revenue increased from $541.9 million for the year
ended December 31, 1999 to $622.6 million for the year ended December 31, 2000,
an increase of $80.7 million, or 14.9%. This increase resulted primarily from a
9.2% increase in the number of treatments from 2,215,728 in 1999 to 2,418,619 in
2000. This growth in treatments was the result of the acquisition and
development of various dialysis facilities and a 7.1% increase in same-center
treatments for 2000 over 1999. In addition, average net revenue per dialysis
treatment increased 5.9% from $237 in 1999 to $251 in 2000. The increase in
revenue per treatment was due to an improvement in the Company's payor mix, the
1.2% increase in the Medicare ESRD composite rate, increases in the utilization
of some drugs, and increases in acute hospital services.

         Patient Care Costs. Patient care costs consist of costs directly
related to the care of patients, including direct labor, drugs, and other
medical supplies and operational costs of facilities. Patient care costs
increased from $351.4 million for the year ended December 31, 1999 to $402.0
million for the year ended December 31, 2000, an increase of 14.4%. This
increase was due to the increase in the number of treatments performed during
the period, which was reflected in corresponding increases in the use of labor,
drugs and supplies. Patient care costs as a percentage of net revenue decreased
from 64.8% in 1999 to 64.6% in 2000. Patient care costs per treatment increased
4.4% from $159 in 1999 to $166 in 2000. This increase was due to Amgen's 3.9%
increase in the price of EPO, increased labor costs to address wage pressures in
many of the Company's markets, the cost of providing in-house laboratory
services and other health care inflation.

         General and Administrative Expenses. General and administrative
expenses include corporate office costs and facility costs not directly related
to the care of patients, including facility administration, accounting, billing
and information systems. General and administrative expenses increased from
$51.3 million for the year ended December 31, 1999 to $57.1 million for the year
ended December 31, 2000, an increase of 11.3%. General and administrative
expenses as a percentage of revenue decreased from 9.5% in 1999 to 9.2% in 2000,
primarily as the result of the increase in net revenue for 2000.

         Provision for Doubtful Accounts. The provision for doubtful accounts is
determined as a function of payor mix, billing practices, and other factors.
Renal Care Group reserves for doubtful accounts in the period in which the
revenue is recognized based on management's estimate of the net collectibility
of the accounts receivable. Management estimates the net collectibility of
accounts receivable based upon a variety of factors. These factors include, but
are not limited to, analyzing revenues generated from payor sources, performing
subsequent collection testing and regularly reviewing detailed accounts
receivable agings. The


                                       31
<PAGE>

provision for doubtful accounts increased from $14.6 million in 1999 to $16.9
million in 2000, an increase of $2.3 million, or 15.8%. The provision for
doubtful accounts as a percentage of net revenue remained consistent at 2.7% in
both 1999 and 2000.

         Depreciation and Amortization. Depreciation and amortization increased
from $27.8 million for the year ended December 31, 1999 to $32.3 million for the
year ended December 31, 2000, an increase of 16.2%. This increase was due to the
start-up of dialysis facilities, the normal replacement costs of dialysis
facilities and equipment, the purchase of information systems and the
amortization of the goodwill and other intangible assets associated with
acquisitions accounted for as purchases.

         Restructuring Charge. The Company recorded a restructuring charge of
$9.2 million during 2000. The charge resulted from the Company's decision to
cease providing wound care services on or before June 30, 2001 and to focus on
its core dialysis business. The restructuring charge principally represented
impairment charges for goodwill and property and equipment associated with the
wound care business along with anticipated severance costs, contract termination
costs and other associated charges. During the second quarter of 2001, the
Company sold certain assets and transferred certain liabilities associated with
the wound care business in a transaction with a third party. Proceeds from this
transaction equaled the net book value of the assets sold less liabilities
transferred; accordingly, no gain or loss was recognized in 2001.

         Merger Expenses. Merger expenses of $3.8 million for the year ended
December 31, 2000, represent legal, accounting and employee severance costs and
related benefits and other costs associated with the assimilation and transition
of the merger with Renal Disease Management by Physicians, Inc. Merger expenses
of $4.3 million for the year ended December 31, 1999, represent legal,
accounting and employee severance costs and related benefits and other costs
associated with the assimilation and transition of the merger with Dialysis
Centers of America, Inc.

         Income from Operations. Income from operations increased from $92.4
million for the year ended December 31, 1999 to $101.2 million for the year
ended December 31, 2000, an increase of 9.5%. Income from operations as a
percentage of net revenue decreased from 17.1% in 1999 to 16.3% in 2000 largely
as a result of the restructuring charge and other factors discussed above.

         Interest Expense, Net. Interest expense of $5.0 million for the
year-ended December 31, 2000 decreased $1.2 million compared to $6.2 million for
the year ended December 31, 1999. The decrease was principally the result of
lower average borrowings during 2000.

         Minority Interest. Minority interest represents the proportionate
equity interest of other partners in the Company's consolidated entities that
are not wholly owned; whose financial results are included in the Company's
consolidated results. Minority interest as a percentage of net revenue increased
to 1.6% in 2000 from 1.4% in 1999. This increase was the result of continued
operational improvements in the operations of Renal Care Group's joint ventures,
primarily those in Ohio and Oregon.

         Income Tax Expense. Income tax expense increased from $31.4 million in
1999 to $34.7 million in 2000, an increase of 10.5%. The increase is a result of
pre-tax earnings increasing by approximately 9.8%. In addition, the Company's
effective income tax rate increased from 40.0% to 40.3% in 2000 largely as a
result of non-deductible merger costs and non-deductible restructuring charges
incurred during 2000.

         Net Income. Net income increased from $47.1 million in 1999 to $51.5
million in 2000, an increase of 9.3%. This increase was a result of the items
discussed above.

LIQUIDITY AND CAPITAL RESOURCES

         Renal Care Group requires capital primarily to acquire and develop
dialysis centers, to purchase property and equipment for existing centers, and
to finance working capital needs. At December 31, 2001, the Company's working
capital was $102.8 million; cash and cash equivalents were $27.4 million; and
the Company's current ratio was 1.9 to 1.0. Renal Care Group's working capital
increased during the year primarily as a result of acquisitions and the increase
in operating cash flows.

         Net cash provided by operating activities was $133.2 million for the
year ended December 31, 2001. Cash provided by operating activities consists of
net income before depreciation and amortization expense, adjusted for changes in
components of working capital. Net cash used in investing activities was $107.4
million for the year ended December 31, 2001. Cash used in investing activities
consisted primarily of $65.7 million of purchases of property and equipment and
$38.4 million of cash paid


                                       32
<PAGE>

for acquisitions, net of cash acquired. Net cash used in financing activities
was $28.3 million for the year ended December 31, 2001. Cash used in financing
activities primarily reflects $54.0 million in net payments under Renal Care
Group's line of credit partially offset by $29.3 million in net proceeds from
the issuance of common stock upon the exercise of stock options.

         The Company is a party to a Second Amendment to its First Amended and
Restated Loan Agreement with a group of banks. Lender commitments under the
amended loan agreement were reduced to $129.5 million in August 2001. Borrowings
under the credit facility may be used for acquisitions, capital expenditures,
working capital and general corporate purposes. No more than $25.0 million of
the credit facility may be used for working capital purposes. Within the working
capital sublimit, Renal Care Group may borrow up to $5.0 million in swing line
loans. Lender commitments will remain at $129.5 million through August 2002, and
will then be reduced to $101.8 million through August 2003. To the extent any
amounts are outstanding under this line of credit, these amounts will be due and
payable in full on August 4, 2003. As of December 31, 2001, no amount was
outstanding under this agreement. This variable rate debt instrument carries a
degree of interest rate risk. Specifically variable rate debt may result in
higher interest costs to the Company if interest rates rise.

         Each of Renal Care Group's subsidiaries has guaranteed all of Renal
Care Group's obligations under the loan agreement. Further, Renal Care Group's
obligations under the loan agreement, and the obligations of each of its
subsidiaries under its guaranty, are secured by a pledge of the equity interests
held by Renal Care Group in each of the subsidiaries. Financial covenants are
customary based on the amount and duration of this commitment.

         A significant component of Renal Care Group's growth strategy is the
acquisition and development of dialysis facilities. There can be no assurance
that Renal Care Group will be able to identify suitable acquisition candidates
or to close acquisition transactions with them on acceptable terms. Management
of Renal Care Group believes that existing cash and funds from operations,
together with funds available under the line of credit, will be sufficient to
meet Renal Care Group's acquisition, expansion, capital expenditure and working
capital needs for the foreseeable future. However, in order to finance certain
large strategic acquisition opportunities, Renal Care Group may incur additional
short and long-term bank indebtedness and may issue equity or debt securities.
The availability and terms of any future indebtedness or securities will depend
on market and other conditions. There can be no assurance that any additional
financing, if required, will be available on terms acceptable to Renal Care
Group.

         Capital expenditures of between $50.0 million and $55.0 million,
primarily for equipment replacement, expansion of existing dialysis facilities
and construction of de novo dialysis facilities are planned in 2002. The Company
expects that these capital expenditures will be funded with cash provided by
operating activities and the Company's existing credit facility. Management
believes that capital resources available to Renal Care Group will be sufficient
to meet the needs of its business, both on a short- and long-term basis.

         Management, from time to time, determines the appropriateness of
repurchasing its common stock in accordance with a repurchase plan authorized by
the Board of Directors in October 2000. In the fourth quarter of 2001, Renal
Care Group repurchased 100,000 shares of common stock for approximately $3.1
million. In the first quarter of 2002, Renal Care Group repurchased 280,000
shares of common stock for approximately $8.3 million. Management expects to
repurchase additional shares of common stock during 2002.

         On January 22, 2002, the Securities and Exchange Commission issued a
financial reporting release, FR-61, Commission Statement about Management's
Discussion and Analysis of Financial Condition and Results of Operations. This
release encourages public companies to give investors additional information
about funds that will be required to operate its business in the future under
agreements that are in place today. In accordance with FR-61, the following
table gives information about the Company's existing contractual obligations. At
December 31, 2001, Renal Care Group had no significant contingent commitments.


                                       33
<PAGE>

<TABLE>
<CAPTION>
                                                             Payments Due by Period (In thousands)
                                                            Less than 1
         Contractual Obligations               Total            year         1 - 3 years   3 - 5 years   After 5 years
----------------------------------------------------------------------------------------------------------------------
<S>                                          <C>            <C>              <C>           <C>             <C>
Capital leases and other notes payable       $    4,502     $     726        $   1,014     $     456       $   2,306
Operating leases                                118,053        19,614           33,675        24,987          39,777
Medical director fee obligations                 75,754        15,531           25,441        18,135          16,647
                                             ----------     ---------        ---------     ---------       ---------
Total contractual cash obligations           $  198,309     $  35,871        $  60,130     $  43,578       $  58,730
                                             ==========     =========        =========     =========       =========
</TABLE>



NEWLY ISSUED ACCOUNTING STANDARDS

         On June 29, 2001, the Financial Accounting Standards Board approved the
issuance of Statements of Financial Accounting Standards No. 141, Business
Combinations (SFAS No. 141), and No. 142, Goodwill and Other Intangible Assets
(SFAS No. 142). SFAS No. 141 eliminates the pooling-of-interests method of
accounting for all business combinations except those initiated prior to July 1,
2001. Additionally, this statement changes the criteria to recognize intangible
assets apart from goodwill. SFAS No. 142 supersedes APB Opinion No. 17,
Intangible Assets, that previously required goodwill and intangible assets be
amortized over a life not to exceed 40 years. Under SFAS No. 142, goodwill and
other intangible assets with indefinite lives will no longer be amortized but
must be reviewed at least annually for impairment. Separable intangible assets
that have finite lives will continue to be amortized over their useful lives.
SFAS No. 142 does not impose a limit on the useful lives of separable intangible
assets. The provisions of SFAS No. 142 apply currently to goodwill and
intangible assets acquired after June 30, 2001 and upon adoption of the
statement with respect to goodwill and intangibles acquired prior to July 1,
2001. Management believes the impact of the application of the provisions of
SFAS No. 142 relating to the amortization of goodwill will favorably affect the
Company's earnings in 2002 by up to $0.05 per share. During 2002, Renal Care
Group will finalize its testing for goodwill impairment using the two-step
process described in SFAS No. 142. The first step is a screen for potential
impairment, while the second step measures the amount, if any, of impairment.
Management expects to complete the first of the required impairment tests of
goodwill and indefinite lived intangible assets during the first six months of
2002. While preliminary results of this testing indicate no potential impairment
exists, to the extent such impairments are identified, the resulting charges
will be reflected as the cumulative effect of a change in accounting principle
as of January 1, 2002. We have not yet determined what the effect of these tests
will be on our financial position or results of operations.

         In August 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets (SFAS No. 144), which supersedes SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and
the accounting and reporting provisions of APB Opinion No. 30, Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions. SFAS No. 144 removes goodwill
from its scope and clarifies other implementation issues related to SFAS No.
121. SFAS No. 144 also provides a single framework for evaluating long-lived
assets to be disposed of by sale. We have reviewed the provisions of SFAS No.
144 and believe that upon adoption, it will not have a significant effect on our
consolidated financial position or results of operations.

IMPACT OF INFLATION

         A substantial portion of Renal Care Group's net revenue is subject to
reimbursement rates that are regulated by the federal government and do not
automatically adjust for inflation. Renal Care Group is unable to increase the
amount it receives for the services provided by its dialysis business that are
reimbursed under the Medicare composite rate. Increased operating costs due to
inflation, such as labor and supply costs, without a corresponding increase in
reimbursement rates, may adversely affect Renal Care Group's results of
operations, financial condition and business.

FORWARD-LOOKING INFORMATION

         Certain of the matters discussed in the preceding pages of this annual
report on Form 10-K, particularly regarding implementation of the Company's
strategy, development of the dialysis and nephrology industries, anticipated
growth


                                       34
<PAGE>

and revenues, anticipated working capital and sources of funding for growth
opportunities and construction, expenditures, interest, costs and income
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended. See "The Business - Risk Factors"

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Renal Care Group maintains all cash in United States dollars in highly
liquid, interest-bearing, investment grade instruments with maturities of less
than three months, which the Company considers cash equivalents; therefore, the
Company has no "market risk sensitive instruments," and no disclosure is
required under this Item.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The Consolidated Financial Statements and financial statement schedule
in Part IV, Item 14(a) (1) and (2) of the report are incorporated by reference
into this Item 8.

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

         None.


                                       35
<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

         The information required by this item will appear in, and is
incorporated by reference from, the sections entitled "Proposals for Stockholder
Action - Proposal 1. Election of Directors" and "Management - Directors and
Executive Officers" included in the Company's definitive Proxy Statement
relating to the 2002 Annual Meeting of Stockholders.

ITEM 11. EXECUTIVE COMPENSATION

         The information required by this item will appear in the section
entitled "Executive Compensation" included in the Company's definitive Proxy
Statement relating to the 2002 Annual Meeting of Stockholders, which
information, other than the Compensation Committee Report and Performance Graph
required by Items 402(k) and (l) of Regulation S-K, is incorporated herein by
reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information required by this item will appear in, and is
incorporated by reference from, the section entitled "Security Ownership of
Directors, Officers and Principal Stockholders" included in the Company's
definitive Proxy Statement relating to the 2002 Annual Meeting of Stockholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information required by this item will appear in, and is
incorporated by reference from, the sections entitled "Compensation Committee
Interlocks and Insider Participation" and "Certain Relationships and Related
Transactions" included in the Company's definitive Proxy Statement relating to
the 2002 Annual Meeting of Stockholders.


                                       36
<PAGE>

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

         (a)      Documents filed as part of this Report:

<TABLE>
<CAPTION>
                                                                                                                    PAGE
                                                                                                                    ----
         <S>     <C>                                                                                                <C>
         (1)     Index To Consolidated Financial Statements
                 Report of Independent Auditors................................................................      F-1

                 Consolidated Balance Sheets at December 31, 2000
                 and 2001......................................................................................      F-2

                 Consolidated Income Statements for the years
                 ended December 31, 1999, 2000, and 2001.......................................................      F-4

                 Consolidated Statements of Stockholders' Equity
                 for the years ended December 31, 1999, 2000, and 2001.........................................      F-5

                 Consolidated Statements of Cash Flows for the years
                 ended December 31, 1999, 2000, and 2001.......................................................      F-6

                 Notes to Consolidated Financial Statements....................................................      F-8

         (2)     Index to Consolidated Financial Statement Schedules

                 Schedule II - Consolidated Schedule-Valuation
                 and Qualifying Accounts.......................................................................     F-24

         (3)     The Exhibits are listed in the Index of Exhibits Required by
                 Item 601 of Regulation S-K included herewith, which is
                 incorporated herein by reference.

         (b)      The Company filed a current report on Form 8-K on October 31,
                  2001. The Company filed a current report on Form 8-K on
                  December 12, 2001.

</TABLE>


                                       37
<PAGE>
                         REPORT OF INDEPENDENT AUDITORS


The Board of Directors
Renal Care Group, Inc.

We have audited the accompanying consolidated balance sheets of Renal Care
Group, Inc. as of December 31, 2000 and 2001, and the related consolidated
income statements, statements of stockholders' equity, and statements of cash
flows for each of the three years in the period ended December 31, 2001. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Renal Care Group,
Inc. at December 31, 2000 and 2001 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.


                                             /s/ ERNST & YOUNG LLP


Nashville, Tennessee
February 16, 2002


                                      F-1
<PAGE>

                             RENAL CARE GROUP, INC.

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                         DECEMBER 31
                                                                                   -------------------------
                                                                                    2000             2001
                                                                                   --------        --------
                                                                                        (IN THOUSANDS)
<S>                                                                                <C>             <C>
ASSETS
Current assets:
   Cash and cash equivalents ..............................................        $ 29,902        $ 27,423
   Accounts receivable, less allowance for doubtful accounts of
      $47,392 in 2000 and $45,260 in 2001 .................................         122,816         127,056
   Inventories ............................................................          12,881          16,292
   Prepaid expenses and other current assets ..............................          19,188          18,584
   Income taxes receivable ................................................           5,426           7,058
   Deferred income taxes ..................................................          19,294          16,894
                                                                                   --------        --------
        Total current assets ..............................................         209,507         213,307
Property, plant and equipment, net ........................................         139,573         175,925
Goodwill and other intangibles, net .......................................         228,227         256,622
Other assets ..............................................................           5,365           6,403
                                                                                   --------        --------
        Total assets ......................................................        $582,672        $652,257
                                                                                   ========        ========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       F-2
<PAGE>

                             RENAL CARE GROUP, INC.

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                               DECEMBER 31
                                                                                        ------------------------
                                                                                          2000            2001
                                                                                        --------        --------
                                                                                             (IN THOUSANDS)
<S>                                                                                     <C>             <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable ............................................................        $ 25,951        $ 28,198
   Accrued compensation ........................................................          28,714          32,048
   Due to third-party payors ...................................................          27,050          27,699
   Accrued expenses and other current liabilities ..............................          18,401          21,797
   Current portion of long-term debt ...........................................             476             726
                                                                                        --------        --------
        Total current liabilities ..............................................         100,592         110,468
Long-term debt, net of current portion .........................................          58,316           3,776
Deferred income taxes ..........................................................          13,640          12,728
Minority interest ..............................................................          16,002          15,034
                                                                                        --------        --------
        Total liabilities ......................................................         188,550         142,006
                                                                                        --------        --------
Commitments and contingencies
Stockholders' equity:
   Preferred stock, $0.01 par value, 10,000 shares authorized, none issued .....              --              --
   Common stock, $0.01 par value, 90,000 shares authorized,
      47,087 and 49,597 shares issued at December 31, 2000 and
      2001, respectively .......................................................             471             496
   Treasury stock, 100 shares of common stock at December 31, 2001 .............              --          (3,059)
   Additional paid-in capital ..................................................         234,738         277,300
   Retained earnings ...........................................................         158,913         235,514
                                                                                        --------        --------
      Total stockholders' equity ...............................................         394,122         510,251
                                                                                        --------        --------
      Total liabilities and stockholders' equity ...............................        $582,672        $652,257
                                                                                        ========        ========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                      F-3
<PAGE>

                             RENAL CARE GROUP, INC.

                         CONSOLIDATED INCOME STATEMENTS

<TABLE>
<CAPTION>
                                                                                 YEAR ENDED DECEMBER 31
                                                                         ----------------------------------------
                                                                           1999            2000            2001
                                                                         --------        --------        --------
                                                                           (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                                      <C>             <C>             <C>
Net revenue .....................................................        $541,895        $622,575        $755,082
Operating costs and expenses:
   Patient care costs ...........................................         351,367         402,009         489,271
   General and administrative expenses ..........................          51,315          57,104          64,530
   Provision for doubtful accounts ..............................          14,632          16,949          20,290
   Depreciation and amortization ................................          27,835          32,321          38,945
   Restructuring charge .........................................              --           9,235              --
   Merger expenses ..............................................           4,300           3,766              --
                                                                         --------        --------        --------
        Total operating costs and expenses ......................         449,449         521,384         613,036
                                                                         --------        --------        --------
Income from operations ..........................................          92,446         101,191         142,046
Interest expense, net ...........................................           6,224           5,015           2,636
                                                                         --------        --------        --------
      Income before income taxes and minority interest ..........          86,222          96,176         139,410
Minority interest ...............................................           7,768          10,011          15,478
                                                                         --------        --------        --------
      Income before income taxes ................................          78,454          86,165         123,932
Provision for income taxes ......................................          31,367          34,706          47,331
                                                                         --------        --------        --------
      Net income ................................................        $ 47,087        $ 51,459        $ 76,601
                                                                         ========        ========        ========
Net income per share:
   Basic ........................................................        $   1.05        $   1.12        $   1.59
                                                                         ========        ========        ========
   Diluted ......................................................        $   1.00        $   1.07        $   1.52
                                                                         ========        ========        ========
Weighted average shares outstanding:
   Basic ........................................................          45,015          46,048          48,113
                                                                         ========        ========        ========
   Diluted ......................................................          47,052          47,948          50,433
                                                                         ========        ========        ========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                      F-4
<PAGE>

                             RENAL CARE GROUP, INC.

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                           ADDITIONAL                   TOTAL
                                                   COMMON STOCK       TREASURY STOCK        PAID-IN      RETAINED    STOCKHOLDERS'
                                                 SHARES    AMOUNT    SHARES     AMOUNT      CAPITAL      EARNINGS       EQUITY
                                                 ------    ------    ------     -------    ----------    --------    ------------
<S>                                              <C>       <C>       <C>        <C>        <C>           <C>         <C>
Balance at December 31, 1998                     44,491     $ 445        --     $    --      $186,948     $ 60,367     $ 247,760
    Issuance of common stock in acquisitions         99         1        --          --         2,999           --         3,000
    Net income                                       --        --        --          --            --       47,087        47,087
    Common stock issued and related
         income tax benefit                         730         7        --          --        13,985           --        13,992
                                                 ------     -----     -----     -------      --------     --------     ---------
Balance at December 31, 1999                     45,320       453        --          --       203,932      107,454       311,839
   Net income                                        --        --        --          --            --       51,459        51,459
    Common stock issued and related
         income tax benefit                       1,767        18        --          --        30,806           --        30,824
                                                 ------     -----     -----     -------      --------     --------     ---------
Balance at December 31, 2000                     47,087       471        --          --       234,738      158,913       394,122
    Net income                                       --        --        --          --            --       76,601        76,601
    Common stock issued and related
         income tax benefit                       2,510        25        --          --        42,562           --        42,587
    Repurchase of common stock held in
          treasury                                   --        --       100      (3,059)           --           --        (3,059)
                                                 ------     -----     -----     -------      --------     --------     ---------
Balance at December 31, 2001                     49,597     $ 496       100     $(3,059)     $277,300     $235,514     $ 510,251
                                                 ======     =====     =====     =======      ========     ========     =========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                      F-5
<PAGE>

                             RENAL CARE GROUP, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                  YEAR ENDED DECEMBER 31
                                                                                           -------------------------------------
                                                                                             1999          2000           2001
                                                                                           --------      --------      ---------
                                                                                                      (IN THOUSANDS)
<S>                                                                                        <C>           <C>           <C>
OPERATING ACTIVITIES
Net income ...........................................................................     $ 47,087      $ 51,459      $  76,601
Adjustments to reconcile net income to net cash provided by operating activities:
   Depreciation and amortization .....................................................       27,835        32,321         38,945
   Loss on sale of property and equipment ............................................          362           567          1,266
   Income applicable to minority interest ............................................        7,768        10,011         15,478
   Distributions to minority shareholders ............................................       (4,231)       (7,333)       (16,446)
   Deferred income taxes .............................................................       (6,793)        2,016          1,488
   Loss from restructuring ...........................................................           --         9,235             --
   Changes in operating assets and liabilities, net of effects from acquisitions:
        Accounts receivable ..........................................................      (16,237)      (20,863)        (4,240)
        Inventories ..................................................................       (3,480)          113         (2,832)
        Prepaid expenses and other current assets ....................................       (3,698)       (5,757)           604
        Accounts payable .............................................................        1,551         3,500          2,247
        Accrued compensation .........................................................        3,433         9,898          2,625
        Due to third-party payors ....................................................        5,209         4,773            649
        Accrued expenses and other current liabilities ...............................          842        (2,749)         5,168
        Income taxes .................................................................        4,190         2,510         11,648
                                                                                           --------      --------      ---------
         Net cash provided by operating activities ...................................       63,838        89,701        133,201
INVESTING ACTIVITIES
Proceeds from sale of property and equipment .........................................          336         4,390          1,078
Purchases of property and equipment ..................................................      (45,963)      (45,741)       (65,672)
Cash paid for acquisitions, net of cash acquired .....................................      (17,158)      (28,063)       (38,403)
Increase (decrease) in other assets ..................................................        1,968          (331)        (4,415)
                                                                                           --------      --------      ---------
         Net cash used in investing activities .......................................      (60,817)      (69,745)      (107,412)
FINANCING ACTIVITIES
Net borrowings (payments) under line of credit .......................................       11,728       (20,229)       (54,000)
Payments on long-term debt ...........................................................      (27,975)      (13,207)          (516)
Proceeds from issuance of long-term debt .............................................        1,872         2,879             --
Net proceeds from issuance of common stock ...........................................        6,372        24,399         29,307
Repurchase of treasury shares ........................................................           --            --         (3,059)
                                                                                           --------      --------      ---------
        Net cash used in financing activities ........................................       (8,003)       (6,158)       (28,268)
 (Decrease) increase in cash and cash equivalents ....................................       (4,982)       13,798         (2,479)
Cash and cash equivalents, at beginning of year ......................................       21,086        16,104         29,902
                                                                                           --------      --------      ---------
Cash and cash equivalents, at end of year ............................................     $ 16,104      $ 29,902      $  27,423
                                                                                           ========      ========      =========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                      F-6
<PAGE>

                             RENAL CARE GROUP, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                             YEAR ENDED DECEMBER 31
                                                                      -----------------------------------
                                                                        1999         2000         2001
                                                                      --------     --------     ---------
                                                                               (IN THOUSANDS)
<S>                                                                   <C>          <C>          <C>
DISCLOSURES OF CASH FLOW INFORMATION:
   Cash paid during the year for:
      Interest ..................................................     $  6,603     $  5,237     $   2,520
                                                                      ========     ========     =========
      Income taxes ..............................................     $ 30,497     $ 32,768     $  48,963
                                                                      ========     ========     =========
DISCLOSURES OF BUSINESS ACQUISITIONS:
   Fair value of assets acquired ................................     $ 20,428     $ 29,721     $  39,108
   Liabilities assumed ..........................................          270        1,658           705
   Common stock issued ..........................................        3,000           --            --
                                                                      --------     --------     ---------
      Cash paid for acquisitions, net of cash acquired ..........     $ 17,158     $ 28,063     $  38,403
                                                                      ========     ========     =========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                      F-7
<PAGE>

                             RENAL CARE GROUP, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 2001


1. ORGANIZATION

Renal Care Group, Inc. (the "Company") provides dialysis services to patients
with chronic kidney failure, also known as end-stage renal disease ("ESRD"). As
of December 31, 2001, the Company provided dialysis and ancillary services to
approximately 18,800 patients through 238 outpatient dialysis centers in 26
states. In addition to its outpatient dialysis center operations, as of December
31, 2001, the Company provided acute dialysis services through contractual
relationships with 120 hospitals.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of the Company, its
wholly-owned subsidiaries and its majority-owned subsidiaries and joint venture
partnerships over which the Company exercises majority-voting control and for
which control is other than temporary. All significant intercompany transactions
and accounts have been eliminated in consolidation.

USE OF ESTIMATES

Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with accounting principles generally accepted in the United States.
Actual results could differ from those estimates.

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.

INVENTORIES

Inventories consist of drugs, supplies and parts consumed in dialysis treatments
and are stated at the lower of cost or market. Cost is determined using either
the first-in, first-out method or the average cost method.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost. Depreciation is calculated on
the straight-line method over the useful lives of the related assets, ranging
from 3 to 40 years. Leasehold improvements are amortized using the straight-line
method over the shorter of related lease terms or the useful lives.

GOODWILL AND OTHER INTANGIBLES (IN THOUSANDS)

Effective June 29, 2001, the Financial Accounting Standards Board approved the
issuance of Statements of Financial Accounting Standards No. 141, Business
Combinations (SFAS No. 141) and No. 142, Goodwill and Other Intangible Assets
(SFAS No. 142). SFAS No. 141 eliminates the pooling-of-interests method of
accounting for all business combinations except those initiated prior to July 1,
2001. Additionally, this statement changes the criteria to recognize intangible
assets apart from goodwill. SFAS No. 142 supersedes Accounting Principals Board
("APB") Opinion No. 17, Intangible Assets, that previously required goodwill and
intangible assets be amortized over a life not to exceed 40 years. Under SFAS
No.


                                      F-8
<PAGE>

142, goodwill and other intangible assets with indefinite lives will no longer
be amortized but must be reviewed at least annually for impairment. Separable
intangible assets that have finite lives will continue to be amortized over
their useful lives. SFAS No. 142 does not impose a limit on the useful lives of
separable intangible assets. The provisions of SFAS No. 142 apply currently to
goodwill and intangibles acquired after June 30, 2001 and upon adoption of the
statement with respect to goodwill and intangibles acquired prior to July 1,
2001. The Company will adopt SFAS No. 142 on January 1, 2002. Management
believes the impact of the application of the provisions of SFAS No. 142
relating to the amortization of goodwill will favorably affect the Company's
earnings in 2002 by up to $0.05 per share. The Company has complied with the
transitional requirements of such statement. Accordingly, during 2001, the
Company did not recognize amortization expense for goodwill or intangible assets
with indefinite lives acquired after June 30, 2001, but it continued to amortize
all other acquired goodwill and intangibles in accordance with procedures
described in the following paragraph.

As of December 31, 2000 and 2001, goodwill net of accumulated amortization was
$221,699 and $255,103, respectively, and accumulated amortization of goodwill
was $26,299 and $31,365, respectively. Goodwill acquired prior to July 1, 2001,
was determined based on the criteria defined in APB Opinion No. 16, Business
Combinations, and equalled the excess of purchase price over the fair value of
net assets acquired. Goodwill acquired after June 30, 2001 was recognized in
accordance with criteria established in SFAS No. 141. During 2001, goodwill and
non-competition agreements acquired prior to July 1, 2001, were amortized on a
straight-line basis over a period of 40 years and the lives of the agreements,
respectively. These amortization periods equate to a blended average of 35
years. Separable intangible assets, such as non-competition agreements, acquired
after June 30, 2001 were amortized over the useful life of such assets. Goodwill
and other intangible assets with indefinite lives that were acquired after June
30, 2001 were not amortized.

DUE TO THIRD-PARTY PAYORS

Due to third-party payors includes amounts received in excess of revenue
recognized for specific billed charges. Such amounts are commonly referred to as
overpayments. Overpayments received from Federally funded programs are reported
to the Federal program in accordance with the program's established procedures.
The amounts remain in due to third-party payors until either a refund is made or
until the amount is recouped by the Federal payor. For overpayments received
from non-federally funded payors, the Company uses various procedures to
communicate and refund such amounts to the respective payor. Similar to the
federally funded overpayments, such amounts remain in due to third-party payors
until either a refund is made or until the amount is recouped by the payor.

MINORITY INTEREST

Minority interest represents the proportionate equity interest of other partners
and stockholders in the Company's consolidated entities that are not wholly
owned. As of December 31, 2001, the Company was the majority partner or member
in 33 joint ventures.

NET REVENUE

Net revenue is recognized as services are provided at the estimated net
realizable amount from Medicare, Medicaid, commercial insurers and other
third-party payors. The Company's net revenue is largely derived from the
following sources:

         -        Outpatient hemodialysis;
         -        Ancillary services associated with outpatient dialysis,
                  primarily the administration of EPO and other drugs;
         -        Home dialysis services;
         -        Inpatient hemodialysis services provided to acute care
                  hospitals and skilled nursing facilities;
         -        Laboratory services; and
         -        Management contracts with hospital-based medical university
                  dialysis programs.

The Medicare and Medicaid programs, along with certain third-party payors,
reimburse the Company at amounts that are different from the Company's
established rates. Contractual adjustments represent the difference between the
amounts billed for these services and the amounts that are reimbursable by
third-party payors. A summary of the basis for reimbursement with these payors
follows:


                                      F-9
<PAGE>

Medicare

The Company is reimbursed by the Medicare program predominantly on a prospective
payment system for dialysis services. Under the prospective payment system, each
facility receives a composite rate per treatment. The composite rate differs
among facilities to account for geographic differences in the cost of labor.
Drugs and other ancillary services are reimbursed on a fee for service basis.

Medicaid

Medicaid is a state-administered program with reimbursements varying by state.
The Medicaid programs are separately administered in each state in which the
Company operates, and they reimburse the Company predominantly on a prospective
payment system for dialysis services rendered.

Other

Other payments from commercial insurers, other third-party payors and patients
are received pursuant to a variety of reimbursement arrangements. Generally
payments from commercial insurers and other third-party payors are greater than
those received from the Medicare and Medicaid programs.

Reimbursements from Medicare and Medicaid at established rates approximated 61%,
58% and 55% of net revenue for the years ended December 31, 1999, 2000 and 2001,
respectively.

PROVISION FOR DOUBTFUL ACCOUNTS

The provision for doubtful accounts is determined as a function of payor mix,
billing practices, and other factors. The Company reserves for doubtful accounts
in the period in which the revenue is recognized based on management's estimate
of the net collectibility of the accounts receivable. Management estimates and
monitors the net collectibility of accounts receivable based upon a variety of
factors. These factors include, but are not limited to, analyzing revenues
generated from payor sources, performing subsequent collection testing and
continually reviewing detailed accounts receivable agings.

INCOME TAXES

Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which these temporary differences are expected to be recovered or
settled. The effect of a change in tax rates on deferred tax assets and
liabilities is recognized in income in the period that includes the enactment
date.

SELF INSURANCE LIABILITY CLAIMS

         The Company is subject to medical malpractice and workers compensation
claims or lawsuits in the ordinary course of business. Accordingly, the Company
maintains insurance for individual malpractice claims exceeding certain
individual and aggregate amounts. Similarly, the Company maintains workers
compensation insurance for claims exceeding certain individual and aggregate
amounts. The Company estimates its self-insured retention portion of the
malpractice and workers compensation risks using historical claims data,
demographic factors and other assumptions. The estimated accrual for malpractice
and workers compensation claims could be significantly affected should current
and future occurrences differ from trends identified with historical claims.


                                      F-10
<PAGE>

FAIR VALUE OF FINANCIAL INSTRUMENTS

Cash and Cash Equivalents

The carrying amounts reported in the consolidated balance sheets for cash and
cash equivalents approximate fair value.

Accounts Receivable, Accounts Payable and Accrued Liabilities

The carrying amounts reported in the consolidated balance sheets for accounts
receivable, accounts payable and accrued liabilities approximate fair value.
Accounts receivable are generally unsecured.

Long-Term Debt

Based upon the borrowing rates currently available to the Company, the carrying
amounts reported in the consolidated balance sheets for long-term debt
approximate fair value.

CONCENTRATION OF CREDIT RISKS

The Company's primary concentration of credit risk exists within accounts
receivable, which consist of amounts owed by various governmental agencies,
insurance companies and private patients. Receivables from Medicare and Medicaid
represented 57% and 45% of gross accounts receivable at December 31, 2000 and
2001, respectively. Concentration of credit risk relating to accounts receivable
is limited to some extent by the diversity of the number of patients and payors
and the geographic dispersion of the Company's operations.

The administration of erythropoietin ("EPO")is beneficial in the treatment of
anemia, a medical complication frequently experienced by dialysis patients.
Revenue from the administration of EPO was 26% of the net revenue of the Company
for the years ended December 31, 1999 and 2000 and 25% of the net revenue of the
Company for the year ended December 31, 2001. EPO is produced by a single
manufacturer.

IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF

The Company reviews long-lived assets and certain identifiable intangibles for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized 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. As of December 31, 2001, in
the opinion of management, there has been no impairment of long-fixed assets.

RECLASSIFICATIONS

Certain prior year balances have been reclassified to conform to the current
year presentation. Such reclassifications had no effect on the net results of
operations as previously reported.

3. BUSINESS ACQUISITIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)

2001 ACQUISITIONS

During 2001, the Company completed five acquisitions, which were accounted for
under the purchase method of accounting. The combined purchase price of these
acquisitions amounted to $38,403 and consisted exclusively of cash. Each of the
transactions involved the acquisition of entities that provide care to ESRD
patients through owned hemodialysis facilities.


                                      F-11
<PAGE>

The acquired businesses either strengthened the Company's existing market share
within a specific geographic area or provided the Company with an entrance into
a new market.

The following table summarizes the estimated fair values of the assets acquired
and liabilities assumed at the date of acquisition for all five of the
acquisitions completed in 2001:

<TABLE>
               <S>                                              <C>
               Inventory                                        $   579
               Property, plant and equipment, net                 5,629
               Intangible assets                                  1,675
               Goodwill                                          30,325
               Other assets                                         900
                                                                -------
                  Total assets acquired                          39,108
                  Total liabilities assumed                         705
                                                                -------
                 Net assets acquired                            $38,403
                                                                =======
</TABLE>

The Company began recording the results of operations for each of these acquired
companies at the effective date of each transaction. Three of the five
transactions were completed prior to July 1, 2001, and resulted in goodwill of
$6,428. Such amounts were amortized during 2001 using a 35-year period. The
remaining two transactions were completed subsequent to June 30, 2001. Goodwill
resulting from these transactions amounted to $24,077 and was not amortized
during 2001 in accordance with the requirements of SFAS No. 142. All goodwill is
expected to be deductible for tax purposes. Intangible assets typically
represent the value assigned to certain contracts such as non-competition
agreements. Such amounts are amortized over the life of the contracts, which
generally range from five to ten years.

2000 ACQUISITIONS

During 2000, the Company completed three acquisitions accounted for under the
purchase method of accounting. The aggregate purchase price of these
transactions amounted to $28,063, and consisted exclusively of cash
consideration. All such transactions involved the acquisition of entities that
provided care to ESRD patients through owned hemodialysis facilities or acute
in-patient dialysis services.

The Company's three acquisitions that were accounted for under the purchase
method of accounting in 2000 resulted in goodwill and other intangibles of
approximately $27,832. Goodwill and other intangibles are being amortized on a
straight-line basis over an average of 35 years. The Company began recording the
results of operations from these acquired companies beginning with the effective
date of each transaction.

1999 ACQUISITIONS

During 1999, the Company completed four acquisitions accounted for under the
purchase method of accounting. All such transactions involved the acquisition of
entities that provided care to ESRD patients through owned hemodialysis
facilities or acute in-patient dialysis services.


                                      F-12
<PAGE>

The Company's four acquisitions that were accounted for under the purchase
method in 1999 resulted in goodwill and other intangibles of approximately
$18,841. Goodwill and other intangibles are being amortized on a straight-line
basis over an average of 35 years. The Company began recording the results of
operations from these acquired companies beginning with the effective date of
each transaction.

<TABLE>
         <S>                                               <C>
         Number of shares issued .....................          99
                                                           =======
         Estimated value of shares issued ............     $ 3,000
         Cash consideration ..........................      17,158
                                                           -------
         Aggregate purchase price ....................     $20,158
                                                           =======
</TABLE>

PRO FORMA DATA (UNAUDITED)

The following summary, prepared on a pro forma basis, combines the results of
operations of the Company and the acquired entities, as if each of the
acquisitions had been consummated as of the beginning of the year preceding the
year of acquisition, giving effect to adjustments such as amortization of
intangibles, interest expense and related income taxes.

<TABLE>
<CAPTION>
                                                              1999         2000           2001
                                                           ---------     ---------     ---------
         <S>                                               <C>           <C>           <C>
         Pro forma net revenue .......................     $ 574,294     $ 695,952     $ 781,349
                                                           =========     =========     =========
         Pro forma net income ........................     $  48,267     $  55,558     $  78,059
                                                           =========     =========     =========
         Pro forma net income per share
            Basic ....................................     $    1.07     $    1.21     $    1.62
                                                           =========     =========     =========
            Diluted ..................................     $    1.02     $    1.16     $    1.55
                                                           =========     =========     =========
</TABLE>

The unaudited pro forma results of operations are not necessarily indicative of
what actually would have occurred if the acquisitions had been completed prior
to the beginning of the periods presented.

4. RESTRUCTURING CHARGE (IN THOUSANDS)

During the third quarter of 2000, the Company recorded a one-time restructuring
charge of $9,235 as a result of its plans to exit the wound care business. This
charge consisted of early contract termination costs of $1,377, goodwill and
property and equipment impairment charges of $5,973, severance costs of $1,200
and other administrative charges of $685. Management made the decision to exit
this business as part of a long-term strategy to focus on its core dialysis
business. Effective May 31, 2001, the Company sold certain assets and
transferred certain liabilities associated with the wound care business in a
transaction with a third party. Proceeds from this transaction equaled the net
book value of the assets sold less the liabilities transferred; accordingly, no
gain or loss was recognized. There are no remaining accrued expenses as of
December 31, 2001 that relate to this restructuring charge.


                                      F-13
<PAGE>

5. PROPERTY, PLANT AND EQUIPMENT (IN THOUSANDS)

Property, plant and equipment consist of the following:

<TABLE>
<CAPTION>
                                                                                                 DECEMBER 31,
                                                                                        ---------------------------
                                                                                           2000              2001
                                                                                        ---------         ---------
        <S>                                                                             <C>               <C>
        Medical equipment ....................................................          $  83,069         $ 102,387
        Computer software and equipment ......................................             38,998            48,249
        Furniture and fixtures ...............................................             19,195            23,380
        Leasehold improvements ...............................................             49,407            67,072
        Buildings ............................................................             16,118            19,990
        Construction-in-progress .............................................              6,101            12,134
                                                                                        ---------         ---------
                                                                                          212,888           273,212
        Less accumulated depreciation ........................................            (73,315)          (97,287)
                                                                                        ---------         ---------
                                                                                        $ 139,573         $ 175,925
                                                                                        =========         =========
</TABLE>

Depreciation expense was $19,459, $24,673 and $30,836 for the years ended
December 31, 1999, 2000 and 2001, respectively.

6. LONG-TERM DEBT (IN THOUSANDS)

Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                                                            DECEMBER 31,
                                                                                       ----------------------
                                                                                         2000           2001
                                                                                       -------        -------
         <S>                                                                           <C>            <C>
         Line of credit, bearing interest at LIBO rate
         (7.48% at December 31, 2000) .........................................        $54,000        $    --
         Equipment note payable ...............................................          1,874          1,482
         Other ................................................................          2,918          3,020
                                                                                       -------        -------

                                                                                        58,792          4,502
         Less current portion .................................................            476            726
                                                                                       -------        -------
                                                                                       $58,316        $ 3,776
                                                                                       =======        =======
</TABLE>

LINE OF CREDIT

The Company has executed a Second Amendment to its First Amended and Restated
Loan Agreement with a group of banks. The Second Amendment provided for an
increase in the credit facility from $125,000 to $185,000 through August 2000 at
which point the lender commitments were reduced to $157,300. Lender commitments
were further reduced to $129,500 in August 2001. Borrowings under the credit
facility may be used for acquisitions, capital expenditures, working capital and
general corporate purposes. No more than $25,000 of the credit facility may be
used for working capital purposes. Within the working capital sublimit, Renal
Care Group may borrow up to $5,000 in swing line loans. Each of the Company's
wholly-owned subsidiaries has guaranteed repayment of this loan.

The Company has negotiated loan pricing based on a LIBO rate margin pursuant to
leverage tiers. These leverage tiers extend from 0.75 to 2.25 times and are
priced at a LIBO rate margin of 0.60% to 1.35%. Commitment fees are also priced
pursuant to leverage ratio tiers. Commitment fees range from 0.20% to 0.30%
pursuant to leverage ratios ranging between 0.75 and 2.25. Under the loan
agreement, commitments range in amounts and dates through August 2003. Lender
commitments will remain at $129,500 through August 2002, and will then be
reduced to $101,800 through August 2003. All loans under the loan agreement are
due and payable on August 4, 2003. As of December 31, 2001, there was no amount
outstanding under this agreement. The Company had $129,500 available under this
agreement at December 31, 2001.


                                      F-14
<PAGE>

The Company's obligations under the loan agreement, and the obligations of each
of the subsidiaries under its guaranty, are secured by a pledge of the equity
interests held by the Company in each of its subsidiaries. Financial covenants
are customary for the amount and duration of this commitment. The Company was in
compliance with all such covenants at December 31, 2001.

EQUIPMENT NOTE PAYABLE

The equipment note payable is to a vendor for certain equipment and software
purchased by the Company. The note is payable in monthly installments through
2005.

OTHER

The other long-term debt consists of notes maturing at various times through
April 2015.

The aggregate maturities of long-term debt at December 31, 2001 are as follows:

<TABLE>
                    <S>                     <C>
                    2002...............     $  726
                    2003...............        655
                    2004...............        359
                    2005...............        363
                    2006...............         93
                    Thereafter.........      2,306
                                            ------
                                            $4,502
                                            ======
</TABLE>

7. INCOME TAXES (IN THOUSANDS)

The provision for income taxes consists of the following:

<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                                                           -----------------------------------
                                                             1999          2000         2001
                                                           --------      --------     --------
         <S>                                               <C>           <C>          <C>
         Current:
            Federal ..................................     $ 35,265      $ 30,012     $ 42,002
            State and local ..........................        2,895         2,678        3,841
                                                           --------      --------     --------
                                                             38,160        32,690       45,843
                                                           --------      --------     --------
         Deferred:
            Federal ..................................       (6,477)        1,781        1,364
            State and local ..........................         (316)          235          124
                                                           --------      --------     --------
                                                             (6,793)        2,016        1,488
                                                           --------      --------     --------
             Provision for income taxes ..............     $ 31,367      $ 34,706     $ 47,331
                                                           ========      ========     ========
</TABLE>


                                      F-15
<PAGE>

At December 31, 2001, the Company has net operating loss carryforwards of
approximately $91,731 for state income tax purposes that expire in years 2001
through 2021. The utilization of the state net operating loss carryforwards may
be limited in future years due to the profitability of certain subsidiary
corporations. Therefore, the Company has recorded a valuation allowance of
$3,339 against the deferred tax asset attributable to the state net operating
loss carryforwards. This represents an increase in the valuation allowance of
$445.

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.

Components of the Company's deferred tax liabilities and assets are as follows:

<TABLE>
<CAPTION>
                                                                               DECEMBER 31,
                                                                        -------------------------
                                                                          2000             2001
                                                                        --------         --------
         <S>                                                            <C>              <C>
         Deferred tax assets:
            Net operating loss carryforwards ...................        $  2,894         $  3,414
            Allowance for doubtful accounts ....................          14,695           13,745
            Accrued vacation and other accrued liabilities .....           8,288            6,753
            Other ..............................................             248               --
            Less: Valuation allowance ..........................          (2,894)          (3,339)
                                                                        --------         --------
                                                                          23,231           20,573
                                                                        --------         --------
         Deferred tax liabilities:
            Depreciation .......................................           6,626            6,128
            Cash to accrual adjustments (Section 481) ..........             216               --
            Amortization .......................................           8,662            8,308
            Investments in partnerships ........................           2,073            1,705
             Other .............................................              --              266
                                                                        --------         --------
                                                                          17,577           16,407
                                                                        --------         --------
         Net deferred tax asset ................................        $  5,654         $  4,166
                                                                        ========         ========
</TABLE>

The following is a reconciliation of the statutory federal and state income tax
rates to the effective rates as a percentage of income before provision for
income taxes as reported in the consolidated financial statements:

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                           ----------------------------
                                                            1999       2000       2001
                                                           ------     ------     ------
         <S>                                               <C>        <C>        <C>
         U.S. federal income tax rate ................      35.0%      35.0%      35.0%
         State income tax, net of federal
           income tax benefit ........................       2.5        3.0        2.5
         Increase in valuation allowances ............       0.3        1.0        0.1
         Other .......................................       2.2        1.3        0.6
                                                           -----      -----      -----
         Effective income tax rate ...................      40.0%      40.3%      38.2%
                                                           =====      =====      =====
</TABLE>


                                      F-16
<PAGE>

8. STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT PER SHARE DATA)

STOCK OPTION PLANS

As of December 31, 2001, the Company had six stock option plans. The Company
also issues options, referred to in these financial statements as Free Standing
Options outside of these plans. Options issued as Free Standing are for
employees, officers, directors, and other key persons. Free Standing Options
vest over various periods up to five years and have a term of ten years from the
date of issuance.

Options issued under the 1999 and 1996 Employee Plans have similar terms and
purposes. Specifically, options under each of these plans are available for
grant to eligible employees and other key persons, the options vest over four to
five years and have a term of ten years from the date of issuance. These plans
were adopted in 1999 and 1996, and have 3,500 and 6,000 shares of common stock
reserved for issuance, respectively.

Options issued under the Equity Compensation Plan ("Equity Plan") are for
eligible employees and other key persons. The options vest over periods up to
three years and have a term of ten years from the date of issuance. This plan
was adopted by Dialysis Centers of America, Inc. ("DCA") in 1995 and there are
350 shares of common stock reserved for issuance. We merged with DCA in a
pooling-of-interests transaction in February 1999.

Options issued under the 1994 Stock Option Plan ("1994 Plan") are for directors,
officers and other key persons. These options vest over four years and the
options have a term of ten years from the date of issuance. This plan was
adopted in 1994 and there are 720 shares of common stock reserved for issuance.

Options issued under the Directors Plan are for non-management directors. These
options vest immediately and have a term of ten years from the date of issuance.
The plan was adopted in 1996 and there are 225 shares of common stock reserved
for issuance.

Options issued under the RDM Plan are for directors, officers, and other key
persons. These options vest immediately upon grant and have a term of 5 to 10
years from the date of issuance. The plan was adopted by Renal Disease
Management by Physicians, Inc ("RDM") in 1997, and there are 109 shares of
common stock reserved for issuance. We merged with RDM in a pooling-of-interests
transaction in April 2000.

The Company has adopted the disclosure-only provisions of SFAS No. 123,
Accounting for Stock-Based Compensation, but applies APB Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations in
accounting for its plans. Therefore, compensation expense would generally be
recorded only if on the date of grant the then current market price of the
underlying stock exceeded the exercise price.


                                      F-17
<PAGE>

The following is a summary of option transactions during the period from January
1, 1999 through December 31, 2001:

<TABLE>
<CAPTION>
                                                                                                                         WEIGHTED
                                                                                                                          AVERAGE
                                            1999       1996                                                              EXERCISE
                                FREE      EMPLOYEE   EMPLOYEE    EQUITY    1994    DIRECTORS  RDM      EXERCISE  PRICE     PRICE
                              STANDING      PLAN       PLAN       PLAN     PLAN      PLAN     PLAN         RANGE
<S>                           <C>         <C>        <C>         <C>       <C>     <C>        <C>      <C>               <C>
Balance at
   December 31, 1998 ......     1,450          --       5,013       64       23       11       58       0.11 - 29.50     $ 14.30
   Granted ................       536         939         235       --       --       23        7      16.63 - 28.50       18.12
   Exercised ..............       (82)         --        (305)     (36)      --       --       --        0.11- 22.00       11.99
   Forfeited ..............        --          --        (142)     (10)      --       --       --       3.33 - 24.67       17.85
                              -------     -------     -------    -----     ----     ----     ----
Balance at
   December 31, 1999 ......     1,904         939       4,801       18       23       34       65       3.33 - 29.50       15.17
   Granted ................        --       1,538         350       --       --       22       --      15.94 - 29.03       16.08
   Exercised ..............      (419)        (82)     (1,092)      --       (6)      --      (39)      3.33 - 23.25       13.66
   Forfeited ..............       (19)        (20)       (202)      --       --       --       --       8.00 - 29.03       19.11
                              -------     -------     -------    -----     ----     ----     ----
Balance at
   December 31, 2000 ......     1,466       2,375       3,857       18       17       56       26       3.33 - 29.50       15.65
   Granted ................       120         899          --       --       --       17       --      28.02 - 29.63       28.05
   Exercised ..............      (686)       (198)     (1,113)      (1)      (9)      (6)      (6)      3.33 - 25.58       13.39
   Forfeited ..............        (9)        (46)        (54)      --       --       --       --       8.00 - 28.02       18.07
                              -------     -------     -------    -----     ----     ----     ----
Balance at
   December 31, 2001 ......       891       3,030       2,690       17        8       67       20       3.33 - 29.63       18.27
                              =======     =======     =======    =====     ====     ====     ====
Available for grant at
   December 31, 2001.......        --         169          74       --       --      146       --
                              =======     =======     =======    =====     ====     ====     ====
Exercisable at
   December 31, 2001.......       571         800       1,935       17        8       67       17                        $ 15.99
                              =======     =======     =======    =====     ====     ====     ====                        =======
Exercisable at
   December 31, 2000.......     1,065         417       2,149       18       16       56       20
                              =======     =======     =======    =====     ====     ====     ====
Exercisable at
   December 31, 1999.......     1,295         188       2,165       12       23       34       35
                              =======     =======     =======    =====     ====     ====     ====
</TABLE>

The weighted-average fair value of options granted during 1999, 2000 and 2001 is
$7.88, $7.71 and $12.40, respectively.

                                      F-18
<PAGE>

The following table summarizes information about stock options outstanding at
December 31, 2001.

<TABLE>
<CAPTION>
                         NUMBER           WEIGHTED                           NUMBER
                      OUTSTANDING AS      AVERAGE           WEIGHTED      EXERCISABLE AS        WEIGHTED
                           OF            REMAINING          AVERAGE           OF                AVERAGE
    RANGE OF           DECEMBER 31,     CONTRACTUAL         EXERCISE       DECEMBER 31,         EXERCISE
 EXERCISE PRICES          2001              LIFE             PRICE            2001                PRICE
---------------------------------------------------------------------------------------------------------
<S>                   <C>               <C>                 <C>           <C>                   <C>
$ 3.33  - $14.50          1,258             4.54             $ 9.68           1,195             $ 9.50
$15.17 -  $15.94          1,762             8.32             $15.89             601             $ 15.78
$16.09 -  $22.00          2,477             7.00             $19.69           1,434             $ 20.13
$22.75 -  $29.63          1,226             9.14             $27.63             185             $ 26.32
---------------------------------------------------------------------------------------------------------
$ 3.33 -  $29.63          6,723             7.27             $18.27           3,415             $ 15.99
=========================================================================================================
</TABLE>

Pro forma information regarding net income and net income per share is required
by SFAS No. 123, 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:

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                           ----------------------------------
                                                             1999         2000         2001
                                                           --------     --------     --------
         <S>                                               <C>          <C>          <C>
         Expected volatility .........................        40.0%        45.0%        45.0%
         Expected dividend yield .....................        None         None         None
         Risk-free interest rate .....................        5.00%        6.25%        3.75%
         Expected life of options ....................     5 years      5 years      5 years
</TABLE>

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


                                      F-19
<PAGE>

For purposes of pro forma disclosure, the estimated fair value of the options is
amortized to expense over the option's vesting period. The Company's pro forma
information follows:

<TABLE>
<CAPTION>
                                                                     YEAR ENDED DECEMBER 31,
                                                                ----------------------------------
                                                                  1999         2000         2001
                                                                --------     --------     --------
         <S>                                                    <C>          <C>          <C>
         Net income .......................................     $ 47,087     $ 51,459     $ 76,601
         Pro forma compensation expense from
            stock options, net of taxes ...................        5,979        6,304        3,870
                                                                --------     --------     --------
         Pro forma net income .............................     $ 41,108     $ 45,155     $ 72,731
                                                                ========     ========     ========

         Pro forma net income per share
            Basic .........................................     $   0.91     $   0.98     $   1.51
                                                                ========     ========     ========
            Diluted .......................................     $   0.87     $   0.94     $   1.44
                                                                ========     ========     ========
</TABLE>

The effect of applying SFAS No. 123 for providing pro forma disclosure is not
likely to be representative of the effect on reported net income for future
years.

WARRANTS

At December 31, 2001, the Company has outstanding warrants to purchase an
aggregate of 108 shares of common stock that were issued in 1994 and 1995. These
warrants have a term of ten years from the date of issuance and an exercise
price of $3.33 per share.

9. OPERATING LEASES (IN THOUSANDS)

The Company rents office and medical facilities under lease agreements that are
classified as operating leases for financial statement purposes. At December 31,
2001, future minimum rental payments under noncancelable operating leases with
terms of one year or more consist of the following:

<TABLE>
                 <S>                          <C>
                 2002...................      $ 19,614
                 2003...................        17,643
                 2004...................        16,032
                 2005...................        13,863
                 2006...................        11,124
                 Thereafter.............        39,777
                                              --------
                                              $118,053
                                              ========
</TABLE>

Rent expense was $17,189, $19,164 and $22,624 for the years ending December 31,
1999, 2000 and 2001, respectively.

10. EMPLOYEE BENEFIT PLANS (IN THOUSANDS)

DEFINED CONTRIBUTION PLANS

The Company has qualified defined contribution plans covering substantially all
employees that permit participants to make voluntary contributions. The Company
pays all general and administrative expenses of the plans and makes matching
contributions on behalf of the employees. The Company made contributions
relating to these plans totaling $1,532, $1,734 and $1,960 for the years ended
December 31, 1999, 2000 and 2001, respectively.


                                      F-20
<PAGE>

EMPLOYEE STOCK PURCHASE PLAN

Effective April 1996, the Company adopted an Employee Stock Purchase Plan
("Stock Purchase Plan") to provide substantially all employees an opportunity to
purchase shares of its common stock in amounts not to exceed 10% of eligible
compensation or $25 of common stock each calendar year. Annually, the
participant's December 31 account balance is used to purchase shares of stock at
the lesser of 85% of the fair market value of shares at the beginning of the
year or December 31 . A total of 348 shares are available for purchase under the
plan. At December 31, 2000 and 2001, $1,331 and $1,571, respectively, were
included in accrued wages and benefits relating to the Stock Purchase Plan.

11. EARNINGS PER SHARE (IN THOUSANDS, EXCEPT PER SHARE DATA)

In accordance with SFAS No. 128, Earnings Per Share, basic net income per share
is based on the weighted average number of common shares outstanding during the
periods. Diluted net income per share is based on the weighted average number of
common shares outstanding during the periods plus the effect of dilutive stock
options and warrants using the treasury stock method.

The following table sets forth the computation of basic and diluted net income
per share.

<TABLE>
<CAPTION>
                                                                                   1999            2000           2001
                                                                                -----------     ----------     -----------
<S>                                                                             <C>             <C>            <C>
Numerator:
   Numerator for basic and diluted net income per share.....................    $    47,087     $   51,459     $    76,601
Denominator:
   Denominator for basic net income per share weighted-average shares.......         45,015         46,048          48,113
   Effect of dilutive securities:
      Stock options.........................................................          1,529          1,498           2,087
      Warrants..............................................................            508            402             233
                                                                                -----------     ----------     -----------
   Denominator for diluted net income
      per share-adjusted weighted-average shares and assumed conversions....         47,052         47,948          50,433
                                                                                ===========     ==========     ===========
Basic net income per share..................................................    $      1.05     $     1.12     $      1.59
                                                                                ===========     ==========     ===========
Diluted net income per share................................................    $      1.00     $     1.07     $      1.52
                                                                                ===========     ==========     ===========
</TABLE>


                                      F-21
<PAGE>

12. COMMITMENTS AND CONTINGENCIES (IN THOUSANDS)

On August 30, 2000, 19 patients were hospitalized and one patient died shortly
after becoming ill while receiving treatment at one of the Company's dialysis
centers in Youngstown, Ohio. One of the 19 hospitalized patients also died some
time later.

In March 2001, the Company was sued in Mahoning County, Ohio by one of the
affected patients for injuries related to the August 30, 2000 illnesses.
Additional suits have been filed, and as of December 31, 2001, a total of 11
suits were pending. The suits allege negligence, medical malpractice and product
liability. Additional defendants are named in each of the suits. Additional
defendants in some of the suits include the water system vendors who installed
and maintained the water system in the dialysis center. Renal Care Group has
denied the allegations and has filed cross-claims against the water system
vendors. Renal Care Group intends to pursue these cross-claims vigorously.
Additional suits arising out of these illnesses may be filed in the future.
Management believes that Renal Care Group's insurance should be adequate to
cover these illnesses and does not anticipate a material adverse effect on the
Company's consolidated financial position or results of operation.

On December 12, 2000, the Company reached an agreement in principle with the
U.S. Attorney for the Southern District of Mississippi to settle claims arising
out of alleged inadequacies in physician documentation related to lab tests
performed by its laboratory subsidiary, RenaLab, Inc. The terms of such
settlement provided that the Company would pay $1,980 to the Medicare program.
This amount was recorded during the fourth quarter of 2000 and was paid in
January 2002, when the Company and the government finalized the terms of a
corporate integrity agreement.

Laws and regulations governing the Medicare and Medicaid programs are complex
and subject to interpretation. The Company believes that it is in compliance
with all applicable laws and regulations and, except as referenced above, is not
aware of any pending or threatened investigations involving allegations of
potential wrongdoing. While no such regulatory inquiries have been made,
compliance with such laws and regulations can be subject to future government
review and interpretation as well as significant regulatory action including
fines, penalties, and exclusion from the Medicare and Medicaid programs.

The Company is involved in other litigation and regulatory investigations
arising in the ordinary course of business. In the opinion of management, after
consultation with legal counsel, these matters will be resolved without material
adverse effect on the Company's consolidated financial position or results of
operations.

The Company generally engages practicing board-certified or board-eligible
nephrologists to serve as medical directors for its centers. Medical directors
are responsible for the administration and monitoring of the Company's patient
care policies, including patient education, administration of dialysis
treatment, development programs and assessment of all patients. The Company pays
medical director fees that are consistent with the fair market value of the
required supervisory services. Such medical director agreements typically have a
term of seven years with a three-year renewal option. As of December 31, 2001,
estimated commitments for medical director fees for the year 2002 were $15.5
million and were $75.8 million over the lives of the agreements.


                                      F-22
<PAGE>

13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) (IN THOUSANDS, EXCEPT PER
SHARE DATA)

The following tables include, for 2000 and 2001, certain selected quarterly
financial data. In the opinion of the Company's management this unaudited
information has been prepared on the same basis as the audited information and
includes all adjustments necessary to present fairly the information included
therein. The operating results for any quarter are not necessarily indicative of
results for any future period.

<TABLE>
<CAPTION>
                                                                                            2000
                                                                     -----------------------------------------------------
                                                                        FIRST        SECOND         THIRD        FOURTH
                                                                       QUARTER       QUARTER       QUARTER       QUARTER
                                                                     ----------    ----------    ----------    -----------
<S>                                                                  <C>           <C>           <C>           <C>
Net revenue......................................................    $  149,657    $  154,152    $  156,505    $   162,261
Operating expenses...............................................       114,281       117,521       119,311        124,949
Depreciation and amortization....................................         7,772         7,808         8,154          8,587
Restructuring charge.............................................            --            --         9,235             --
Merger expenses..................................................            --         3,766            --             --
                                                                     ----------    ----------    ----------    -----------
Income from operations...........................................        27,604        25,057        19,805         28,725
Interest expense, net............................................         1,496         1,366         1,126          1,027
Minority interest................................................         2,169         2,258         2,428          3,156
                                                                     ----------    ----------    ----------    -----------
Income before income taxes.......................................        23,939        21,433        16,251         24,542
Income taxes.....................................................         9,091         9,484         6,449          9,682
                                                                     ----------    ----------    ----------    -----------
Net income.......................................................    $   14,848    $   11,949    $    9,802    $    14,860
                                                                     ==========    ==========    ==========    ===========
Net income per share:
   Basic.........................................................    $     0.33    $     0.26    $     0.21    $      0.32
                                                                     ==========    ==========    ==========    ===========
   Diluted.......................................................    $     0.31    $     0.25    $     0.20    $      0.31
                                                                     ==========    ==========    ==========    ===========
</TABLE>

<TABLE>
<CAPTION>
                                                                                            2001
                                                                     -----------------------------------------------------
                                                                        FIRST        SECOND         THIRD        FOURTH
                                                                       QUARTER       QUARTER       QUARTER       QUARTER
                                                                     ----------    ----------    ----------    -----------
<S>                                                                  <C>           <C>           <C>           <C>
Net revenue......................................................    $  174,778    $  183,455    $  193,149    $   203,700
Operating expenses...............................................       133,131       139,451       146,665        154,842
Depreciation and amortization....................................         8,852         9,296         9,997         10,800
                                                                     ----------    ----------    ----------    -----------
Income from operations...........................................        32,795        34,708        36,487         38,058
Interest expense, net............................................           999         1,274           198            166
Minority interest................................................         3,130         3,722         4,104          4,522
                                                                     ----------    ----------    ----------    -----------
Income before income taxes.......................................        28,666        29,712        32,185         33,370
Income taxes.....................................................        10,952        11,351        12,288         12,740
                                                                     ----------    ----------    ----------    -----------
Net income.......................................................    $   17,714    $   18,361    $   19,897    $    20,630
                                                                     ==========    ==========    ==========    ===========
Net income per share:
   Basic.........................................................    $     0.37    $     0.39    $     0.41    $      0.42
                                                                     ==========    ==========    ==========    ===========
   Diluted.......................................................    $     0.36    $     0.37    $     0.39    $      0.40
                                                                     ==========    ==========    ==========    ===========
</TABLE>


                                      F-23
<PAGE>

                                                                     SCHEDULE II

                             RENAL CARE GROUP, INC.
            CONSOLIDATED SCHEDULE - VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                         BALANCE                     AMOUNT                       BALANCE
                                                        BEGINNING     ALLOWANCES    CHARGED TO                    AT END OF
                                                        OF PERIOD      ACQUIRED      EXPENSE      WRITE-OFFS       PERIOD
                                                       ----------     ----------   -----------   ------------    ----------
<S>                                                    <C>            <C>          <C>           <C>             <C>
Allowances for doubtful accounts:
   Year ended December 31, 1999.....................   $   31,226     $     283    $   14,632    $     (5,265)   $   40,876
                                                       ==========     =========    ==========    ============    ==========
   Year ended December 31, 2000.....................   $   40,876     $      --    $   16,949    $    (10,433)   $   47,392
                                                       ==========     =========    ==========    =============   ==========
   Year ended December 31, 2001.....................   $   47,392     $      --    $   20,290    $    (22,422)   $   45,260
                                                       ==========     =========    ==========    ============    ==========
</TABLE>


                                      F-24
<PAGE>

                                   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 on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized in the
City of Nashville, State of Tennessee, on the 29th day of March, 2002.

                                       RENAL CARE GROUP, INC.



                                       By:   SAM A. BROOKS, JR.
                                          -------------------------------------
                                           Sam A. Brooks, Jr.
                                           Chairman of the Board, President and
                                           Chief Executive Officer


<PAGE>

         KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Sam A. Brooks, Jr. and R. Dirk Allison
and either of them (with full power in each to act alone) as true and lawful
attorneys-in-fact with full power of substitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments to
this Annual Report on Form 10-K, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that said
attorneys-in-fact, or their substitute or substitutes, may lawfully do or cause
to be done by virtue hereof.

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this Annual Report on Form 10-K has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<S>                                              <C>                                                 <C>



/s/ SAM A. BROOKS, JR.                           Chairman of the Board,                              March 29, 2002
--------------------------------------------     President, Chief Executive
Sam A. Brooks, Jr.                               Officer and Director
                                                 (Principal Executive Officer)



/s/ R. DIRK ALLISON                              Executive Vice President,                           March 29, 2002
--------------------------------------------     Chief Financial Officer
R. Dirk Allison                                  Treasurer (Principal Financial
                                                 and Accounting Officer)



/s/ JOSEPH C. HUTTS                              Director                                            March 29, 2002
--------------------------------------------
Joseph C. Hutts



/s/ HARRY R. JACOBSON, M.D.                      Director                                            March 29, 2002
--------------------------------------------
Harry R. Jacobson, M.D.



/s/ THOMAS A. LOWERY, M.D.                       Director                                            March 29, 2002
--------------------------------------------
Thomas A. Lowery, M.D.



/s/ JOHN D. BOWER, M.D.                          Director                                            March 29, 2002
--------------------------------------------
John D. Bower, M.D.



/s/ STEPHEN D. MCMURRAY, M.D.                    Director                                            March 29, 2002
--------------------------------------------
Stephen D. McMurray, M.D.



/s/ W. TOM MEREDITH, M.D.                        Director                                            March 29, 2002
--------------------------------------------
W. Tom Meredith, M.D.



/s/ KENNETH E. JOHNSON, JR., M.D.                Director                                            March 29, 2002
--------------------------------------------
Kenneth E. Johnson, Jr., M.D.



/s/ WILLIAM V. LAPHAM                            Director                                            March 29, 2002
--------------------------------------------
William V. Lapham
</TABLE>


<PAGE>

                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                            DESCRIPTION OF EXHIBITS
-------                           -----------------------
<S>      <C>
3.1      Amended and Restated Certificate of Incorporation of the Company (1)

3.1.2    Certificate of Amendment of Certificate of Incorporation of the Company
         (2)

3.1.3    Certificate of Designation, Preferences, and Rights of Series A Junior
         Participating Preferred Stock of the Company (2)

3.1.4    Certificate of Amendment of Amended and Restated Certificate of
         Incorporation of the Company (12)

3.2      Amended and Restated Bylaws of the Company (1)

4.1      See Exhibits 3.1 and 3.2 for provisions of the Amended and Restated
         Certificate of Incorporation and Bylaws of the Company defining rights
         of holders of Common Stock of the Company (1)

4.2      Specimen stock certificate for the Common Stock of the Company (1)

4.3      Shareholder Rights Protection Agreement, dated May 2, 1997 between the
         Company and First Union National Bank of North Carolina, as Rights
         Agent (3)

10.1     Employment Agreement, dated July 13, 2000, between the Company and Sam
         A. Brooks (16)*

10.2     Employment Agreement, dated October 15, 1999, between the Company and
         R. Dirk Allison(14)*

10.3     Employment Agreement, dated July 13, 2000, between the Company and
         Raymond Hakim, M.D. (16)*

10.4     Medical Director Services Agreement, dated February 12, 1996, between
         the Company and Kansas Nephrology Physicians, P.A. (5)

10.5     Medical Director Services Agreement, dated February 12, 1996, between
         the Company and Indiana Dialysis Management, P.C. (5)

10.6     Medical Director Services Agreement, dated February 12, 1996, between
         the Company and Tyler Dialysis & Transplant Associates, P.A. (5)

10.7     Lease Agreement, dated February 5, 1996, between the Company and MEL,
         Inc. relating to approximately 20,000 square feet of space (5)

10.8     Lease Agreement, dated February 12, 1996, among the Company and Thomas
         A. Lowery, M.D., James R. Cotton, M.D., Roy D. Gerard, M.D. and Kevin
         A. Curran, M.D., relating to property in Carthage, Texas (5)

10.9     Lease Agreement, dated February 12, 1996, among the Company and Thomas
         A. Lowery, M.D., James R. Cotton, M.D., Roy D. Gerard, M.D., and Kevin
         A. Curran, M.D., relating to property in Tyler, Texas (5)

10.10    Sublease Agreement between M-W-R Investment and Kansas Nephrology
         Associates, P.A. dated February 1, 1990, to be assumed by the Company,
         and related Lease Agreement between Dodge City Medical Center Building,
         Inc. and M-W-R Investment (1)

10.11    Sublease Agreement, dated February 12, 1996, with Tyler Nephrology
         Associates, Inc. (5)
</TABLE>


<PAGE>

<TABLE>
<S>      <C>
10.12    Dialysis Center Management Agreement, dated May 11, 1994, between Renal
         Care Group, Inc. (of Tennessee) and Vanderbilt University (1)

10.13    1996 Stock Option Plan for Outside Directors (1)*

10.14    Fourth Amended and Restated 1996 Stock Incentive Plan (6)*

10.15    Amended and Restated Employee Stock Purchase Plan (2)*

10.16    Medical Director Services Agreement, dated September 30, 1996, between
         the Company and a group of individual physicians (7)

10.17    Employment Agreement, dated July 13, 2000, between the Company and Gary
         Brukardt (16)*

10.18    First Amended and Restated Loan Agreement, dated as of August 4, 1997,
         among the Company, its subsidiaries and NationsBank of Tennessee, N.A.
         (2)

10.18.1  Second Amendment to First Amended and Restated Loan Agreement, dated as
         of June 23, 1999, among the Company, First American National Bank,
         First Union National Bank, and NationsBank, N.A., SunTrust Bank,
         Nashville, N.A., AmSouth Bank, and NorWest Bank Arizona, N.A. (12)

10.18.2  Third Amendment to First Amended and Restated Loan Agreement dated
         September 29, 2000 (16)

10.19    Stock Option Agreement, dated April 30, 1997, between the Company and
         Sam A. Brooks (2)*

10.20    Stock Option Agreement, dated April 30, 1997, between the Company and
         Gary Brukardt (2)*

10.21    Asset Purchase Agreement with an effective date of February 1, 1997
         among the Company, RCG Indiana, LLC, Eastern Indiana Kidney Center,
         Indiana Kidney Center, Indiana Kidney Center South, LLC, St. Vincent
         Dialysis Center, Saint Joseph Dialysis Center and Indiana Dialysis
         Services PC and Community Hospitals of Indiana, Inc., Seton Health
         Corporation of Central Indiana, Inc., Reid Hospital & Health Care
         Services, Inc., and Saint Joseph Hospital and Health Care Center of
         Kokomo, Indiana, Inc. and Indiana Dialysis Services, PC, Reid Hospital
         Physicians, Greenwood Dialysis Services, PC and certain individuals
         named on the signature pages thereto and Indiana Nephrology & Internal
         Medicine, P.C. (8)

10.22    Restricted Stock Award Agreement, dated December 23, 1997, between the
         Company and Harry R. Jacobson, M.D. (4)*

10.23    Restricted Stock Award Agreement, dated December 23, 1997, between the
         Company and Sam A. Brooks (4)*

10.24    Restricted Stock Award Agreement, dated December 23, 1997, between the
         Company and Gary Brukardt (4)*

10.25    Restricted Stock Award Agreement, dated December 23, 1997, between the
         Company and Raymond Hakim, M.D. (4)*

10.26    Restricted Stock Award Agreement, dated December 23, 1997, between the
         Company and Thomas Lowery, M.D. (4)*

10.27    Restricted Stock Award Agreement, dated December 23, 1997, between the
         Company and Stephen D. McMurray, M.D. (4)*

10.28    Stock Option Agreement, dated May 22, 1998, between the Company and Sam
         A. Brooks (9)*
</TABLE>


<PAGE>

<TABLE>
<S>      <C>
10.29    Stock Option Agreement, dated May 22, 1998, between the Company and
         Gary A. Brukardt (9)*

10.30    Stock Option Agreement, dated May 22, 1998, between the Company and
         Raymond Hakim, M.D. (9)*

10.31    Stock Option Agreement, dated June 5, 1998, between the Company and
         Joseph C. Hutts (9)*

10.32    Stock Option Agreement, dated June 5, 1998, between the Company and
         Harry R. Jacobson, M.D. (9)*

10.33    Agreement No. 20010240, between Renal Care Group, Inc. and Amgen Inc.
         effective January 2, 2002 (The Company has requested confidential
         treatment of certain portions of this Exhibit.)

10.34    Restricted Stock Award Agreement, dated January 25, 1999, between the
         Company and Sam A. Brooks (10)*

10.35    Restricted Stock Award Agreement, dated January 25, 1999, between the
         Company and Harry R. Jacobson (10)*

10.36    Restricted Stock Award Agreement, dated January 25, 1999, between the
         Company and Stephen D. McMurray (10)*

10.37    Renal Care Group, Inc. 1999 Long-Term Incentive Plan (11)*

10.37.1  Amendment to the Renal Care Group, Inc. 1999 Long-Term Incentive Plan
         (15)*

10.38    Stock Option Agreement, dated August 30, 1999, between the Company and
         Sam A. Brooks (13)*

10.39    Stock Option Agreement, dated August 30, 1999, between the Company and
         Gary A. Brukardt (13)*

10.40    Stock Option Agreement, dated August 30, 1999, between the Company and
         Raymond Hakim, M.D. (13)*

10.41    Stock Option Agreement, dated June 2, 1999, between the Company and
         Joseph C. Hutts (13)*

10.42    Stock Option Agreement, dated June 2, 1999, between the Company and
         Harry R. Jacobson, M.D. (13)*

10.43    Stock Option Agreement, dated July 22, 1999, between the Company and
         William V. Lapham (13)*

10.44    Stock Option Agreement, dated October 27, 1999, between the Company and
         R. Dirk Allison(14)*

10.45    Stock Option Agreement, dated June 8, 2000, between the Company and
         Joseph C. Hutts (17)*

10.46    Stock Option Agreement, dated June 8, 2000, between the Company and
         Harry R. Jacobson, M.D.(17)*

10.47    Stock Option Agreement, dated June 8, 2000, between the Company and
         William V. Lapham(17)*

10.48    Stock Option Agreement, dated June 8, 2000, between the Company and W.
         Thomas Meredith(17)*

10.49    Stock Option Agreement, dated September 19, 2000, between the Company
         and Sam A. Brooks (17)*

10.50    Stock Option Agreement, dated September 19, 2000, between the Company
         and Gary A. Brukardt(17)*

10.51    Stock Option Agreement, dated September 19, 2000, between the Company
         and Raymond Hakim, M.D.(17)*

10.52    Stock Option Agreement, dated September 19, 2000, between the Company
         and R. Dirk Allison (17)*
</TABLE>


<PAGE>

<TABLE>
<S>      <C>
10.53    Stock Option Agreement dated August 2, 2001 between the Company and Sam
         A. Brooks(18)*

10.54    Stock Option Agreement dated August 2, 2001 between the Company and R.
         Dirk Allison(18)*

10.55    Stock Option Agreement dated August 2, 2001 between the Company and
         Gary Brukardt(18)*

10.56    Stock Option Agreement dated August 2, 2001 between the Company and
         Raymond Hakim(18)*

10.57    Stock Option Agreement dated June 7, 2001 between the Company and
         Joseph C. Hutts*

10.58    Stock Option Agreement dated June 7, 2001 between the Company and
         William V. Lapham*

10.59    Stock Option Agreement dated June 7, 2001 between the Company and W.
         Thomas Meredith*

21.1     List of subsidiaries of the Company

23.1     Consent of Ernst & Young LLP

24.1     Power of Attorney (contained on the signature page of this report)
</TABLE>

(1)      Incorporated by reference to the Company's Registration Statement on
         Form S-1 (Reg. No. 333-80221) effective February 6, 1996.

(2)      Incorporated by reference to the Company's Form 10-Q for the quarter
         ended June 30, 1997 (Commission File No. 0-27640).

(3)      Incorporated by reference to the Company's Current Report on Form 8-K
         filed May 5, 1997 (Commission File No. 0-27640).

(4)      Incorporated by reference to the Company's Form 10-K for the year ended
         December 31, 1997 (Commission File No. 0-27640).

(5)      Incorporated by reference to the Company's Form 10-Q for the quarter
         ended March 31, 1996 (Commission File No. 0-27640).

(6)      Incorporated by reference to Appendix A to the Company's definitive
         Proxy Statement filed April 27, 1998 relating to the 1998 Annual
         Meeting of Stockholders (Commission File No. 0-27640).

(7)      Incorporated by reference to the Company's Registration Statement on
         Form S-1 (Reg. No. 333-13813) effective October 30, 1996.

(8)      Incorporated by reference to the Company's Form 10-K for the year ended
         December 31, 1996 (Commission File No. 0-27640).

(9)      Incorporated by reference to the Company's Form 10-Q for the quarter
         ended June 30, 1998 (Commission File No. 0-27640).

(10)     Incorporated by reference to the Company's Form 10-Q for the quarter
         ended March 31, 1999 (Commission File No. 0-27640).


<PAGE>

(11)     Incorporated by reference to Appendix A to the Company's definitive
         Proxy Statement filed April 27, 1999 relating to the 1999 Annual
         Meeting of Stockholders (Commission File No. 0-27640).

(12)     Incorporated by reference to the Company's Form 10-Q for the quarter
         ended June 30, 1999 (Commission File No. 0-27640).

(13)     Incorporated by reference to the Company's Form 10-Q for the quarter
         ended September 30, 1999 (Commission File No. 0-27640).

(14)     Incorporated by reference to the Company's Form 10-K for the year ended
         December 31, 1999 (Commission File No. 0-27640).

(15)     Incorporated by reference to Appendix A to the Company's definitive
         Proxy Statement filed April 28, 2000 relating to the 2001 Annual
         Meeting of Stockholders (Commission File No. 0-27640).

(16)     Incorporated by reference to the Company's Form 10-Q for the quarter
         ended September 30, 2000 (Commission File No. 0-27640).

(17)     Incorporated by reference to the Company's Form 10-K for the year ended
         December 31, 2000 (Commission File No. 0-27640).

(18)     Incorporated by reference to the Company's Form 10-Q for the quarter
         ended September 30, 2001 (Commission File No. 0-27640).

*        Management contract or executive compensation plan or arrangement.