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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

|    |  |                                                                                         
|--- |  | ----------------------------------------------------------------------------------------
|(X) |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934    
|   
|    |  | For the fiscal year ended December 31, 2002                                             
|   
|    |  | or                                                                                      
|   
|( ) |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________ to ________________

Commission file number 0-27640

RENAL CARE GROUP, INC.

(Exact Name of Company as Specified in its Charter)


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

2525 West End Avenue, Suite 600
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:

|                                                              |  |                                     
|------------------------------------------------------------- |  | ------------------------------------
|Title of Each Class                                           |  | Name of Exchange on Which Registered
|                                                              |  |                                     
|Common Stock, $0.01 par value                                 |  | New York Stock Exchange             
|Series A Junior Participating Preferred Stock Purchase Rights |  | New York Stock Exchange             

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

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

Indicate by check mark 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. o

Indicate by check mark whether the registrant is an accelerated filer (as defined
in Exchange Act Rule 12b-2). Yes x No o

The aggregate market value of the voting stock held by non-affiliates of
the Company was $1,507,283,864 as of June 28, 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), the last business day of the registrants most recently completed second fiscal quarter.
There were 48,185,928 shares of common stock, $0.01 par value, issued and
outstanding at March 11, 2003.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrants Proxy Statement for its 2003 Annual Meeting
of Stockholders are incorporated by reference in Part III of this Annual
Report.





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|                                             |  |  |  |  |  |  |  | 
|-------------------------------------------- |  |  |  |  |  |  |  | 
|PART I                                      
|PART II                                     
|PART III                                    
|PART IV                                     
|REPORT OF INDEPENDENT AUDITORS              
|SIGNATURES                                  
|CERTIFICATION                               
|CERTIFICATION                               
|EXHIBIT INDEX                               
|DIALYSIS CENTER MANAGEMENT AGREEMENT        
|RENAL CARE GROUP & AMGEN AGREEMENT          
|MEDICAL DIRECTOR SERVICES AGREEMENT 07/11/02
|MEDICAL DIRECTOR SERVICES AGREEMENT 05/01/02
|A#1 TO MEDICAL SERVICES AGREEMENT 05/01/02  
|LIST OF SUBSIDIARIES                        
|CONSENT OF ERNST & YOUNG LLP                



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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 18 to 24 of this annual report, as well as any cautionary
language in or incorporated by reference into this annual report,
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 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 in the risk factors 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, 2002, Renal Care Group provided dialysis and ancillary services to
approximately 20,500 patients through 268 outpatient dialysis centers in 27
states, in addition to providing acute dialysis services to approximately 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, 2002, there were 558 nephrologists with privileges to
practice at one or more of 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), there were more than 4,000 facilities providing outpatient dialysis services in the United
States at the end of 2001. 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. The dialysis
services industry has been consolidating since before the Company was formed. 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 2525 West End Avenue, Suite 600, 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 in the United States, and the remaining 29% of
ESRD patients had a functioning kidney transplant.

According to the United States Renal Data System, the total direct medical payments for ESRD exceeded $17.8 billion
during 1999. Of the total direct medical payments for ESRD, approximately $12.6
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
273,000 in 2000. Based on data from the United States Renal Data System, the
ESRD incidence rate among Medicare-eligible patients was approximately 315
patients per million in 1999 as compared to 111 patients per million in 1984.

Based on these trends, United States Renal Data System
forecasts indicate that the total number of ESRD patients, including those with
functioning transplants, will grow from approximately 343,000 in 2000 to
661,000 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 patients with ESRD:



| |                                                                                            
| | -------------------------------------------------------------------------------------------
| |  hemodialysis performed 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
usually 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

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and continuous cycling 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 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, there is a shortage of suitable donors that
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
physician specializing in nephrology (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, 2002, Renal Care Group operated 268 outpatient dialysis
centers in 27 states with 4,651 certified dialysis stations and provided
inpatient dialysis services to approximately 120 acute care hospitals. During
2002, Renal Care Group provided 3,019,675 hemodialysis treatments. Renal Care
Group estimates that on average its centers were operating at approximately 60%
of capacity as of December 31, 2002, 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, one or more nurses stations, 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 are adjacent to
areas used for training patients in home dialysis.

For each of 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 the 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.

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Home Dialysis

All of Renal Care Groups markets offer home dialysis, either home
hemodialysis, peritoneal dialysis or both. As of December 31, 2002, about 11%
of Renal Care Groups patients received home dialysis. In its home dialysis
services Renal Care Group provides 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.

Inpatient Care

Renal Care Group also provides inpatient dialysis services to hospitals in
most of its markets. As of December 31, 2002, Renal Care Group provided
inpatient services to approximately 120 hospitals. Under these arrangements,
Renal Care Group typically provides equipment, supplies and personnel to
perform hemodialysis and peritoneal dialysis in connection with a hospitals
inpatient services. These inpatient dialysis services are typically required
for patients with acute renal failure resulting from accidents, medical and
surgical complications, for patients in the early stage of renal failure and for 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 these fees will 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, Oregon Health Sciences University, the University of Louisville, Froedtert Hospital
(a hospital affiliated with Medical College of Wisconsin), Northwestern
Memorial Hospital of Chicago, Elmhurst Memorial Hospital and the University of
Colorado. Renal Care Group expects these affiliations will expand its patient
base and provide opportunities for the development of new centers. Renal Care
Group also expects these affiliations to provide access to outcomes research
and trained nephrologists who may become medical directors at Renal Care
Groups centers or who may join the practices of current medical directors and
attending physicians.

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 privileges to admit patients. Consequently, the Company
relies on its ability to satisfy the needs of patients of local nephrologists
in order to gain new patients and to retain existing patients. As of December
31, 2002, there were 558 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
must engage a medical director for each of its facilities. The Company generally engages practicing, board-certified or board-eligible nephrologists
to serve as medical directors for its centers. The medical director is an
independent contractor and provides services under an agreement with the
Company. Medical directors are responsible for administering and monitoring 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 dialysis
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
between five and ten years with renewal options. Renal Care Group pays medical
directors fees that are consistent with the fair market value of the required
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 by owning
or providing medical director services for another dialysis facility for
certain specified periods of time and in specified geographic areas.

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Ancillary Services

Renal Care Group provides a variety of ancillary services to treat its
patients. The most significant ancillary service is the administration of
erythropoietin (also known as Epogen® 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. Renal Care Group, through its RenaLab
subsidiary, provides clinical laboratory services for its dialysis operations.
Other ancillary services offered by Renal Care Group, depending on medical
appropriateness, include the administration of other drugs, 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.

QUALITY ASSURANCE

Integral to Renal Care Groups operating philosophy is the belief that
providing quality care is in the best interest not only of patients but also of
Renal Care Groups shareholders. 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 review of patient
outcomes and development and communication of clinical protocols. The Medical
Advisory Board is chaired by Raymond Hakim, M.D., Ph.D., the Company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 protocols,
policies and procedures for clinical treatment. The Medical Advisory Board also
works to identify deficiencies in treatment practices 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 assist the Company in continuously
improving the care to its patients, with the goal of providing optimal care to
all patients.

Quality Criteria

Continuous quality improvement is Renal Care Groups primary clinical
objective. Working to achieve this objective, Renal Care Group regularly
evaluates dialysis treatments and patients key physiological parameters. The
Companys 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, nurses and 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 ESRD
successfully is the development and implementation 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
patient outcomes information. The 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, while resulting in operating efficiencies at its dialysis centers.

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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 laws and
regulations applicable to its business 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
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 approved by Renal Care Groups Board of
Directors. It addresses general compliance issues and areas of particular
sensitivity. Among the areas of particular sensitivity covered by the
compliance program are health care fraud and abuse issues, financial reporting,
conflicts of interest and antitrust. 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 are authorized to report compliance issues directly to
the Audit and Compliance Committee of the Companys Board of Directors.

Renal Care Group also maintains a compliance program specific to RenaLab,
its laboratory subsidiary. 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 are authorized to report
compliance issues directly to the RenaLab Board of Directors and to 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:

|                                     |       |  |                         |     |      |  |      |     |   |  |    |     |  
|------------------------------------ | ----- |  | ----------------------- | --- | ---- |  | ---- | --- | - |  | -- | --- | -
|                                     |       |  | Year Ended December 31,
|                                     |       |  |                        
|                                     |       |  | 2000                    |     | 2001 |  | 2002
|                                     |       |  |                         |     |      |  |     
|Medicare                             |       |  | 53                      | %   |      |  | 49   | %   |   |  | 50 | %  
|Medicaid                             |       |  | 5                       |     |      |  | 6    |     |   |  | 7  |    
|Commercial and other payors          |       |  | 36                      |     |      |  | 40   |     |   |  | 38 |    
|Hospital inpatient dialysis services |       |  | 6                       |     |      |  | 5    |     |   |  | 5  |    
|                                     |       |  |                         |     |      |  |      |     |   |  |    |    
|                                     | Total |  |                         | 100 | %    |  |      | 100 | % |  |    | 100 | %
|                                     |       |  |                         |     |      |  |      |     |   |  |    |    

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 (1) beginning the third month after the month in which a regular
course of dialysis is initiated; or (2) 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.
Congress increased

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the Medicare composite rate in 2000 by 1.2%. Congress also
increased the Medicare composite rate in 2001 by 2.4%. Neither Congress nor
CMS approved an increase in the composite rate for 2002 or 2003. 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 2002. The Medicare ESRD
composite rate is subject to regional differences based on certain factors,
including 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

Congress increased the Medicare ESRD composite rate by 1.2% in 2000 and by
2.4% in 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
Medicare ESRD composite rate from approximately $138 per treatment in 1983 to
approximately $125 per treatment in 1986. As a result of the 2001 increase in
the Medicare ESRD composite rate, the Companys average rate per dialysis
treatment was $131 during 2002.

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 was due in June 2002. This study has not yet
been delivered. Congress mandated that this study (1) review items included in
the composite rate and items that are currently separately billable (such as
EPO and certain laboratory services), and (2) 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,
recommended that the ESRD composite rate for 2003 be increased by 2.6%.
Congress did not approve an increase for 2003. 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 to
change 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 the past there have been
proposals to reduce Medicare reimbursement for EPO, but none of these proposals
has been adopted. Renal Care Group is unable to predict whether any changes
in EPO reimbursement will occur. Approximately 23% of Renal Care Groups
revenue in 2002 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.

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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. Medicares contractors often review claims
in these instances. 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 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 implemented, a reduction in Medicaid
reimbursement. In addition, finance department officials in Wisconsin have
proposed, but not implemented, a reduction in Medicaid reimbursement.
Reductions 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 rates paid by Medicare. Renal Care Group has
negotiated managed care contracts with most of its 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. The
rates under these contracts are 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.

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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.

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.

Renal Care Group cannot predict whether it will be held responsible for
actions previously taken by acquired companies or facilities before it
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 for 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 for 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 for
coverage. Renal Care Group also cannot predict whether

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it will be able to meet
any new or revised conditions for coverage. Any changes to the Medicare
conditions for 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. In January of 2003, the United States General Accounting
Office, known as the GAO, issued a report finding that efforts by CMS to ensure
quality care at certain facilities including kidney dialysis facilities
continue to be jeopardized by problems in the performance of state inspections,
complaint investigations, and enforcement of federal standards. 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.

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.

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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.

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
for some 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.

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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. HHS has
stated that it will issue additional Stark II final regulations in the future,
but proposed regulations have not been published. 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 11, 2003, Renal Care Group had stockholders equity
of more than $562.0 million. Renal Care Group believes that physician
ownership of Renal Care Group stock satisfies this Stark Law exception.

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 were found to have submitted claims to
Medicare for services provided pursuant to a referral prohibited by the Stark
Law, then Renal Care Group would 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.

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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. However, in December of 2002, the OIG withdrew this
proposed exception.

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.
Health care providers, health care clearinghouses and large health plans who
submitted a compliance extension plan to HHS by October 15, 2002 have until
October 16, 2003 to comply with the Transaction Standards rule. Health care
providers, health care clearinghouses and large health plans who did not submit
a compliance extension plan to HHS by the deadline were required to comply with
these requirements as of 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 might not
have been able to accept transactions in the format required by the Transaction
Standards rule by the original compliance date, Renal Care Group filed a timely
compliance extension plan with HHS. Renal Care Group intends to comply with
the Transaction Standards rule by the required compliance date.

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. The privacy regulations, among other things,
require companies covered by the regulations:



| |  |  | to obtain patient authorization prior to certain uses or
disclosures of protected health information,
| | - |  | -----------------------------------------------------------------------------------------------------

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| |  |  | to provide notice of privacy practices to patients and obtain
an acknowledgement that the patient has received the notice,
| | - |  | --------------------------------------------------------------------------------------------------------------------------
|
| |  |  | to respond to requests from patients for access to or to obtain a copy of 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. The privacy regulations
are extensive, and Renal Care Group will need to change some of its practices
to comply with them.

The effective date of these privacy regulations is April 14, 2001, and
most covered entities, including Renal Care Group, 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. HHS recently published the
final security regulations. Most covered entities will be required to comply
with these regulations by April 21, 2005. Renal Care Group is studying the new
regulations and may be required to change some of its practices to comply with
them.

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.

The penalty for violation of the False Claims Act ranges from $5,500 to
$11,000 for each fraudulent claim plus up to 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.

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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;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | that 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 2003. The OIG has indicated in its 2003 Work Plan that
it will be focusing this year on a number of areas of ESRD services, including
home dialysis billing and transportation services for dialysis patients.

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 intense. According
to CMS, there were more than 4,000 outpatient facilities providing dialysis in
the United States at the end of 2001. Renal Care Group believes that
approximately 65% of these facilities are currently owned by multi-center dialysis companies,
approximately 17% are owned by independent physicians, small chains and other
small operators, and approximately 18% 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.

Fresenius and Gambro are both vertically integrated providers that
manufacture and sell dialysis equipment and supplies, which may give 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 of its 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. During 2002
the cost to Renal Care Group of most types of insurance, particularly
professional liability insurance, directors and officers liability insurance,
and employee health insurance, increased substantially, both in terms of
premiums and deductibles. In addition, the availability of insurance
diminished in 2001 and 2002. Management expects that these trends will
continue in the future and that Renal Care Group will be required to take more
risk in its insurance program. 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, 2002 Renal Care Group employed 5,447 full-time employees
and 866 part-time employees. Of the total employees, 53 were employed at the
Companys headquarters and 6,260 were employed at the Companys facilities or
regional business offices. In managements opinion, employee relations are
good.

INTERNET WEBSITE

The Companys internet website can be found at
www.renalcaregroup.com. The Company makes available free of charge on
or through our internet website, access to our annual report on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K,
and amendments to those reports filed pursuant to Section 13(a) or
15(d) of the Exchange Act as soon as reasonably practicable after
such material is filed, or furnished, to the Securities and Exchange
Commission.

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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 beloware notthe
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 Congress or CMS Changes the Medicare or Medicaid Programs for Dialysis, Then
Our Revenue and Earnings Could Decrease

If the government changes the Medicare, Medicaid or similar government
programs or the rates those programs pay for our services, then our revenue and
earnings may decline. We estimate that approximately 53% of our net revenue
for 2000, 49% of our net revenue for 2001 and 50% of our net revenue for 2002
consisted of reimbursements from Medicare, including the administration of EPO
to treat anemia. We also estimate that approximately 5% of our net revenue for
2000, 6% of our net revenue for 2001 and 7% of our net revenue for 2002,
consisted of reimbursements from Medicaid or comparable state programs. 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 dialysis treatment; or                                    
|
| |  |  | changes in laws, or the interpretations of laws, which
could cause us to modify our operations.                                                                                         

Specifically,
Congress and CMS
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 States Lower Medicaid Reimbursement, Then We Would be Less Profitable

The Medicaid programs in some of the states in which we operate reimburse
us at rates higher than those paid by Medicare. Some of these
programs, like Washingtons, have approved reductions in
reimbursement. Other programs, like
Wisconsins, have proposed reductions or have announced that they are considering
reductions. In addition, a number of the states where we operate are
experiencing budget shortfalls, and some of these states may consider reducing
Medicaid reimbursement or changing their Medicaid programs to cut costs.
Actions to reduce Medicaid reimbursement rates would adversely affect 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 2000, 25% of our net revenue for 2001
and 23% of our net revenue for 2002. Most of our payments for EPO come from
government
programs. For the year ended December 31, 2002, Medicare and Medicaid
reimbursement represented approximately 57% of the total revenue we

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derived
from EPO. A reduction in the reimbursement rate for EPO could materially and
adversely affect our revenue and earnings.

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 April 2002, Amgen announced a 3.9% increase in the price of EPO.
This price increase did not affect our earnings in 2002 because our contract
with Amgen had pricing protection through 2002, but it will adversely affect
our earnings in 2003. In addition, Amgen implemented a 3.9% increase in the
price of EPO in May 2001. That price increase did adversely affect our
earnings in 2002. 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® (darbepoetin alfa). Aranesp® 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® can remain effective for between two and three weeks. If Amgen markets
Aranesp® 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® could
be lower than the margin realized on the administration of EPO; or                         
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Physicians could decide to administer Aranesp® in their
offices, and we would not recognize revenue or profit from the
administration of EPO or Aranesp® .

If Payments by Private Insurers, Hospitals or Managed Care Organizations
Decrease, Then Our Revenue and Earnings Could Decrease

If private insurers, managed care organizations or hospitals reduce their
rates or if 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 42% of our net revenue for 2000,
45% of our net revenue for 2001 and 43% of our net revenue for 2002, 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. Payments we receive
from managed care organizations are also at rates higher than Medicare and
Medicaid rates but lower than those paid by private insurers. In addition, we
have been able to implement annual price increases for these private payors
that we have not been able to implement for federal programs. 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 or to refuse to pay price increases or
work to reduce the rate of our price increases;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | a portion of our business that is currently reimbursed by
private insurers or hospitals may become reimbursed by managed
care organizations, which generally 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.                                  

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If Local Physicians Stop Sending Patients To Our Centers or Were Prohibited
From Doing So for Regulatory Reasons, Then Our Revenue and Earnings Would
Decline

Our dialysis centers depend on local nephrologists sending patients to the
centers. 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 of these physicians could have a
material adverse effect on the operations of that center. The loss of the
patient base of a significant number of local physicians could cause our
revenue and earnings to decline. In many instances, the primary referral
sources for our centers are physicians who also serve as medical directors of
our centers and may be shareholders. If the medical director relationship or
stock ownership were deemed to violate applicable federal or state law,
including fraud and abuse laws and laws prohibiting self-referrals, then the
physicians acting as medical directors or owning our stock 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 or a member of his or her practice group serves as a
medical director. We believe that our future success will depend in part on our ability to attract and retain qualified physicians to serve as medical directors of our dialysis centers.

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. The laws
that apply to our operations include, but are not limited to, the following:



| |  |  | fraud and abuse prohibitions under state and federal health care laws;                                                                                                                                                                 
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | prohibitions and limitations on patient referrals;                                                                                                                                                                                     
|
| |  |  | billing and reimbursement rules, including false claims
prohibitions under health care reimbursement laws;                                                                                                                             
|
| |  |  | rules regarding the 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 the regulation of our business, 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 regulations, we could be subject to:

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| |  |  | criminal or civil penalties, including significant fines;                                       
| | - |  | ------------------------------------------------------------------------------------------------
|
| |  |  | claims by people 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 we could 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
occurs, our revenue and earnings could decline.

Changes In the Health Care Delivery, Financing or Reimbursement Systems Could
Adversely Affect Our Business

The health care industry in the United States may be entering 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 relationships with referring physicians. In addition, proposals to reform
the health care system have been considered by Congress. In light of the
continued increases in the cost of health care and the current economic
weakness, there may be new proposals to change the health care system and
control costs. These proposals, if enacted, could further increase
the governments oversight role and 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, Then We Could Lose Market Share and Our Rate of Growth Could
Slow

The dialysis industry is largely consolidated, and the consolidation trend
continues as large providers acquire smaller providers. 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. Two of our major 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.

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If We Lose Any of Our Executive Officers, or Are Unable To Attract and Retain
Qualified Nurses, Then Our Ability To Run Our Business
Could Be Adversely Affected, and Our Revenue and Earnings Could Decline

We depend on the services of our executive officers Sam A. Brooks, Jr.,
our Chairman, Chief Executive Officer and President, 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 our executive officers would be difficult to replace. We recently announced that we are searching for a new Chief Executive Officer to replace Mr. Brooks. Further, our growth will depend in part upon
our ability to attract and retain skilled nurses to provide services in our
facilities, for whom competition is intense.

If We are Unable to Make Acquisitions in the Future, Then 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 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 continue to 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 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 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 Complete Future Acquisitions, We May Dilute Existing Stockholders by
Issuing More of Our Common Stock or We May Incur 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. Interest expense on debt incurred to fund our acquisitions may
significantly reduce our profitability. While goodwill and other intangible
assets with indefinite lives are not amortized to expense under recently
adopted accounting rules, we are required to review all of these assets at
regular intervals for impairment and to charge an appropriate amount to expense
when impairment is identified. If impairment is identified and we are required
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.

If We Fail to Integrate Acquired Companies, Then We Will Be Less Profitable

We have grown significantly by acquisitions of other dialysis providers
since our formation. 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 face these challenges
particularly in larger acquisitions. 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.

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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 the sellers of
businesses we buy, 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 Costs of Insurance and Claims Increase, Then Our Earnings Could Decrease

Renal Care Group currently maintains programs of general and professional
liability insurance and directors and officers insurance with
significant deductible amounts on each claim. In addition, we
generally self-insure our employee health plan and workers compensation program, while maintaining excess insurance for some very large claims. We have accepted higher
deductibles and self-insurance exposure in each of the last several years to offset in part increases in
premiums for the programs. These deductibles and premiums increased
substantially in 2002, and we believe they are likely to increase substantially
again in 2003. Our earnings could be materially and adversely affected by any
of the following:



| |  |  | further increases in premiums and deductibles;                                                                             
| | - |  | ---------------------------------------------------------------------------------------------------------------------------
|
| |  |  | increases in the number of liability claims against us or the
cost of settling or trying cases related to those claims; and
|
| |  |  | an inability to obtain one or more types of insurance on
acceptable terms.                                                 

If Our Board of Directors Does Not Approve an Acquisition or Change in Control
of Renal Care Group, Then 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 is 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 before pursuing a
transaction. Provisions that could delay, deter or inhibit a future
acquisition or change in control of Renal Care Group include the following:



| |  |  | 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.

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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 closing price
of $27.72 per share to a high closing price of $35.80 per share during the
year ended December 31, 2002. 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.

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##### Table of Contents



Item 2.Properties

PROPERTIES

As of December 31, 2002, Renal Care Group operated dialysis centers in 27
states, of which 235 are located in leased facilities and 33 are owned. The
following is a summary of Renal Care Groups outpatient dialysis centers by
state.

OUTPATIENT FACILITIES BY STATE

|               |  |  |     | 
|-------------- |  |  | --- | 
|Alabama        |  |  | 4   | 
|Alaska         |  |  | 2   | 
|Arizona        |  |  | 28  | 
|Arkansas       |  |  | 10  | 
|Colorado       |  |  | 2   | 
|Florida        |  |  | 7   | 
|Idaho          |  |  | 1   | 
|Illinois       |  |  | 18  | 
|Indiana        |  |  | 25  | 
|Kansas         |  |  | 12  | 
|Kentucky       |  |  | 1   | 
|Louisiana      |  |  | 1   | 
|Michigan       |  |  | 5   | 
|Mississippi    |  |  | 33  | 
|Missouri       |  |  | 9   | 
|Nebraska       |  |  | 1   | 
|New Jersey     |  |  | 3   | 
|New Mexico     |  |  | 3   | 
|Ohio           |  |  | 19  | 
|Oklahoma       |  |  | 4   | 
|Oregon         |  |  | 10  | 
|Pennsylvania   |  |  | 11  | 
|South Carolina |  |  | 3   | 
|Tennessee      |  |  | 5   | 
|Texas          |  |  | 39  | 
|Washington     |  |  | 10  | 
|Wisconsin      |  |  | 2   | 
|               |  |  |     | 
|TOTAL          |  |  | 268 | 
|               |  |  |     | 

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 25,000 square feet. Renal Care Group leases office
space in Nashville, Tennessee for its corporate headquarters under a lease that
expires in 2009. 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 usually 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.

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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, 2002, 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.

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 2002.

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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.

|               |  |      |        |     |  |   |        | 
|-------------- |  | ---- | ------ | --- |  | - | ------ | 
|2001           |  | High |        | Low
|               |  |      |        |    
|First quarter  |  | $    | 27.438 |     |  | $ | 23.813 | 
|Second quarter |  | $    | 32.890 |     |  | $ | 23.430 | 
|Third quarter  |  | $    | 33.890 |     |  | $ | 26.800 | 
|Fourth quarter |  | $    | 33.110 |     |  | $ | 29.000 | 

|               |  |      |        |     |  |   |        | 
|-------------- |  | ---- | ------ | --- |  | - | ------ | 
|2002           |  | High |        | Low
|               |  |      |        |    
|First quarter  |  | $    | 33.650 |     |  | $ | 28.300 | 
|Second quarter |  | $    | 35.800 |     |  | $ | 31.150 | 
|Third quarter  |  | $    | 33.650 |     |  | $ | 27.720 | 
|Fourth quarter |  | $    | 34.010 |     |  | $ | 30.350 | 

HOLDERS

As of March 1, 2003, the approximate number of registered stockholders was
183, and the Company had approximately 14,100 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. Unless there are changes in United States income tax law, Renal Care Group 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.

SALES OF UNREGISTERED SECURITIES

There were no sales of unregistered securities during the year ended
December 31, 2002.

Securities Authorized for Issuance Under Equity Compensation Plans (share amounts in thousands)

The following table summarizes our equity compensation plans as of
December 31, 2002:

|                                                          |  |                     |       |                   |  |                      |       |  |  |                     |     | 
|--------------------------------------------------------- |  | ------------------- | ----- | ----------------- |  | -------------------- | ----- |  |  | ------------------- | --- | 
|                                                          |  |                     |       |                   |  |                      |       |  |  | Number of Shares   
|                                                          |  |                     |       |                   |  |                      |       |  |  | Remaining Available
|                                                          |  | Number of Shares to |       | Weighted-Average  |  | For Future Issuance 
|                                                          |  | Be Issued Upon      |       | Exercise Price of |  | Under Equity        
|                                                          |  | Exercise of         |       | Outstanding       |  | Compensation Plans  
|                                                          |  | Outstanding         |       | Options,          |  | (Excluding          
|                                                          |  | Options, Warrants   |       | Warrants and      |  | Securities Reflected
|                                                          |  | And Rights          |       | Rights            |  | In Column (a))      
|Plan Category(1)                                          |  | (a)                 |       | (b)               |  | (c)                 
|                                                          |  |                     |       |                   |  |                     
|Equity compensation plans approved by Stockholders        |  |                     | 6,404 |                   |  | $                    | 22.43 |  |  |                     | 577 | 
|Equity compensation plans not approved by Stockholders(2) |  |                     | 617   |                   |  | $                    | 13.85 |  |  |                     |    | 
|                                                          |  |                     |       |                   |  |                      |       |  |  |                     |     | 
|Total                                                     |  |                     | 7,021 |                   |  | $                    | 21.54 |  |  |                     | 577 | 

(1) Renal Care Group currently has three option plans that were assumed in connection with a merger,
acquisition or other transaction. The first such plan was adopted by
Renal Disease Management by Physicians, Inc. (RDM) in 1997 under which there are 14 options issued and outstanding to purchase
shares at a weighted average exercise price of $18.18. The second
plan was adopted by Dialysis Centers of America, Inc. (DCA) in 1995 under which there are 17 options issued and
outstanding to purchase shares at a weighted average
exercise price of $25.58. The third plan was adopted in 1994 and there are 8 options issued and outstanding under such plan to purchase shares at a weighted average exercise price of $3.33.

(2) These options were issued outside of our existing stock option plans to certain employees, officers, directors, and other key
persons. These options vest over various periods of up to five years and have a term of ten years from the date of issuance.

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Item 6.Selected Financial Data

The selected financial data for the years ended December 31, 1998, 1999,
2000, 2001 and 2002 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, 2000, 2001 and 2002, together with the related Report of
Independent Auditors are included elsewhere in this annual report on Form 10-K.
Please read the following data 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)

|                                                 |  |                         |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|------------------------------------------------ |  | ----------------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- |  |  | - | ------- | 
|                                                 |  | Year Ended December 31,
|                                                 |  |                        
|                                                 |  | 1998                    |         | 1999 |  | 2000 |         | 2001 |  | 2002
|                                                 |  |                         |         |      |  |      |         |      |  |     
|INCOME STATEMENT DATA:                           |  |                         |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|Net revenue                                      |  | $                       | 441,063 |      |  | $    | 541,895 |      |  | $    | 622,575 |  |  | $ | 755,082 |  |  | $ | 903,387 | 
|Patient care costs                               |  |                         | 292,113 |      |  |      | 351,367 |      |  |      | 402,009 |  |  |   | 489,271 |  |  |   | 589,696 | 
|General and administrative expenses              |  |                         | 43,894  |      |  |      | 51,315  |      |  |      | 57,104  |  |  |   | 64,530  |  |  |   | 78,079  | 
|Provision for doubtful accounts                  |  |                         | 13,484  |      |  |      | 14,632  |      |  |      | 16,949  |  |  |   | 20,290  |  |  |   | 23,501  | 
|Depreciation and amortization                    |  |                         | 22,241  |      |  |      | 27,835  |      |  |      | 32,321  |  |  |   | 38,945  |  |  |   | 40,432  | 
|Restructuring charge                             |  |                         |        |      |  |      |        |      |  |      | 9,235   |  |  |   |        |  |  |   |        | 
|Merger expenses                                  |  |                         | 1,000   |      |  |      | 4,300   |      |  |      | 3,766   |  |  |   |        |  |  |   |        | 
|                                                 |  |                         |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|Total operating costs and expenses               |  |                         | 372,732 |      |  |      | 449,449 |      |  |      | 521,384 |  |  |   | 613,036 |  |  |   | 731,708 | 
|                                                 |  |                         |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|Income from operations                           |  |                         | 68,331  |      |  |      | 92,446  |      |  |      | 101,191 |  |  |   | 142,046 |  |  |   | 171,679 | 
|Interest expense, net                            |  |                         | 6,558   |      |  |      | 6,224   |      |  |      | 5,015   |  |  |   | 2,636   |  |  |   | 1,140   | 
|                                                 |  |                         |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|Income before income taxes and minority interest |  |                         | 61,773  |      |  |      | 86,222  |      |  |      | 96,176  |  |  |   | 139,410 |  |  |   | 170,539 | 
|Minority interest                                |  |                         | 3,492   |      |  |      | 7,768   |      |  |      | 10,011  |  |  |   | 15,478  |  |  |   | 21,410  | 
|                                                 |  |                         |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|Income before income taxes                       |  |                         | 58,281  |      |  |      | 78,454  |      |  |      | 86,165  |  |  |   | 123,932 |  |  |   | 149,129 | 
|Provision for income taxes                       |  |                         | 21,601  |      |  |      | 31,367  |      |  |      | 34,706  |  |  |   | 47,331  |  |  |   | 56,669  | 
|                                                 |  |                         |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|Net income                                       |  | $                       | 36,680  |      |  | $    | 47,087  |      |  | $    | 51,459  |  |  | $ | 76,601  |  |  | $ | 92,460  | 
|                                                 |  |                         |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|Basic net income per share                       |  | $                       | 0.84    |      |  | $    | 1.05    |      |  | $    | 1.12    |  |  | $ | 1.59    |  |  | $ | 1.89    | 
|                                                 |  |                         |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|Basic weighted average shares outstanding        |  |                         | 43,740  |      |  |      | 45,015  |      |  |      | 46,048  |  |  |   | 48,113  |  |  |   | 48,978  | 
|                                                 |  |                         |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|Diluted net income per share                     |  | $                       | 0.79    |      |  | $    | 1.00    |      |  | $    | 1.07    |  |  | $ | 1.52    |  |  | $ | 1.82    | 
|                                                 |  |                         |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|Diluted weighted average shares outstanding      |  |                         | 46,367  |      |  |      | 47,052  |      |  |      | 47,948  |  |  |   | 50,433  |  |  |   | 50,767  | 
|                                                 |  |                         |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 

|                     |  |              |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|-------------------- |  | ------------ | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- |  |  | - | ------- | 
|                     |  | December 31,
|                     |  |             
|                     |  | 1998         |         | 1999 |  | 2000 |         | 2001 |  | 2002
|                     |  |              |         |      |  |      |         |      |  |     
|BALANCE SHEET DATA:  |  |              |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|Working capital      |  | $            | 47,851  |      |  | $    | 73,651  |      |  | $    | 108,915 |  |  | $ | 104,047 |  |  | $ | 110,481 | 
|Total assets         |  |              | 433,687 |      |  |      | 500,906 |      |  |      | 582,672 |  |  |   | 651,049 |  |  |   | 740,123 | 
|Long-term debt       |  |              | 90,928  |      |  |      | 79,690  |      |  |      | 58,316  |  |  |   | 3,776   |  |  |   | 10,161  | 
|Stockholders equity |  |              | 248,180 |      |  |      | 311,839 |      |  |      | 394,122 |  |  |   | 510,251 |  |  |   | 543,888 | 

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Item 7.Managements Discussion and Analysis of Financial Condition and Results
of Operations

The following discussion and analysis contains forward-looking statements about our plans and expectations of what may happen in the future.
Forward-looking statements are based on a number of assumptions and estimates that are inherently subject to significant risks and uncertainties, and our results could differ
materially from the results anticipated by our forward-looking statements as a result of many known or unknown factors, including, but not
limited to, those factors discussed on pages 19-25 under the heading
Risk Factors. See also the cautionary notice regarding forward-looking statements set forth at the beginning of this report.

Please read the following discussion in conjunction with the Companys
consolidated financial statements and the related notes 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, 2002, the Company provided dialysis and
ancillary services to approximately 20,500 patients through 268 outpatient
dialysis centers in 27 states, in addition to providing acute dialysis services
to approximately 120 hospitals.

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® 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 medical university dialysis programs.                                                                        

Most patients with end-stage renal disease receive three dialysis
treatments each week in an outpatient setting. Reimbursement for these
services is 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, 2002, approximately 57% 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. Congress increased the Medicare composite rate in 2000
by 1.2% and by 2.4% in 2001. Neither Congress nor CMS approved an increase in
the composite rate for either 2002 or 2003.

The Medicare composite rate applies to a designated group of outpatient
dialysis services, including the dialysis treatment, supplies used for the
treatment, certain laboratory tests and medications, and most of the home
dialysis services provided by Renal Care Group. The Company receives separate
reimbursement outside the composite rate for some other services, laboratory
tests, and drugs, including specific drugs such as EPO and some
physician-ordered tests provided to dialysis patients.

If a patient has private health insurance, that patients dialysis is
typically reimbursed at rates significantly 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 is usually higher than
the Medicare composite rate. Because dialysis is a life-sustaining therapy to
treat a chronic disease, utilization is predictable and is not subject to
seasonal fluctuations.

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 Inc. In April 2002, Amgen implemented its third EPO price increase of
3.9% in as many years. This increase did not affect Renal Care Groups results
of operations in 2002 because Renal Care Groups contract with Amgen included
price protection for all of 2002. The Companys contract with Amgen for 2003
generally provides that the Companys 2002 pricing formula will remain in effect for
2003. As a result, the Company believes, although it can give no assurances,
that it will be able to mitigate a substantial portion of the 2002 price
increase in 2003.

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Critical Accounting Policies

The Securities and Exchange Commission has issued a financial reporting
release, FR-60, Cautionary Advice Regarding Disclosure About Critical
Accounting Policies. In accordance with that release, management has
identified the following accounting policies that it considers critical to the
business of Renal Care Group. Management identified these policies based on
their importance to the Consolidated Financial Statements and 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 Companys consolidated financial statements and related notes, contained
elsewhere in this annual report on Form 10-K.

Net Revenue and Contractual Provisions

Renal Care Group recognizes revenue 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 the treatment, some laboratory
tests and some medications. There are other drugs, laboratory tests and
services that are eligible for separate reimbursement outside the composite
rate. Most state Medicaid plans follow reimbursement methodologies that are
similar to the Medicare program, but other payors, particularly private
insurance plans and managed care payors, reimburse Renal Care Group under
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 to enable it to estimate
the appropriate amount of contractual provisions as services are
provided. Actual levels of reimbursement, however, are sometimes difficult to
determine due to the complexity of the applicable regulations or contracts. As
a result, Renal Care Group may in fact collect more or less than the amount it
expects when the services are provided. In addition, regulations and contracts
may be changed, making system updates and maintenance necessary for estimating
net revenue accurately. 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 outstanding accounts receivable is critical to Renal Care
Groups success. 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 between 15% and 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 agings of accounts receivable.
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.

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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 amounts and workers
compensation claims exceeding certain individual and aggregate amounts. The
Company estimates the self-insured retention portion of the malpractice risks
using third-party actuarial calculations that include historical claims data,
demographic factors and other assumptions. Workers compensation risks are
estimated by the Company using historical claims data 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, the wide range of potential outcomes and changes in the legal climate often complicate the Companys ability
to make precise estimates.

Impairment of Goodwill and Long-Lived Assets

Renal Care Group reviews goodwill, long-lived assets and identifiable
intangibles for impairment at least once a year and at any other time
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 comparing the carrying amount of an asset to
the discounted present value of future net cash flows management expects the
asset to generate. The computation of future net cash flows is often complex
and includes subjective assumptions. If management determines that assets are
impaired, then the 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:

|                                    |  |                         |         |      |  |      |       |   |  |   |         |  |  |  |       |   |  |   |         |  |  |  |       |   |  |  |  | 
|----------------------------------- |  | ----------------------- | ------- | ---- |  | ---- | ----- | - |  | - | ------- |  |  |  | ----- | - |  | - | ------- |  |  |  | ----- | - |  |  |  | 
|                                    |  | Year Ended December 31,
|                                    |  |                        
|                                    |  | 2000                    |         | 2001 |  | 2002
|                                    |  |                         |         |      |  |     
|Net revenue                         |  | $                       | 622,575 |      |  |      | 100.0 | % |  | $ | 755,082 |  |  |  | 100.0 | % |  | $ | 903,387 |  |  |  | 100.0 | %
|Patient care costs                  |  |                         | 402,009 |      |  |      | 64.6  |   |  |   | 489,271 |  |  |  | 64.8  |   |  |   | 589,696 |  |  |  | 65.3  |  
|General and administrative expenses |  |                         | 57,104  |      |  |      | 9.2   |   |  |   | 64,530  |  |  |  | 8.5   |   |  |   | 78,079  |  |  |  | 8.6   |  
|Provision for doubtful accounts     |  |                         | 16,949  |      |  |      | 2.7   |   |  |   | 20,290  |  |  |  | 2.7   |   |  |   | 23,501  |  |  |  | 2.6   |  
|Depreciation and amortization       |  |                         | 32,321  |      |  |      | 5.2   |   |  |   | 38,945  |  |  |  | 5.2   |   |  |   | 40,432  |  |  |  | 4.5   |  
|Restructuring charge                |  |                         | 9,235   |      |  |      | 1.5   |   |  |   |        |  |  |  |      |   |  |   |        |  |  |  |      |  
|Merger expenses                     |  |                         | 3,766   |      |  |      | 0.6   |   |  |   |        |  |  |  |      |   |  |   |        |  |  |  |      |  
|                                    |  |                         |         |      |  |      |       |   |  |   |         |  |  |  |       |   |  |   |         |  |  |  |       |  
|Total operating costs and expenses  |  |                         | 521,384 |      |  |      | 83.7  |   |  |   | 613,036 |  |  |  | 81.2  |   |  |   | 731,708 |  |  |  | 81.0  |  
|                                    |  |                         |         |      |  |      |       |   |  |   |         |  |  |  |       |   |  |   |         |  |  |  |       |  
|Income from operations              |  |                         | 101,191 |      |  |      | 16.3  |   |  |   | 142,046 |  |  |  | 18.8  |   |  |   | 171,679 |  |  |  | 19.0  |  
|Interest expense, net               |  |                         | 5,015   |      |  |      | 0.8   |   |  |   | 2,636   |  |  |  | 0.3   |   |  |   | 1,140   |  |  |  | 0.1   |  
|Minority interest                   |  |                         | 10,011  |      |  |      | 1.6   |   |  |   | 15,478  |  |  |  | 2.0   |   |  |   | 21,410  |  |  |  | 2.4   |  
|                                    |  |                         |         |      |  |      |       |   |  |   |         |  |  |  |       |   |  |   |         |  |  |  |       |  
|Income before income taxes          |  |                         | 86,165  |      |  |      | 13.8  |   |  |   | 123,932 |  |  |  | 16.4  |   |  |   | 149,129 |  |  |  | 16.5  |  
|Provision for income taxes          |  |                         | 34,706  |      |  |      | 5.6   |   |  |   | 47,331  |  |  |  | 6.3   |   |  |   | 56,669  |  |  |  | 6.3   |  
|                                    |  |                         |         |      |  |      |       |   |  |   |         |  |  |  |       |   |  |   |         |  |  |  |       |  
|Net income                          |  | $                       | 51,459  |      |  |      | 8.3   | % |  | $ | 76,601  |  |  |  | 10.1  | % |  | $ | 92,460  |  |  |  | 10.2  | %
|                                    |  |                         |         |      |  |      |       |   |  |   |         |  |  |  |       |   |  |   |         |  |  |  |       |  

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

Net Revenue.Net revenue increased from $755.1 million for the year ended
December 31, 2001 to $903.4 million for the year ended December 31, 2002, an
increase of $148.3 million, or 19.6%. This increase resulted primarily from a
12.4% increase in the number of treatments performed by Renal Care Group from
2,686,181 in 2001 to 3,019,675 in 2002 and a 6.8% increase in the average
patient revenue per dialysis treatment from $278 in 2001 to $297 in 2002. The
growth in treatments was the result of the acquisition and development of
various dialysis facilities and a 5.8% increase in same-market treatments for
2002 over 2001. The increase in revenue per treatment was largely due to a rate
increase to private payors that Renal Care Group implemented in the fourth
quarter of 2001 and, to a lesser extent, an increase in utilization of certain
ancillary 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 $489.3 million for the year ended December 31, 2001 to $589.7 million for
the year ended December 31, 2002, an increase of 20.5%. 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 64.8% in 2001 to 65.3% in 2002. Patient care costs per treatment increased
7.1% from $182 in 2001 to $195 in 2002. The increases in patient care costs as
a percentage of net revenue and patient care costs per treatment were due to
increases in the price of EPO, increased labor costs to address wage pressures
in many of the Companys markets, increases in the cost of insurance, increases in self-insurance accruals, the increase in utilization of certain ancillary drugs
and the increased cost of the drug Heparin following a recall by its
manufacturer. Management believes that the Company will continue to face
increases in the cost of EPO, insurance and self-insurance, and labor
throughout 2003.

General and Administrative Expenses.General and administrative expenses
include corporate office costs and other costs not directly related to the care
of patients, including facility administration, accounting, billing and
information systems. General and administrative expenses increased from $64.5
million for the year ended December 31, 2001 to $78.1 million for the year
ended December 31, 2002, an increase of 21.0%. General and administrative
expenses as a percentage of net revenue increased from 8.5% in 2001 to 8.6% in
2002 primarily as a result of expenses incurred in connection with closing two
dialysis facilities (one in Texas and one in Alabama) in 2002.

Provision for Doubtful Accounts.Management determines the provision for
doubtful accounts as a function of payor mix, billing practices and other
factors. Renal Care Group reserves for doubtful accounts in the period when 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. Management makes adjustments to the allowance for doubtful
accounts as necessary based on the results of managements reviews of the net
collectibility of accounts receivable. The provision for doubtful accounts
increased from $20.3 million in 2001 to $23.5 million in 2002, an increase of
$3.2 million, or 15.8%. The provision for doubtful accounts as a percentage of
net revenue decreased slightly from 2.7% in 2001 to 2.6% in 2002 as a result of
improved collection efforts.

Depreciation and Amortization.Depreciation and amortization increased
from $38.9 million for the year ended December 31, 2001 to $40.4 million for
the year ended December 31, 2002, an increase of 3.8%. 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 separately identifiable intangible assets associated with
acquisitions. Depreciation and amortization as a percentage of net revenue
decreased from 5.2% in 2001 to 4.5% in 2002, primarily as a result of the
implementation of SFAS No. 142, under which the Company stopped amortizing
goodwill effective January 1, 2002. For 2001, the Company recorded goodwill
amortization of $6.4 million.

Income from Operations.Income from operations increased from $142.0
million for the year ended December 31, 2001 to $171.7 million for the year
ended December 31, 2002, an increase of 20.9%. Income from operations as a
percentage of net revenue increased from 18.8% in 2001 to 19.0% in 2002
principally as a result of the factors discussed above.

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Interest Expense, Net.Interest expense decreased from $2.6 million for
the year-ended December 31, 2001 to $1.1 million for the year ended December
31, 2002. This decrease was principally the result of lower average borrowings
in 2002, partially offset by costs incurred when the Company restructured its
lines of credit in 2002.

Minority Interest.Minority interest represents the proportionate equity
interest of other owners of 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 2.4% in
2002 from 2.0% in 2001. This increase was the result of continued financial
improvements of Renal Care Groups larger joint ventures, primarily those in
Ohio, Oregon and Washington, as well as an increase in the number of facilities
operated as joint ventures.

Provision for Income Taxes.Income tax expense increased from $47.3
million in 2001 to $56.7 million in 2002, an increase of $9.3 million or 19.7%.
The increase is a result of pre-tax earnings increasing by 20.3%. The Companys
effective tax rate decreased from 38.2% in 2001 to 38.0% in 2002. This
decrease was primarily the result of eliminating goodwill amortization
for financial reporting purposes as required by SFAS No. 142 while goodwill continued to be amortized for income tax purposes.

Net Income.Net income increased from $76.6 million in 2001 to $92.5
million in 2002, an increase of $15.9 million or 20.7%. This increase was a
result of the items discussed above.

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 a 10.8% increase in the average patient revenue per dialysis
treatment from $251 in 2000 to $278 in 2001. 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. 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. The increases in patient care costs as
a percentage of net revenue and patient care costs per treatment were due to
increased labor costs to address wage pressures in many of the Companys
markets, the increase in the cost of EPO, the increase in the utilization of
certain drugs and generally higher patient care costs in two businesses
acquired in the fourth quarter of 2000.

General and Administrative Expenses.General and administrative expenses
include corporate office costs and other 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.Management determines the provision for
doubtful accounts as a function of payor mix, billing practices and other
factors. Renal Care Group reserves for doubtful accounts in the period when 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

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of $3.3 million, or 19.7%. 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 20.5%. 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 some of the
assets and transferred some of the 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.

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 40.4%. Income from operations as a
percentage of net revenue increased from 16.3% in 2000 to 18.8% in 2001
principally 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 owners of 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
36.4%. 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 48.9%. 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, to
repurchase shares of its common stock and to finance working capital needs.
At December 31, 2002, the Companys working capital was $110.5 million; cash
and cash equivalents were $38.4 million; and the Companys current ratio was
1.8 to 1.0. Renal Care Groups working capital increased during the year
primarily as a result of the increase in operating cash flows.

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Net cash provided by operating activities was $168.6 million for the year
ended December 31, 2002. Cash provided by operating activities consists of net
income before depreciation and amortization expense, adjusted for changes in
components of working capital, primarily accounts receivable. Cash provided by
operating activities was favorably affected in 2002 by the resolution of
Medicare provider number issues related to certain facilities acquired in 2001.
Net cash used in investing activities was $97.4 million for the year ended
December 31, 2002. Cash used in investing activities consisted primarily of
$61.6 million of purchases of property and equipment and $40.5 million of cash
paid for acquisitions, net of cash acquired. Net cash used in financing
activities was $60.3 million for the year ended December 31, 2002. Cash used in
financing activities primarily reflects repurchases of Renal Care Group common
stock of $90.9 million, partially offset by $7.4 million in net borrowings
under the Companys line of credit and $22.2 million in net proceeds from the
issuance of common stock as stock options were exercised.

Effective July 1, 2002, Renal Care Group entered into two credit
agreements with a group of banks totaling $150.0 million and consisting of a
$100.0 million Second Amended and Restated Loan Agreement (the Multi-Year
Facility) and a $50.0 Loan Agreement (the 364-day Facility). The Multi-Year
Facility has a final maturity of July 1, 2005 and the 364-day Facility has a
final maturity of June 30, 2003. The Multi-Year Facility replaced the
Companys First Amended and Restated Loan Agreement. Borrowings under the
credit agreements may be used for acquisitions, capital expenditures, working
capital and general corporate purposes. These variable rate debt instruments
carry a degree of interest rate risk. Specifically, variable rate debt may
result in higher costs to the Company if interest rates rise.

Each of Renal Care Groups wholly-owned subsidiaries has guaranteed all of
Renal Care Groups obligations under the loan agreements. Further, Renal Care
Groups obligations under the loan agreements, 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 these commitments.

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
believes that existing cash and funds from operations, together with funds
available under existing credit facilities, 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 large strategic
acquisition opportunities, Renal Care Group may need to incur additional short
and long-term bank indebtedness or to issue equity or debt securities. The
availability and terms of any future financing will depend on market and other
conditions. There can be no assurance that any additional financing, if needed,
will be available on terms acceptable to Renal Care Group.

Capital expenditures of between $65.0 million and $75.0 million, primarily
for equipment replacement, expansion of existing dialysis facilities and
construction of de novo facilities are planned in 2003. The Company expects
that these capital expenditures will be funded with cash provided by operating
activities and the Companys existing credit facilities. 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 initially
authorized by the Board of Directors in October 2000. In the fourth quarter of
2001, Renal Care Group began repurchasing shares of its common stock by
purchasing 100,000 shares of common stock for approximately $3.1 million. In
the first and second quarters of 2002, Renal Care Group repurchased 700,000
shares of common stock for approximately $22.2 million. In November 2002, the
Company announced that its Board of Directors had approved an increase in the
repurchase plan to allow the purchase of up to a total of $200.0 million. In
the third and fourth quarters of 2002, the Company repurchased 2.2 million
shares of common stock for approximately $68.7 million. Through December 31,
2002, the Company had repurchased an aggregate of 3.0 million shares under the
plan, for a total of approximately $94.0 million. As of March 11, 2003, the Company had repurchased approximately 152,000 additional
shares of common stock for approximately $4.4 million subsequent to year end.

The Securities and Exchange Commission has 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, 2002,
Renal Care Group had no significant contingent commitments.

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|                                   |  |                                       |         |                  |  |             |        |             |  |               |        |  |  |   |        |  |  |   |        | 
|---------------------------------- |  | ------------------------------------- | ------- | ---------------- |  | ----------- | ------ | ----------- |  | ------------- | ------ |  |  | - | ------ |  |  | - | ------ | 
|                                   |  | Payments Due by Period (in thousands)
|                                   |  |                                      
|Contractual Obligations            |  | Total                                 |         | Less than 1 year |  | 1 - 3 years |        | 3 - 5 years |  | After 5 years
|                                   |  |                                       |         |                  |  |             |        |             |  |              
|Long-Term Obligations:             |  |                                       |         |                  |  |             |        |             |  |               |        |  |  |   |        |  |  |   |        | 
|Capital leases and long-term debt  |  | $                                     | 10,294  |                  |  | $           | 133    |             |  | $             | 7,736  |  |  | $ | 213    |  |  | $ | 2,212  | 
|Operating leases                   |  |                                       | 177,657 |                  |  |             | 24,892 |             |  |               | 43,199 |  |  |   | 35,953 |  |  |   | 73,613 | 
|Medical director fee obligations   |  |                                       | 82,919  |                  |  |             | 16,394 |             |  |               | 26,853 |  |  |   | 19,141 |  |  |   | 20,531 | 
|                                   |  |                                       |         |                  |  |             |        |             |  |               |        |  |  |   |        |  |  |   |        | 
|Total contractual cash obligations |  | $                                     | 270,870 |                  |  | $           | 41,419 |             |  | $             | 77,788 |  |  | $ | 55,307 |  |  | $ | 96,356 | 
|                                   |  |                                       |         |                  |  |             |        |             |  |               |        |  |  |   |        |  |  |   |        | 

Newly Issued Accounting Standards

On June 29, 2001, the Financial Accounting Standards Board (FASB)
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 eliminated the
pooling-of-interests method of accounting for all business combinations except
those initiated prior to July 1, 2001. Additionally, this statement changed
the criteria for recognizing intangible assets apart from goodwill. SFAS No.
142 superseded APB Opinion No. 17, Intangible Assets,which 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
are no longer amortized but reviewed at least annually for impairment.
Separable intangible assets with finite lives are amortized over their useful
lives. SFAS No. 142 does not impose a limit on the useful lives of separable
intangible assets. Following the Companys adoption of SFAS No. 142 on January
1, 2002, the provisions of SFAS No. 142 apply to all goodwill and intangible
assets acquired by the Company. During 2002, the Company completed its
transitional impairment test and identified no impairments. The Company also
completed its first annual impairment test as of September 30, 2002 and
identified no impairments.

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
(SFAS No. 121), 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. Renal Care Group
adopted the provisions of SFAS No. 144 during 2002, which did not have a
significant effect on our consolidated financial position or results of
operations.

In December 2002, the FASB issued Statement of Financial Accounting
Standard No. 148, Accounting for Stock-Based Compensation  Transition and
Disclosure(SFAS No. 148), which amends SFAS No. 123, Accounting for
Stock-Based Compensation. SFAS No. 148 provides alternative methods for
Companies electing to implement the fair-value based method of accounting for
stock-based employee compensation. The Statement also requires that certain
disclosures be made in both annual and interim financial statements about the
method of accounting and the related effect of the method used on
reported results. The Company has adopted the disclosure requirements of
SFAS No. 148 and SFAS No. 123, and accounts for its stock option plans in
accordance with the provisions of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and does not utilize the fair-value
method.

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 or by reference to the Medicare composite rate.

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Increased
operating costs due to inflation, such as labor and supply costs (including the
cost of EPO), without a corresponding increase in reimbursement rates, may
adversely affect Renal Care Groups results of operations, financial condition
and business.

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 15(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.

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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
2003 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 2003 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 2003 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 2003
Annual Meeting of Stockholders.

Item 14.Evaluation of Disclosure Controls and Procedures

The Companys
Chief Executive Officer and Chief Financial Officer have evaluated
the Companys disclosure controls and procedures (as such term is defined in Rules 13a-14 (c) and 15d-14 (c) under the Securities
Exchange Act of 1934, as amended) within 90 days prior to the filing
of this report and concluded, as of the date that evaluation was
completed, that the Companys disclosure controls and procedures are designed to provide reasonable assurance that information
required to be disclosed in the Companys reports under the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SECs rules and forms.

There have been no
significant changes in the Companys internal controls or in other factors that could significantly affect these controls since the date last evaluated.

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PART IV

Item 15.Exhibits, Financial Statement Schedules, and Reports on Form 8-K

|    |  |                                                                                                                                                       |  |     
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|(a) |  | Documents filed as part of this Report:                                                                                                               |  |     
|    |  |                                                                                                                                                       |  | Page
|(1) |  | Consolidated Financial Statements                                                                                                                     |  |     
|    |  |                                                                                                                                                       |  |     
|    |  | Report of Independent Auditors                                                                                                                        |  | F-1 
|    |  |                                                                                                                                                       |  |     
|    |  | Consolidated Balance Sheets at December 31, 2001
and 2002                                                                                             |  | F-2 
|    |  |                                                                                                                                                       |  |     
|    |  | Consolidated Income Statements for the years
ended December 31, 2000, 2001, and 2002                                                                  |  | F-4 
|    |  |                                                                                                                                                       |  |     
|    |  | Consolidated Statements of Stockholders Equity
for the years ended December 31, 2000, 2001, and 2002                                                 |  | F-5 
|    |  |                                                                                                                                                       |  |     
|    |  | Consolidated Statements of Cash Flows for the years
ended December 31, 2000, 2001, and 2002                                                           |  | F-6 
|    |  |                                                                                                                                                       |  |     
|    |  | Notes to Consolidated Financial Statements                                                                                                            |  | F-8 
|    |  |                                                                                                                                                       |  |     
|(2) |  | Consolidated Financial Statement Schedules                                                                                                            |  |     
|    |  |                                                                                                                                                       |  |     
|    |  | Schedule II  Consolidated Schedule-Valuation
and Qualifying Accounts                                                                                 |  | F-25
|    |  |                                                                                                                                                       |  |     
|(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) |  | None.                                                                                                                                                 |  |     

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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, 2001 and 2002, 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, 2002. Our
audits also included the financial statement schedule listed in the Index at
Item 15(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, 2001 and 2002 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2002, 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.

As discussed in Note 2 to the consolidated
financial statements, in 2002 the Company changed its method of accounting for goodwill and other intangible assets.

/s/ ERNST & YOUNG LLP

Nashville, Tennessee
February 24, 2003

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Renal Care Group, Inc.

Consolidated Balance Sheets

|                                   |                                                                                                  |                      |         |                |         |      |         |         |         | 
|---------------------------------- | ------------------------------------------------------------------------------------------------ | -------------------- | ------- | -------------- | ------- | ---- | ------- | ------- | ------- | 
|                                   |                                                                                                  |                      |         | December 31   
|                                   |                                                                                                  |                      |         |               
|                                   |                                                                                                  |                      |         | 2001           |         | 2002
|                                   |                                                                                                  |                      |         |                |         |     
|                                   |                                                                                                  |                      |         | (in thousands)
|ASSETS                             |                                                                                                  |                      |         |                |         |      |         |        
|Current assets:                    |                                                                                                  |                      |         |                |         |      |         |        
|                                   | Cash and cash equivalents                                                                        |                      | $       | 27,423         |         |      | $       | 38,359  |        
|                                   | Accounts receivable, less allowance for doubtful accounts of
$45,260 in 2001 and $43,677 in 2002 |                      |         | 127,056        |         |      |         | 152,440 |        
|                                   | Inventories                                                                                      |                      |         | 16,292         |         |      |         | 23,336  |        
|                                   | Prepaid expenses and other current assets                                                        |                      |         | 18,584         |         |      |         | 19,486  |        
|                                   | Income taxes receivable                                                                          |                      |         | 7,058          |         |      |         |        |        
|                                   | Deferred income taxes                                                                            |                      |         | 16,894         |         |      |         | 12,240  |        
|                                   |                                                                                                  |                      |         |                |         |      |         |        
|                                   |                                                                                                  | Total current assets |         |                | 213,307 |      |         |         | 245,861 | 
|Property, plant and equipment, net |                                                                                                  |                      | 175,925 |                |         |      | 202,972 |        
|Intangible assets, net             |                                                                                                  |                      | 10,365  |                |         |      | 12,110  |        
|Goodwill                           |                                                                                                  |                      | 243,530 |                |         |      | 275,666 |        
|Other assets                       |                                                                                                  |                      | 7,922   |                |         |      | 3,514   |        
|                                   |                                                                                                  |                      |         |                |         |      |         |        
|                                   |                                                                                                  | Total assets         |         | $              | 651,049 |      |         | $       | 740,123 | 
|                                   |                                                                                                  |                      |         |                |         |      |         |        

See accompanying notes to consolidated financial statements.

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Renal Care Group, Inc.

Consolidated Balance Sheets

|                                       |                                                                                                                                      |                           |         |                |         |      |         |         |         | 
|-------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------ | ------------------------- | ------- | -------------- | ------- | ---- | ------- | ------- | ------- | 
|                                       |                                                                                                                                      |                           |         | December 31   
|                                       |                                                                                                                                      |                           |         |               
|                                       |                                                                                                                                      |                           |         | 2001           |         | 2002
|                                       |                                                                                                                                      |                           |         |                |         |     
|                                       |                                                                                                                                      |                           |         | (in thousands)
|LIABILITIES AND STOCKHOLDERS EQUITY   |                                                                                                                                      |                           |         |                |         |      |         |        
|Current liabilities:                   |                                                                                                                                      |                           |         |                |         |      |         |        
|                                       | Accounts payable                                                                                                                     |                           | $       | 28,198         |         |      | $       | 33,655  |        
|                                       | Accrued compensation                                                                                                                 |                           |         | 32,048         |         |      |         | 32,066  |        
|                                       | Due to third-party payors                                                                                                            |                           |         | 27,699         |         |      |         | 32,611  |        
|                                       | Income taxes payable                                                                                                                 |                           |         |               |         |      |         | 1,423   |        
|                                       | Accrued expenses and other current liabilities                                                                                       |                           |         | 20,589         |         |      |         | 35,492  |        
|                                       | Current portion of long-term debt                                                                                                    |                           |         | 726            |         |      |         | 133     |        
|                                       |                                                                                                                                      |                           |         |                |         |      |         |        
|                                       |                                                                                                                                      | Total current liabilities |         |                | 109,260 |      |         |         | 135,380 | 
|Long-term debt, net of current portion |                                                                                                                                      |                           | 3,776   |                |         |      | 10,161  |        
|Deferred income taxes                  |                                                                                                                                      |                           | 12,728  |                |         |      | 19,288  |        
|Minority interest                      |                                                                                                                                      |                           | 15,034  |                |         |      | 31,406  |        
|                                       |                                                                                                                                      |                           |         |                |         |      |         |        
|                                       |                                                                                                                                      | Total liabilities         |         |                | 140,798 |      |         |         | 196,235 | 
|                                       |                                                                                                                                      |                           |         |                |         |      |         |        
|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,
49,597 and 51,176 shares issued at December 31, 2001 and 2002, respectively |                           |         | 496            |         |      |         | 512     |        
|                                       | Treasury stock, 100 and 2,983 shares of common stock at December 31, 2001 and
2002, respectively                                     |                           |         | (3,059         | )       |      |         | (93,953 | )      
|Additional paid-in capital             |                                                                                                                                      |                           | 277,300 |                |         |      | 309,355 |        
|Retained earnings                      |                                                                                                                                      |                           | 235,514 |                |         |      | 327,974 |        
|                                       |                                                                                                                                      |                           |         |                |         |      |         |        
|                                       | Total stockholders equity                                                                                                           |                           |         | 510,251        |         |      |         | 543,888 |        
|                                       |                                                                                                                                      |                           |         |                |         |      |         |        
|                                       | Total liabilities and stockholders equity                                                                                           |                           | $       | 651,049        |         |      | $       | 740,123 |        
|                                       |                                                                                                                                      |                           |         |                |         |      |         |        

See accompanying notes to consolidated financial statements.

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##### Table of Contents



Renal Care Group, Inc.

Consolidated Income Statements

|                                     |                                     |                                                  |                                    |         |                                       |         |         |         |         |         |         |         |         |         | 
|------------------------------------ | ----------------------------------- | ------------------------------------------------ | ---------------------------------- | ------- | ------------------------------------- | ------- | ------- | ------- | ------- | ------- | ------- | ------- | ------- | ------- | 
|                                     |                                     |                                                  |                                    |         | Year Ended December 31               
|                                     |                                     |                                                  |                                    |         |                                      
|                                     |                                     |                                                  |                                    |         | 2000                                  |         | 2001    |         | 2002   
|                                     |                                     |                                                  |                                    |         |                                       |         |         |         |        
|                                     |                                     |                                                  |                                    |         | (in thousands, except per share data)
|Net revenue                          |                                     | $                                                | 622,575                            |         |                                       | $       | 755,082 |         |         | $       | 903,387 |        
|Operating costs and expenses:        |                                     |                                                  |                                    |         |                                       |         |         |         |         |         |         |        
|                                     | Patient care costs                  |                                                  |                                    | 402,009 |                                       |         |         | 489,271 |         |         |         | 589,696 |        
|                                     | General and administrative expenses |                                                  |                                    | 57,104  |                                       |         |         | 64,530  |         |         |         | 78,079  |        
|                                     | Provision for doubtful accounts     |                                                  |                                    | 16,949  |                                       |         |         | 20,290  |         |         |         | 23,501  |        
|                                     | Depreciation and amortization       |                                                  |                                    | 32,321  |                                       |         |         | 38,945  |         |         |         | 40,432  |        
|                                     | Restructuring charge                |                                                  |                                    | 9,235   |                                       |         |         |        |         |         |         |        |        
|                                     | Merger expenses                     |                                                  |                                    | 3,766   |                                       |         |         |        |         |         |         |        |        
|                                     |                                     |                                                  |                                    |         |                                       |         |         |         |         |         |         |        
|                                     |                                     |                                                  | Total operating costs and expenses |         |                                       | 521,384 |         |         |         | 613,036 |         |         |         | 731,708 | 
|                                     |                                     |                                                  |                                    |         |                                       |         |         |         |         |         |         |        
|Income from operations               |                                     |                                                  | 101,191                            |         |                                       |         | 142,046 |         |         |         | 171,679 |        
|Interest expense, net                |                                     |                                                  | 5,015                              |         |                                       |         | 2,636   |         |         |         | 1,140   |        
|                                     |                                     |                                                  |                                    |         |                                       |         |         |         |         |         |         |        
|                                     |                                     | Income before income taxes and minority interest |                                    |         | 96,176                                |         |         |         | 139,410 |         |         |         | 170,539 |        
|Minority interest                    |                                     |                                                  | 10,011                             |         |                                       |         | 15,478  |         |         |         | 21,410  |        
|                                     |                                     |                                                  |                                    |         |                                       |         |         |         |         |         |         |        
|                                     |                                     | Income before income taxes                       |                                    |         | 86,165                                |         |         |         | 123,932 |         |         |         | 149,129 |        
|Provision for income taxes           |                                     |                                                  | 34,706                             |         |                                       |         | 47,331  |         |         |         | 56,669  |        
|                                     |                                     |                                                  |                                    |         |                                       |         |         |         |         |         |         |        
|                                     |                                     | Net income                                       |                                    | $       | 51,459                                |         |         | $       | 76,601  |         |         | $       | 92,460  |        
|                                     |                                     |                                                  |                                    |         |                                       |         |         |         |         |         |         |        
|Net income per share:                |                                     |                                                  |                                    |         |                                       |         |         |         |         |         |         |        
|                                     | Basic                               |                                                  | $                                  | 1.12    |                                       |         | $       | 1.59    |         |         | $       | 1.89    |        
|                                     |                                     |                                                  |                                    |         |                                       |         |         |         |         |         |         |        
|                                     | Diluted                             |                                                  | $                                  | 1.07    |                                       |         | $       | 1.52    |         |         | $       | 1.82    |        
|                                     |                                     |                                                  |                                    |         |                                       |         |         |         |         |         |         |        
|Weighted average shares outstanding: |                                     |                                                  |                                    |         |                                       |         |         |         |         |         |         |        
|                                     | Basic                               |                                                  |                                    | 46,048  |                                       |         |         | 48,113  |         |         |         | 48,978  |        
|                                     |                                     |                                                  |                                    |         |                                       |         |         |         |         |         |         |        
|                                     | Diluted                             |                                                  |                                    | 47,948  |                                       |         |         | 50,433  |         |         |         | 50,767  |        
|                                     |                                     |                                                  |                                    |         |                                       |         |         |         |         |         |         |        

See accompanying notes to consolidated financial statements.

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##### Table of Contents



Renal Care Group, Inc.

Consolidated Statements of Stockholders Equity
(in thousands)

|                             |            |                                                    |        |              |                |        |     |         |    |          |       |               |       |          |         |        |         |   |         |            |        |   |         |        |        |       |         |        |         |  
|---------------------------- | ---------- | -------------------------------------------------- | ------ | ------------ | -------------- | ------ | --- | ------- | -- | -------- | ----- | ------------- | ----- | -------- | ------- | ------ | ------- | - | ------- | ---------- | ------ | - | ------- | ------ | ------ | ----- | ------- | ------ | ------- | -
|                             |            |                                                    |        |              |                |        |     |         |    |          |       |               |       |          |         |        |         |   |         | Additional |        |   |         |        |        | Total
|                             |            |                                                    |        | Common Stock | Treasury Stock |        |     | Paid-In |    | Retained |       | Stockholders'
|                             |            |                                                    |        | Shares       |                | Amount |     | Shares  |    | Amount   |       | Capital       |       | Earnings |         | Equity
|                             |            |                                                    |        |              |                |        |     |         |    |          |       |               |       |          |         |       
|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 |       
|                             |            | Net income                                         |        |              |               |        |     |         |   |          |       |               |      |          |         |        |        |   |         |            |       |   |         |        | 92,460 |       |         |        | 92,460  |  
|                             |            | Common stock issued and related
income tax benefit |        |              | 1,579          |        |     |         | 16 |          |       |               |      |          |         |        |        |   |         |            | 32,055 |   |         |        |       |       |         |        | 32,071  |  
|                             |            | Repurchase of common stock held in
treasury        |        |              |               |        |     |         |   |          |       |               | 2,883 |          |         |        | (90,894 | ) |         |            |       |   |         |        |       |       |         |        | (90,894 | )
|                             |            |                                                    |        |              |                |        |     |         |    |          |       |               |       |          |         |        |         |   |         |            |        |   |         |        |        |       |         |       
|Balance at December 31, 2002 |            |                                                    | 51,176 |              |                | $      | 512 |         |    |          | 2,983 |               |       | $        | (93,953 | )      |         | $ | 309,355 |            |        | $ | 327,974 |        |        | $     | 543,888 |       
|                             |            |                                                    |        |              |                |        |     |         |    |          |       |               |       |          |         |        |         |   |         |            |        |   |         |        |        |       |         |       

See accompanying notes to consolidated financial statements.

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##### Table of Contents



Renal Care Group, Inc.

Consolidated Statements of Cash Flows

|                                                                                  |                                                                                |                                                |                                           |        |                        |         |         |         |                |          |         |        |         |         |  
|--------------------------------------------------------------------------------- | ------------------------------------------------------------------------------ | ---------------------------------------------- | ----------------------------------------- | ------ | ---------------------- | ------- | ------- | ------- | -------------- | -------- | ------- | ------ | ------- | ------- | -
|                                                                                  |                                                                                |                                                |                                           |        | Year Ended December 31
|                                                                                  |                                                                                |                                                |                                           |        |                       
|                                                                                  |                                                                                |                                                |                                           |        | 2000                   |         | 2001    |         | 2002          
|                                                                                  |                                                                                |                                                |                                           |        |                        |         |         |         |               
|                                                                                  |                                                                                |                                                |                                           |        |                        |         |         |         | (in thousands) |          |         |        |        
|OPERATING ACTIVITIES                                                              |                                                                                |                                                |                                           |        |                        |         |         |         |                |          |         |       
|Net income                                                                        |                                                                                | $                                              | 51,459                                    |        |                        | $       | 76,601  |         |                | $        | 92,460  |       
|Adjustments to reconcile net income to net cash provided by operating activities: |                                                                                |                                                |                                           |        |                        |         |         |         |                |          |         |       
|                                                                                  | Depreciation and amortization                                                  |                                                |                                           | 32,321 |                        |         |         | 38,945  |                |          |         | 40,432 |        
|                                                                                  | Loss on sale of property and equipment                                         |                                                |                                           | 567    |                        |         |         | 1,266   |                |          |         | 1,167  |        
|                                                                                  | Income applicable to minority interest                                         |                                                |                                           | 10,011 |                        |         |         | 15,478  |                |          |         | 21,410 |        
|                                                                                  | Distributions to minority shareholders                                         |                                                |                                           | (7,333 | )                      |         |         | (16,446 | )              |          |         | (7,934 | )      
|                                                                                  | Deferred income taxes                                                          |                                                |                                           | 2,016  |                        |         |         | 1,488   |                |          |         | 11,214 |        
|                                                                                  | Loss from restructuring                                                        |                                                |                                           | 9,235  |                        |         |         |        |                |          |         |       |        
|                                                                                  | Changes in operating assets and liabilities, net of effects from acquisitions: |                                                |                                           |        |                        |         |         |         |                |          |         |        |        
|                                                                                  |                                                                                | Accounts receivable                            |                                           |        | (20,863                | )       |         |         | (4,240         | )        |         |        | (23,814 | )      
|                                                                                  |                                                                                | Inventories                                    |                                           |        | 113                    |         |         |         | (2,832         | )        |         |        | (6,587  | )      
|                                                                                  |                                                                                | Prepaid expenses and other current assets      |                                           |        | (5,757                 | )       |         |         | 604            |          |         |        | (902    | )      
|                                                                                  |                                                                                | Accounts payable                               |                                           |        | 3,500                  |         |         |         | 2,247          |          |         |        | 5,369   |        
|                                                                                  |                                                                                | Accrued compensation                           |                                           |        | 9,898                  |         |         |         | 2,625          |          |         |        | 18      |        
|                                                                                  |                                                                                | Due to third-party payors                      |                                           |        | 4,773                  |         |         |         | 649            |          |         |        | 4,712   |        
|                                                                                  |                                                                                | Accrued expenses and other current liabilities |                                           |        | (2,749                 | )       |         |         | 5,168          |          |         |        | 12,747  |        
|                                                                                  |                                                                                | Income taxes                                   |                                           |        | 2,510                  |         |         |         | 11,648         |          |         |        | 18,331  |        
|                                                                                  |                                                                                |                                                |                                           |        |                        |         |         |         |                |          |         |       
|                                                                                  |                                                                                |                                                | Net cash provided by operating activities |        |                        | 89,701  |         |         |                | 133,201  |         |        |         | 168,623 |  
|INVESTING ACTIVITIES                                                              |                                                                                |                                                |                                           |        |                        |         |         |         |                |          |         |       
|Proceeds from sale of property and equipment                                      |                                                                                |                                                | 4,390                                     |        |                        |         | 1,078   |         |                |          | 218     |       
|Purchases of property and equipment                                               |                                                                                |                                                | (45,741                                   | )      |                        |         | (65,672 | )       |                |          | (61,551 | )     
|Cash paid for acquisitions, net of cash acquired                                  |                                                                                |                                                | (28,063                                   | )      |                        |         | (38,403 | )       |                |          | (40,495 | )     
|(Decrease) increase in other assets                                               |                                                                                |                                                | (331                                      | )      |                        |         | (4,415  | )       |                |          | 4,408   |       
|                                                                                  |                                                                                |                                                |                                           |        |                        |         |         |         |                |          |         |       
|                                                                                  |                                                                                |                                                | Net cash used in investing activities     |        |                        | (69,745 | )       |         |                | (107,412 | )       |        |         | (97,420 | )
|FINANCING ACTIVITIES                                                              |                                                                                |                                                |                                           |        |                        |         |         |         |                |          |         |       
|Net (payments) borrowings under line of credit                                    |                                                                                |                                                | (20,229                                   | )      |                        |         | (54,000 | )       |                |          | 7,394   |       
|Payments on long-term debt                                                        |                                                                                |                                                | (13,207                                   | )      |                        |         | (516    | )       |                |          | (1,884  | )     
|Proceeds from issuance of long-term debt                                          |                                                                                |                                                | 2,879                                     |        |                        |         |        |         |                |          |        |       
|Net proceeds from issuance of common stock                                        |                                                                                |                                                | 24,399                                    |        |                        |         | 29,307  |         |                |          | 22,221  |       
|Repurchase of treasury shares                                                     |                                                                                |                                                |                                          |        |                        |         | (3,059  | )       |                |          | (90,894 | )     
|Proceeds from sale of minority interest investment                                |                                                                                |                                                |                                          |        |                        |         |        |         |                |          | 2,896   |       
|                                                                                  |                                                                                |                                                |                                           |        |                        |         |         |         |                |          |         |       
|                                                                                  |                                                                                | Net cash used in financing activities          |                                           |        | (6,158                 | )       |         |         | (28,268        | )        |         |        | (60,267 | )      
|Increase (decrease) in cash and cash equivalents                                  |                                                                                |                                                | 13,798                                    |        |                        |         | (2,479  | )       |                |          | 10,936  |       
|Cash and cash equivalents, at beginning of year                                   |                                                                                |                                                | 16,104                                    |        |                        |         | 29,902  |         |                |          | 27,423  |       
|                                                                                  |                                                                                |                                                |                                           |        |                        |         |         |         |                |          |         |       
|Cash and cash equivalents, at end of year                                         |                                                                                | $                                              | 29,902                                    |        |                        | $       | 27,423  |         |                | $        | 38,359  |       
|                                                                                  |                                                                                |                                                |                                           |        |                        |         |         |         |                |          |         |       

See accompanying notes to consolidated financial statements.

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##### Table of Contents



Renal Care Group, Inc.
Consolidated Statements of Cash Flows

|                                      |                                |                                                  |   |                        |        |      |   |                |        |  |   |        |        | 
|------------------------------------- | ------------------------------ | ------------------------------------------------ | - | ---------------------- | ------ | ---- | - | -------------- | ------ |  | - | ------ | ------ | 
|                                      |                                |                                                  |   | Year Ended December 31
|                                      |                                |                                                  |   |                       
|                                      |                                |                                                  |   | 2000                   |        | 2001 |   | 2002          
|                                      |                                |                                                  |   |                        |        |      |   |               
|                                      |                                |                                                  |   |                        |        |      |   | (in thousands) |        |  |   |       
|DISCLOSURES OF CASH FLOW INFORMATION: |                                |                                                  |   |                        |        |      |   |                |        |  |   |       
|                                      | Cash paid during the year for: |                                                  |   |                        |        |      |   |                |        |  |   |        |       
|                                      |                                | Interest                                         |   | $                      | 5,237  |      |   | $              | 2,520  |  |   | $      | 782    | 
|                                      |                                |                                                  |   |                        |        |      |   |                |        |  |   |       
|                                      |                                | Income taxes                                     |   | $                      | 32,768 |      |   | $              | 48,963 |  |   | $      | 27,126 | 
|                                      |                                |                                                  |   |                        |        |      |   |                |        |  |   |       
|DISCLOSURES OF BUSINESS ACQUISITIONS: |                                |                                                  |   |                        |        |      |   |                |        |  |   |       
|                                      | Fair value of assets acquired  |                                                  | $ | 29,721                 |        |      | $ | 39,108         |        |  | $ | 41,478 |       
|                                      | Liabilities assumed            |                                                  |   | 1,658                  |        |      |   | 705            |        |  |   | 983    |       
|                                      |                                |                                                  |   |                        |        |      |   |                |        |  |   |       
|                                      |                                | Cash paid for acquisitions, net of cash acquired |   | $                      | 28,063 |      |   | $              | 38,403 |  |   | $      | 40,495 | 
|                                      |                                |                                                  |   |                        |        |      |   |                |        |  |   |       

See accompanying notes to consolidated financial statements.

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##### Table of Contents



Renal Care Group, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)

December 31, 2002

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, 2002, the Company provided dialysis and ancillary services to
approximately 20,500 patients through 268 outpatient dialysis centers in 27
states. In addition to its outpatient dialysis center operations, as of
December 31, 2002, the Company provided acute dialysis services through
contractual relationships with approximately 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
entities over which the Company exercises majority-voting control and for which
control is other than temporary. All significant intercompany transactions and
accounts are eliminated in consolidation.

Use of Estimates

Management 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 the related lease terms or the useful
lives.

Goodwill and Other Intangibles

Effective June 29, 2001, the Financial Accounting Standards Board approved
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 changed the criteria to recognize intangible assets apart
from goodwill. The Company adopted SFAS No. 142
on January 1, 2002. The Company has complied with the transitional
requirements of this statement and accordingly during 2001, the Company did not
amortize goodwill or intangible assets with indefinite lives acquired after
June 30, 2001. During

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2001, the Company did amortize all goodwill and
intangibles acquired prior to July 1, 2001 in accordance with APB Opinion No.
16, Business Combinations. During 2002, the Company did not amortize any
goodwill or intangibles with indefinite lives in accordance with SFAS No. 142.

As of December 31, 2001 and 2002, the carrying amount of goodwill was $243,530
and $275,666, respectively. Goodwill acquired prior to July 1, 2001, was
determined based on the criteria defined in APB Opinion No. 16, Business
Combinations. 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 equated to a blended
average of 35 years. Also during 2001 separable intangible assets with finite
lives, such as non-competition agreements, acquired after June 30, 2001 were
amortized over the estimated useful life of such assets. During 2002 separable
intangible assets with definite lives, such as non-competition agreements and acute dialysis services
agreements were amortized over the estimated useful lives of such assets.

Due to Third-Party Payors

Amounts reflected as due to third-party payors include amounts received in
excess of revenue recognized for specific billed charges. These 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, these amounts
remain in due to third-party payors until either a refund is made or the amount
is recouped by the payor.

Minority Interest

Minority interest represents the proportionate equity interest of other owners
in the Companys consolidated entities that are not wholly owned. As of
December 31, 2002, the Company was the majority and controlling owner in 39
joint ventures.

Stock Based Compensation

In December 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure(SFAS No. 148), which amended SFAS No.
123, Accounting for Stock-Based Compensation(SFAS No. 123). SFAS No. 148
provides alternative methods of transition for a voluntary change to the fair
value-based method of accounting for stock-based employee compensation and
amends the disclosure requirements of SFAS No. 123 to require more prominent
and more frequent disclosures in financial statements about the effects of
stock-based compensation. SFAS No. 148 is effective for financial statements
issued for fiscal years ending after December 15, 2002, and interim disclosure
provisions are effective for financial reports containing financial statements
for interim periods beginning after December 15, 2002. The Company has elected
to account for its stock-based compensation plans under the intrinsic
value-based method of accounting prescribed by Accounting Principles Board
Opinion No. 25 Accounting for Stock Issued to Employees,and does not utilize
the fair value method. However, the Company has adopted the disclosure
requirements of SFAS No. 123, and has adopted the additional disclosure
requirements as specified in SFAS No. 148 for the year-ended December 31, 2002.

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 erythropoietin (EPO) and other drugs;

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| |  |  | 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:

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. Some 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

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 approximated 58%, 55% and 57% of net
revenue for the years ended December 31, 2000, 2001 and 2002, 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 regularly reviewing detailed accounts receivable agings.

Income Taxes

The Company accounts for income taxes under the asset and liability method. The
Company recognizes deferred tax assets and liabilities 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 for the change.

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Self Insurance

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 malpractice claims exceeding certain individual
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 risks using
third party actuarial calculations that include historical claims data,
demographic factors and other assumptions. Workers compensation risks are
estimated by the Company using historical claims data and other assumptions.

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 45% of gross accounts receivable at December 31, 2001 and
2002. 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 Company administers EPO to most of its patients to treat 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 year
ended December 31, 2000, 25% of the net revenue of the Company for the year
ended December 31, 2001 and 23% of the net revenue of the Company for the year
ended December 31, 2002. EPO is produced by a single manufacturer.

Impairment of Goodwill and Long-Lived Assets

The Company reviews goodwill, long-lived assets and identifiable intangible assets for impairment
at least annually and 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 the assets to the present value of future net cash flows expected to be
generated by the assets. If assets are identified as impaired, the impairment
is measured by the amount by which the carrying amount of the assets exceeds
the fair value of the assets as determined by independent appraisals or
estimates of
discounted future cash flows. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell. As of December
31, 2002, in the opinion of management, there has been no impairment of
goodwill, long-lived assets or identifiable intangible assets.

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Reclassifications

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

3.     BUSINESS ACQUISITIONS

2002 Acquisitions

During 2002, the Company completed eight acquisitions, which were accounted for
under the purchase method of accounting. The combined purchase price paid in
these acquisitions was $40,495 and consisted exclusively of cash. Each of the
transactions involved the acquisition of assets of entities that provide care
to ESRD patients through owned dialysis facilities. 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 the acquisitions
completed in 2002:

|                                   |                     |                           |        |        |        | 
|---------------------------------- | ------------------- | ------------------------- | ------ | ------ | ------ | 
|Accounts receivable                |                     | $                         | 1,570  |       
|Inventory                          |                     |                           | 457    |       
|Property, plant and equipment, net |                     |                           | 3,329  |       
|Intangible assets                  |                     |                           | 3,986  |       
|Goodwill                           |                     |                           | 32,136 |       
|                                   |                     |                           |        |       
|                                   |                     | Total assets acquired     |        |        | 41,478 | 
|                                   |                     | Total liabilities assumed |        |        | 983    | 
|                                   |                     |                           |        |       
|                                   | Net assets acquired |                           | $      | 40,495 |       
|                                   |                     |                           |        |       

The Company began recording the results of operations for each of these
acquired businesses at the effective date of the transaction. Goodwill
resulting from these transactions amounted to $32,136 and was not amortized
during 2002 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 and acute dialysis service agreements entered into in the transactions. These amounts are amortized over
the lives of the contracts, which generally range from five to ten years.

2001 Acquisitions

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

|                                   |                     |                           |        |        |        | 
|---------------------------------- | ------------------- | ------------------------- | ------ | ------ | ------ | 
|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 |       
|                                   |                     |                           |        |       

The Company began recording the results of operations for each of these
acquired businesses at the effective date of the transaction. Three of the
five transactions were completed prior to July 1, 2001 and resulted in goodwill
and other intangible assets of $6,428. This goodwill and other
intangible assets was amortized during 2001 using a 35-year blended useful life.
The other two transactions were completed after June 30, 2001. Goodwill
resulting from these transactions was $24,077 and was not amortized during 2001
in accordance with the requirements of SFAS No. 142. None of the goodwill from
2001 transactions was amortized during 2002. 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 entered into in the transactions. These amounts
are amortized over the lives of the contracts, which generally range from five
to ten years.

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2000 Acquisitions

During 2000, the Company completed three acquisitions accounted for under the
purchase method of accounting. The combined purchase price paid in these
transactions was $28,063, and consisted exclusively of cash. All of these
transactions involved the acquisition of assets of entities that provided care
to ESRD patients through owned dialysis 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
$27,832. For reporting periods prior to 2002, goodwill and other intangibles
were amortized on a straight-line basis over an average of 35 years. The
Company began recording the results of operations from these acquired
businesses beginning with the effective date of each transaction.

Pro Forma Data (unaudited)

The following summary, prepared on a pro forma basis, combines the results of
operations of the Company and the acquired businesses, 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.

|                               |         |   |         |      |      |   |         |      |  |   |         |      | 
|------------------------------ | ------- | - | ------- | ---- | ---- | - | ------- | ---- |  | - | ------- | ---- | 
|                               |         |   | 2000    |      | 2001 |   | 2002   
|                               |         |   |         |      |      |   |        
|Pro forma net revenue          |         | $ | 695,952 |      |      | $ | 794,409 |      |  | $ | 922,091 |     
|                               |         |   |         |      |      |   |         |      |  |   |         |     
|Pro forma net income           |         | $ | 55,558  |      |      | $ | 77,492  |      |  | $ | 92,871  |     
|                               |         |   |         |      |      |   |         |      |  |   |         |     
|Pro forma net income per share |         |   |         |      |      |   |         |      |  |   |         |     
|                               | Basic   |   | $       | 1.21 |      |   | $       | 1.61 |  |   | $       | 1.90 | 
|                               |         |   |         |      |      |   |         |      |  |   |         |     
|                               | Diluted |   | $       | 1.16 |      |   | $       | 1.54 |  |   | $       | 1.83 | 
|                               |         |   |         |      |      |   |         |      |  |   |         |     

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

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 some of the assets and
transferred some of the 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 were no remaining accrued
expenses as of December 31, 2001 that related to this restructuring charge.

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5.     PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

|                                |  |              |         |      |  |   |          |  
|------------------------------- |  | ------------ | ------- | ---- |  | - | -------- | -
|                                |  | December 31,
|                                |  |             
|                                |  | 2001         |         | 2002
|                                |  |              |         |     
|Medical equipment               |  | $            | 102,387 |      |  | $ | 124,347  |  
|Computer software and equipment |  |              | 48,249  |      |  |   | 58,285   |  
|Furniture and fixtures          |  |              | 23,380  |      |  |   | 24,532   |  
|Leasehold improvements          |  |              | 67,072  |      |  |   | 84,807   |  
|Buildings                       |  |              | 19,990  |      |  |   | 24,862   |  
|Construction-in-progress        |  |              | 12,134  |      |  |   | 10,437   |  
|                                |  |              |         |      |  |   |          |  
|                                |  |              | 273,212 |      |  |   | 327,270  |  
|Less accumulated depreciation   |  |              | (97,287 | )    |  |   | (124,298 | )
|                                |  |              |         |      |  |   |          |  
|                                |  | $            | 175,925 |      |  | $ | 202,972  |  
|                                |  |              |         |      |  |   |          |  

Depreciation expense was $24,673, $30,836 and $38,191 for the years ended
December 31, 2000, 2001 and 2002, respectively.

6.     GOODWILL AND INTANGIBLE ASSETS

The Company adopted SFAS No. 142, Goodwill and Other Intangible Assets, which
addresses the financial accounting and reporting standards for the acquisition
of intangible assets and for goodwill and other intangible assets subsequent to
the acquisition. This accounting standard requires the Company to disclose
goodwill separately from other intangible assets in the balance sheet and
provides that the Company no longer amortize goodwill. Instead, goodwill is
tested for impairment on a periodic basis. The provisions of this accounting
standard required the Company to complete a transitional impairment test within
six months after the Company adopted this standard, with any identified
impairments treated as a cumulative effect of a change in accounting principle.
The Company completed its transitional and annual impairment tests and identified no
impairments.

In accordance with SFAS No. 142, the Company discontinued the amortization of
goodwill effective January 1, 2002. A reconciliation of previously reported net
income and earnings per share to the pro forma amounts adjusted for the
exclusion of goodwill amortization net of the related income tax effect
follows:

|                                              |  |              |        |      |  |   |        | 
|--------------------------------------------- |  | ------------ | ------ | ---- |  | - | ------ | 
|                                              |  | Year Ended  
|                                              |  | December 31,
|                                              |  |             
|                                              |  | 2001         |        | 2002
|                                              |  |              |        |     
|Reported net income                           |  | $            | 76,601 |      |  | $ | 92,460 | 
|Add: goodwill amortization, net of tax        |  |              | 3,956  |      |  |   |       | 
|                                              |  |              |        |      |  |   |        | 
|Pro forma adjusted net income                 |  | $            | 80,557 |      |  | $ | 92,460 | 
|                                              |  |              |        |      |  |   |        | 
|Reported basic earnings per share             |  | $            | 1.59   |      |  | $ | 1.89   | 
|Add: goodwill amortization, net of tax        |  |              | 0.08   |      |  |   |       | 
|                                              |  |              |        |      |  |   |        | 
|Pro forma adjusted basic earnings per share   |  | $            | 1.67   |      |  | $ | 1.89   | 
|                                              |  |              |        |      |  |   |        | 
|Reported diluted earnings per share           |  | $            | 1.52   |      |  | $ | 1.82   | 
|Add: goodwill amortization, net of tax        |  |              | 0.08   |      |  |   |       | 
|                                              |  |              |        |      |  |   |        | 
|Pro forma adjusted diluted earnings per share |  | $            | 1.60   |      |  | $ | 1.82   | 
|                                              |  |              |        |      |  |   |        | 

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Changes in the carrying amount of goodwill for the year ended December 31,
2002, are as follows:

|                                    |  |   |         | 
|----------------------------------- |  | - | ------- | 
|Balance as of December 31, 2001     |  | $ | 243,530 | 
|Goodwill acquired during the period |  |   | 32,136  | 
|                                    |  |   |         | 
|Balance as of December 31, 2002     |  | $ | 275,666 | 
|                                    |  |   |         | 

The Companys separately identifiable intangible assets, which consist of
non-competition agreements and acute dialysis services agreements, are as follows:

|                         |  |              |        |      |  |   |        |  
|------------------------ |  | ------------ | ------ | ---- |  | - | ------ | -
|                         |  | December 31,
|                         |  |             
|                         |  | 2001         |        | 2002
|                         |  |              |        |     
|Carrying Amount          |  | $            | 16,090 |      |  | $ | 20,076 |  
|Accumulated amortization |  |              | (5,725 | )    |  |   | (7,966 | )
|                         |  |              |        |      |  |   |        |  
|Net                      |  | $            | 10,365 |      |  | $ | 12,110 |  
|                         |  |              |        |      |  |   |        |  

Separately identifiable intangible assets are being amortized over their useful
lives, ranging from five to ten years. Amortization expense for the year ended
December 31, 2002 was approximately $2,241. Estimated amortization expense for
each of the next five fiscal years is as follows:

|                         |  |        |       | 
|------------------------ |  | ------ | ----- | 
|Year ending December 31, |  | Amount
|                         |  |       
|2003                     |  | $      | 2,287 | 
|2004                     |  |        | 2,287 | 
|2005                     |  |        | 2,287 | 
|2006                     |  |        | 2,142 | 
|2007                     |  |        | 1,178 | 

7. LONG-TERM DEBT

Long-term debt consists of the following:

|                                                                           |  |              |       |      |  |   |        | 
|-------------------------------------------------------------------------- |  | ------------ | ----- | ---- |  | - | ------ | 
|                                                                           |  | December 31,
|                                                                           |  |             
|                                                                           |  | 2001         |       | 2002
|                                                                           |  |              |       |     
|Line of credit, bearing interest at LIBO rate
(3.96% at December 31, 2002) |  | $            |      |      |  | $ | 7,394  | 
|Equipment note payable                                                     |  |              | 1,482 |      |  |   |       | 
|Other                                                                      |  |              | 3,020 |      |  |   | 2,900  | 
|                                                                           |  |              |       |      |  |   |        | 
|                                                                           |  |              | 4,502 |      |  |   | 10,294 | 
|Less current portion                                                       |  |              | 726   |      |  |   | 133    | 
|                                                                           |  |              |       |      |  |   |        | 
|                                                                           |  | $            | 3,776 |      |  | $ | 10,161 | 
|                                                                           |  |              |       |      |  |   |        | 

Lines of Credit

Effective July 1, 2002, Renal Care Group entered into two credit agreements
with a group of banks totaling $150,000 consisting of a $100,000 Second Amended
and Restated Loan Agreement (the Multi-Year Facility) and a $50,000 Loan
Agreement (the 364-day Facility). The Multi-Year Facility has a final
maturity of July 1, 2005 and the 364-day Facility has a final maturity of June
30, 2003. The Multi-Year Facility replaced the Companys First Amended and
Restated Loan Agreement. Borrowings under the credit agreements may be used
for acquisitions, capital expenditures, working capital and
general corporate purposes. No more than $25,000 of either credit agreement
may be used for any single acquisition without the consent of the lenders.
These variable rate debt instruments carry a degree of interest rate risk.
Specifically, variable rate

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debt may result in higher costs to the Company if
interest rates rise. Each of Renal Care Groups wholly-owned subsidiaries has
guaranteed all of Renal Care Groups obligations under the loan agreements.

Further, Renal Care Groups obligations under the loan agreements, 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 these commitments. The Company was in compliance with all such
covenants at December 31, 2002. As of December 31, 2002, there was $7,394
outstanding under the Multi-Year Facility and the 364-Day Facility, and the Company had $142,606
available under these agreements.

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, 2002 are as follows:

|           |  |   |        | 
|---------- |  | - | ------ | 
|2003       |  | $ | 133    | 
|2004       |  |   | 269    | 
|2005       |  |   | 7,467  | 
|2006       |  |   | 94     | 
|2007       |  |   | 119    | 
|Thereafter |  |   | 2,212  | 
|           |  |   |        | 
|           |  | $ | 10,294 | 
|           |  |   |        | 

8.     INCOME TAXES

The provision for income taxes consists of the following:

|          |                            |  |                         |        |      |  |        |        |  |  |        |        | 
|--------- | -------------------------- |  | ----------------------- | ------ | ---- |  | ------ | ------ |  |  | ------ | ------ | 
|          |                            |  | Year Ended December 31,
|          |                            |  |                        
|          |                            |  | 2000                    |        | 2001 |  | 2002  
|          |                            |  |                         |        |      |  |       
|Current:  |                            |  |                         |        |      |  |        |        |  |  |        |       
|          | Federal                    |  | $                       | 30,012 |      |  | $      | 42,002 |  |  | $      | 40,205 | 
|          | State and local            |  |                         | 2,678  |      |  |        | 3,841  |  |  |        | 5,250  | 
|          |                            |  |                         |        |      |  |        |        |  |  |        |       
|          |                            |  | 32,690                  |        |      |  | 45,843 |        |  |  | 45,455 |       
|          |                            |  |                         |        |      |  |        |        |  |  |        |       
|Deferred: |                            |  |                         |        |      |  |        |        |  |  |        |       
|          | Federal                    |  |                         | 1,781  |      |  |        | 1,364  |  |  |        | 10,079 | 
|          | State and local            |  |                         | 235    |      |  |        | 124    |  |  |        | 1,135  | 
|          |                            |  |                         |        |      |  |        |        |  |  |        |       
|          |                            |  | 2,016                   |        |      |  | 1,488  |        |  |  | 11,214 |       
|          |                            |  |                         |        |      |  |        |        |  |  |        |       
|          | Provision for income taxes |  | $                       | 34,706 |      |  | $      | 47,331 |  |  | $      | 56,669 | 
|          |                            |  |                         |        |      |  |        |        |  |  |        |       

At December 31, 2002, the Company has net operating loss carryforwards of
approximately $175,000 for state income tax purposes that expire in years 2002
through 2022, and a capital loss carryforward of approximately $2,000, which
expires in 2006. The utilization of the state net operating loss carryforwards
in future years is dependent upon the profitability of certain subsidiary
corporations. The utilization of the capital loss carryforward requires capital
gain income in the future. Therefore, the Company has recorded a valuation
allowance of $6,041 against the deferred tax asset attributable to the state
net operating loss carryforwards and the capital loss carryforward, which
represents an increase in the valuation allowance of $2,702 in 2002.

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.

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

|                                   |                                                |   |              |        |      |   |        |        |  
|---------------------------------- | ---------------------------------------------- | - | ------------ | ------ | ---- | - | ------ | ------ | -
|                                   |                                                |   | December 31,
|                                   |                                                |   |             
|                                   |                                                |   | 2001         |        | 2002
|                                   |                                                |   |              |        |     
|Deferred tax assets:               |                                                |   |              |        |      |   |        |       
|                                   | Net operating loss carryforwards               |   | $            | 3,414  |      |   | $      | 5,282  |  
|                                   | Capital loss carryforward                      |   |              |       |      |   |        | 759    |  
|                                   | Allowance for doubtful accounts                |   |              | 13,745 |      |   |        | 7,258  |  
|                                   | Accrued vacation and other accrued liabilities |   |              | 6,753  |      |   |        | 9,367  |  
|                                   | Other                                          |   |              |       |      |   |        | 106    |  
|                                   | Less: Valuation allowance                      |   |              | (3,339 | )    |   |        | (6,041 | )
|                                   |                                                |   |              |        |      |   |        |       
|                                   |                                                |   | 20,573       |        |      |   | 16,731 |       
|                                   |                                                |   |              |        |      |   |        |       
|Deferred tax liabilities:          |                                                |   |              |        |      |   |        |       
|                                   | Depreciation                                   |   |              | 6,128  |      |   |        | 8,572  |  
|                                   | Amortization                                   |   |              | 8,308  |      |   |        | 12,788 |  
|                                   | Investments in partnerships                    |   |              | 1,705  |      |   |        | 2,419  |  
|                                   | Other                                          |   |              | 266    |      |   |        |       |  
|                                   |                                                |   |              |        |      |   |        |       
|                                   |                                                |   | 16,407       |        |      |   | 23,779 |       
|                                   |                                                |   |              |        |      |   |        |       
|Net deferred tax asset (liability) |                                                | $ | 4,166        |        |      | $ | (7,048 | )     
|                                   |                                                |   |              |        |      |   |        |       

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:

|                                                    |  |                         |      |      |  |      |      |   |  |  |      |  
|--------------------------------------------------- |  | ----------------------- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                                                    |  | Year Ended December 31,
|                                                    |  |                        
|                                                    |  | 2000                    |      | 2001 |  | 2002
|                                                    |  |                         |      |      |  |     
|U.S. federal income tax rate                        |  |                         | 35.0 | %    |  |      | 35.0 | % |  |  | 35.0 | %
|State income tax, net of federal
income tax benefit |  |                         | 3.0  |      |  |      | 2.5  |   |  |  | 1.2  |  
|Increase in valuation allowances                    |  |                         | 1.0  |      |  |      | 0.1  |   |  |  | 1.8  |  
|Other                                               |  |                         | 1.3  |      |  |      | 0.6  |   |  |  |     |  
|                                                    |  |                         |      |      |  |      |      |   |  |  |      |  
|Effective income tax rate                           |  |                         | 40.3 | %    |  |      | 38.2 | % |  |  | 38.0 | %
|                                                    |  |                         |      |      |  |      |      |   |  |  |      |  

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9.     STOCKHOLDERS EQUITY (in thousands, except per share amounts)

Stock Option Plans

As of December 31, 2002, the Company had six stock option plans. The Company
has also issued 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 generally 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 5,500 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. The Company 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. The Company 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, and SFAS No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure,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.

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##### Table of Contents



The following is a summary of option transactions during the period from
January 1, 1999 through December 31, 2002:

|                                         |           |  |          |      |          |  |          |       |        |  |       |        |           |  |      |    |                |  |          |    |   |  |     |    |   |  |    |     |   |  |                |               |  |   |          |       | 
|---------------------------------------- | --------- |  | -------- | ---- | -------- |  | -------- | ----- | ------ |  | ----- | ------ | --------- |  | ---- | -- | -------------- |  | -------- | -- | - |  | --- | -- | - |  | -- | --- | - |  | -------------- | ------------- |  | - | -------- | ----- | 
|                                         |           |  |          |      |          |  |          |       |        |  |       |        |           |  |      |    |                |  |          |    |   |  |     |    |   |  |    |     |   |  |                |               |  |   | Weighted
|                                         |           |  |          |      |          |  | 1999     |       | 1996   |  |       |        |           |  |      |    |                |  |          |    |   |  |     |    |   |  |    |     |   |  | Average       
|                                         |           |  | Free     |      | Employee |  | Employee |       | Equity |  | 1994  |        | Directors |  | RDM  |    | Exercise Price |  | Exercise
|                                         |           |  | Standing |      | Plan     |  | Plan     |       | Plan   |  | Plan  |        | Plan      |  | Plan |    | Range          |  | Price   
|                                         |           |  |          |      |          |  |          |       |        |  |       |        |           |  |      |    |                |  |         
|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    |      
|                                         | Granted   |  |          |     |          |  |          | 1,920 |        |  |       |       |           |  |      |   |                |  |          |   |   |  |     | 11 |   |  |    |    |   |  |                | 28.30  32.70 |  |   |          | 28.41 | 
|                                         | Exercised |  |          | (273 | )        |  |          | (486  | )      |  |       | (704   | )         |  |      |   |                |  |          |   |   |  |     | (5 | ) |  |    | (6  | ) |  |                | 3.33  29.63  |  |   |          | 15.23 | 
|                                         | Forfeited |  |          | (1   | )        |  |          | (64   | )      |  |       | (55    | )         |  |      |   |                |  |          |   |   |  |     |   |   |  |    |    |   |  |                | 14.06  28.39 |  |   |          | 19.12 | 
|                                         |           |  |          |      |          |  |          |       |        |  |       |        |           |  |      |    |                |  |          |    |   |  |     |    |   |  |    |     |   |  |                |               |  |   |          |      
|Balance at
December 31, 2002             |           |  | 617      |      |          |  | 4,400    |       |        |  | 1,931 |        |           |  | 17   |    |                |  | 8        |    |   |  | 73  |    |   |  | 14 |     |   |  | $3.33  $32.70 |               |  | $ | 21.66    |      
|                                         |           |  |          |      |          |  |          |       |        |  |       |        |           |  |      |    |                |  |          |    |   |  |     |    |   |  |    |     |   |  |                |               |  |   |          |      
|Available for grant at
December 31, 2002 |           |  |         |      |          |  | 313      |       |        |  | 129   |        |           |  |     |    |                |  |         |    |   |  | 135 |    |   |  |   |     |   |  |                |               |  |   |          |      
|                                         |           |  |          |      |          |  |          |       |        |  |       |        |           |  |      |    |                |  |          |    |   |  |     |    |   |  |    |     |   |  |                |               |  |   |          |      
|Exercisable at
December 31, 2002         |           |  | 428      |      |          |  | 1,216    |       |        |  | 1,720 |        |           |  | 16   |    |                |  | 8        |    |   |  | 73  |    |   |  | 13 |     |   |  |                |               |  | $ | 18.44    |      
|                                         |           |  |          |      |          |  |          |       |        |  |       |        |           |  |      |    |                |  |          |    |   |  |     |    |   |  |    |     |   |  |                |               |  |   |          |      
|Exercisable at
December 31, 2001         |           |  | 571      |      |          |  | 800      |       |        |  | 1,935 |        |           |  | 17   |    |                |  | 8        |    |   |  | 67  |    |   |  | 17 |     |   |  |                |               |  |   |          |      
|                                         |           |  |          |      |          |  |          |       |        |  |       |        |           |  |      |    |                |  |          |    |   |  |     |    |   |  |    |     |   |  |                |               |  |   |          |      
|Exercisable at
December 31, 2000         |           |  | 1,065    |      |          |  | 417      |       |        |  | 2,149 |        |           |  | 18   |    |                |  | 16       |    |   |  | 56  |    |   |  | 20 |     |   |  |                |               |  |   |          |      
|                                         |           |  |          |      |          |  |          |       |        |  |       |        |           |  |      |    |                |  |          |    |   |  |     |    |   |  |    |     |   |  |                |               |  |   |          |      

The weighted-average fair value of options granted during 2000, 2001 and 2002
is $7.71, $12.40 and $11.55, respectively.

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The following table summarizes information about stock options outstanding at
December 31, 2002:

|                |  |                    |       |                  |  |          |      |              |  |          |       |  |  |        |       |  |  |   |       | 
|--------------- |  | ------------------ | ----- | ---------------- |  | -------- | ---- | ------------ |  | -------- | ----- |  |  | ------ | ----- |  |  | - | ----- | 
|                |  |                    |       |                  |  |          |      |              |  |          |       |  |  | Number |       |  |  |  
|                |  | Number Outstanding |       | Weighted Average |  | Weighted |      | Exercisable  |  | Weighted
|Range of        |  | as of              |       | Remaining        |  | Average  |      | as of        |  | Average 
|Exercise        |  | December 31,       |       | Contractual      |  | Exercise |      | December 31, |  | Exercise
|Price           |  | 2002               |       | Life             |  | Price    |      | 2002         |  | Price   
|                |  |                    |       |                  |  |          |      |              |  |         
|$3.33 - $15.94  |  |                    | 2,000 |                  |  |          | 5.89 |              |  | $        | 13.54 |  |  |        | 1,290 |  |  | $ | 12.29 | 
|$16.17 - $22.00 |  |                    | 2,008 |                  |  |          | 6.00 |              |  | $        | 19.87 |  |  |        | 1,636 |  |  | $ | 20.30 | 
|$22.75 - $28.38 |  |                    | 1,100 |                  |  |          | 8.29 |              |  | $        | 27.67 |  |  |        | 368   |  |  | $ | 27.05 | 
|$28.39 - $32.70 |  |                    | 1,952 |                  |  |          | 9.48 |              |  | $        | 28.44 |  |  |        | 180   |  |  | $ | 28.87 | 
|                |  |                    |       |                  |  |          |      |              |  |          |       |  |  |        |       |  |  |   |       | 
|$3.33 - $32.70  |  |                    | 7,060 |                  |  |          | 7.29 |              |  | $        | 21.66 |  |  |        | 3,474 |  |  | $ | 18.44 | 
|                |  |                    |       |                  |  |          |      |              |  |          |       |  |  |        |       |  |  |   |       | 

Pro forma information regarding net income and net income per share is required
by SFAS No. 123 and SFAS No. 148, 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:

|                         |  |                         |      |         |  |         |      |   |  |  |      |  
|------------------------ |  | ----------------------- | ---- | ------- |  | ------- | ---- | - |  |  | ---- | -
|                         |  | Year Ended December 31,
|                         |  |                        
|                         |  | 2000                    |      | 2001    |  | 2002   
|                         |  |                         |      |         |  |        
|Expected volatility      |  |                         | 45.0 | %       |  |         | 45.0 | % |  |  | 40.0 | %
|Expected dividend yield  |  | None                    |      | None    |  | None   
|Risk-free interest rate  |  |                         | 6.25 | %       |  |         | 3.75 | % |  |  | 3.75 | %
|Expected life of options |  | 5 years                 |      | 5 years |  | 5 years

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.

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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:

|                                                                  |                       |   |                         |      |      |   |        |      |  |   |        |      | 
|----------------------------------------------------------------- | --------------------- | - | ----------------------- | ---- | ---- | - | ------ | ---- |  | - | ------ | ---- | 
|                                                                  |                       |   | Year Ended December 31,
|                                                                  |                       |   |                        
|                                                                  |                       |   | 2000                    |      | 2001 |   | 2002  
|                                                                  |                       |   |                         |      |      |   |       
|Net income, as reported                                           |                       | $ | 51,459                  |      |      | $ | 76,601 |      |  | $ | 92,460 |     
|Pro forma stock-based employee compensation
expense, net of taxes |                       |   | 6,304                   |      |      |   | 3,870  |      |  |   | 4,508  |     
|                                                                  |                       |   |                         |      |      |   |        |      |  |   |        |     
|Pro forma net income                                              |                       | $ | 45,155                  |      |      | $ | 72,731 |      |  | $ | 87,952 |     
|                                                                  |                       |   |                         |      |      |   |        |      |  |   |        |     
|Earnings per share:                                               |                       |   |                         |      |      |   |        |      |  |   |        |     
|                                                                  | Basic  as reported   |   | $                       | 1.12 |      |   | $      | 1.59 |  |   | $      | 1.89 | 
|                                                                  |                       |   |                         |      |      |   |        |      |  |   |        |     
|                                                                  | Basic  pro forma     |   | $                       | 0.98 |      |   | $      | 1.51 |  |   | $      | 1.80 | 
|                                                                  |                       |   |                         |      |      |   |        |      |  |   |        |     
|                                                                  | Diluted  as reported |   | $                       | 1.07 |      |   | $      | 1.52 |  |   | $      | 1.82 | 
|                                                                  |                       |   |                         |      |      |   |        |      |  |   |        |     
|                                                                  | Diluted  pro forma   |   | $                       | 0.94 |      |   | $      | 1.44 |  |   | $      | 1.73 | 
|                                                                  |                       |   |                         |      |      |   |        |      |  |   |        |     

The effect of applying SFAS No. 123 and SFAS No. 148 for providing pro forma
disclosure is not likely to be representative of the effect on reported net
income for future years.

10.     OPERATING LEASES

The Company rents office and space for its dialysis facilities under lease
agreements that are classified as operating leases for financial statement
purposes. At December 31, 2002, future minimum rental payments under
non-cancelable operating leases with terms of one year or more consist of the
following:

|           |  |   |         | 
|---------- |  | - | ------- | 
|2003       |  | $ | 24,892  | 
|2004       |  |   | 22,314  | 
|2005       |  |   | 20,885  | 
|2006       |  |   | 18,956  | 
|2007       |  |   | 16,997  | 
|Thereafter |  |   | 73,613  | 
|           |  |   |         | 
|           |  | $ | 177,657 | 
|           |  |   |         | 

Rent expense was $19,164, $22,624 and $27,074 for the years ending December 31,
2000, 2001 and 2002, respectively.

11.     EMPLOYEE BENEFIT PLANS

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 $1,734, $1,960 and $2,518 for the years ended
December 31, 2000, 2001 and 2002, respectively.

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Defined Benefit Plan

Effective January 29, 2003, the Company implemented a retirement benefit plan
for its CEO. The plan includes ten annual payments of $650, each beginning in
2004, and certain health insurance and other benefits. As a result, the
Company recorded a $5,376 charge representing the net present value of such
payments during the first quarter of 2003.

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, 2001 and 2002, $1,571 and $2,347, respectively, were
included in accrued wages and benefits relating to the Stock Purchase Plan.

12.     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 calculated using the
treasury stock method.

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

|                             |                                                                                                       |               |      |        |       |      |      |        |       |   |      |        |       | 
|---------------------------- | ----------------------------------------------------------------------------------------------------- | ------------- | ---- | ------ | ----- | ---- | ---- | ------ | ----- | - | ---- | ------ | ----- | 
|                             |                                                                                                       |               |      | 2000   |       | 2001 |      | 2002  
|                             |                                                                                                       |               |      |        |       |      |      |       
|Numerator:                   |                                                                                                       |               |      |        |       |      |      |        |       |   |      |       
|                             | Numerator for basic and diluted net income per share                                                  |               | $    | 51,459 |       |      | $    | 76,601 |       |   | $    | 92,460 |      
|Denominator:                 |                                                                                                       |               |      |        |       |      |      |        |       |   |      |       
|                             | Denominator for basic net income per share weighted-average shares                                    |               |      | 46,048 |       |      |      | 48,113 |       |   |      | 48,978 |      
|                             | Effect of dilutive securities:                                                                        |               |      |        |       |      |      |        |       |   |      |        |      
|                             |                                                                                                       | Stock options |      |        | 1,498 |      |      |        | 2,087 |   |      |        | 1,712 | 
|                             |                                                                                                       | Warrants      |      |        | 402   |      |      |        | 233   |   |      |        | 77    | 
|                             |                                                                                                       |               |      |        |       |      |      |        |       |   |      |       
|                             | Denominator for diluted net income
per share-adjusted weighted-average shares and assumed conversions |               |      | 47,948 |       |      |      | 50,433 |       |   |      | 50,767 |      
|                             |                                                                                                       |               |      |        |       |      |      |        |       |   |      |       
|Basic net income per share   |                                                                                                       | $             | 1.12 |        |       | $    | 1.59 |        |       | $ | 1.89 |       
|                             |                                                                                                       |               |      |        |       |      |      |        |       |   |      |       
|Diluted net income per share |                                                                                                       | $             | 1.07 |        |       | $    | 1.52 |        |       | $ | 1.82 |       
|                             |                                                                                                       |               |      |        |       |      |      |        |       |   |      |       

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13.     COMMITMENTS AND CONTINGENCIES

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, one of the affected patients sued the Company
in Mahoning County, Ohio for injuries related to the August 30, 2000 illnesses.
Additional suits have been filed, and as of December 31, 2002, 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. 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
operations.

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 $1,980 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 governing the Medicare and Medicaid
programs. The Company is not aware of any pending or threatened investigations
involving allegations of potential noncompliance with applicable laws or
regulations. While no 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, 2002, estimated commitments for medical director fees for the year 2003
were $16.4 million and were $82.9 million over the lives of the agreements.

F-23



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##### Table of Contents



14.     SELECTED QUARTERLY FINANCIAL DATA (unaudited)

The following tables include, for 2001 and 2002, 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.

|                              |         |   |         |      |         |   |         |      |         |   |         |      |  |   |         |      | 
|----------------------------- | ------- | - | ------- | ---- | ------- | - | ------- | ---- | ------- | - | ------- | ---- |  | - | ------- | ---- | 
|                              |         |   | 2001   
|                              |         |   |        
|                              |         |   | First   |      | Second  |   | Third   |      | Fourth 
|                              |         |   | Quarter |      | Quarter |   | Quarter |      | Quarter
|                              |         |   |         |      |         |   |         |      |        
|Net revenue                   |         | $ | 174,778 |      |         | $ | 183,455 |      |         | $ | 193,149 |      |  | $ | 203,700 |     
|Operating expenses            |         |   | 133,131 |      |         |   | 139,451 |      |         |   | 146,665 |      |  |   | 154,844 |     
|Depreciation and amortization |         |   | 8,852   |      |         |   | 9,296   |      |         |   | 9,997   |      |  |   | 10,800  |     
|                              |         |   |         |      |         |   |         |      |         |   |         |      |  |   |         |     
|Income from operations        |         |   | 32,795  |      |         |   | 34,708  |      |         |   | 36,487  |      |  |   | 38,056  |     
|Interest expense, net         |         |   | 999     |      |         |   | 1,274   |      |         |   | 198     |      |  |   | 165     |     
|Minority interest             |         |   | 3,130   |      |         |   | 3,722   |      |         |   | 4,104   |      |  |   | 4,522   |     
|                              |         |   |         |      |         |   |         |      |         |   |         |      |  |   |         |     
|Income before income taxes    |         |   | 28,666  |      |         |   | 29,712  |      |         |   | 32,185  |      |  |   | 33,369  |     
|Provision for income taxes    |         |   | 10,952  |      |         |   | 11,351  |      |         |   | 12,288  |      |  |   | 12,740  |     
|                              |         |   |         |      |         |   |         |      |         |   |         |      |  |   |         |     
|Net income                    |         | $ | 17,714  |      |         | $ | 18,361  |      |         | $ | 19,897  |      |  | $ | 20,629  |     
|                              |         |   |         |      |         |   |         |      |         |   |         |      |  |   |         |     
|Net income per share:         |         |   |         |      |         |   |         |      |         |   |         |      |  |   |         |     
|                              | Basic   |   | $       | 0.37 |         |   | $       | 0.39 |         |   | $       | 0.41 |  |   | $       | 0.42 | 
|                              |         |   |         |      |         |   |         |      |         |   |         |      |  |   |         |     
|                              | Diluted |   | $       | 0.36 |         |   | $       | 0.37 |         |   | $       | 0.39 |  |   | $       | 0.40 | 
|                              |         |   |         |      |         |   |         |      |         |   |         |      |  |   |         |     

|                              |         |   |         |      |         |   |         |      |         |   |         |      |  |   |         |      | 
|----------------------------- | ------- | - | ------- | ---- | ------- | - | ------- | ---- | ------- | - | ------- | ---- |  | - | ------- | ---- | 
|                              |         |   | 2002   
|                              |         |   |        
|                              |         |   | First   |      | Second  |   | Third   |      | Fourth 
|                              |         |   | Quarter |      | Quarter |   | Quarter |      | Quarter
|                              |         |   |         |      |         |   |         |      |        
|Net revenue                   |         | $ | 206,678 |      |         | $ | 222,169 |      |         | $ | 231,542 |      |  | $ | 242,998 |     
|Operating expenses            |         |   | 157,756 |      |         |   | 170,273 |      |         |   | 177,416 |      |  |   | 185,831 |     
|Depreciation and amortization |         |   | 9,362   |      |         |   | 9,933   |      |         |   | 10,402  |      |  |   | 10,735  |     
|                              |         |   |         |      |         |   |         |      |         |   |         |      |  |   |         |     
|Income from operations        |         |   | 39,560  |      |         |   | 41,963  |      |         |   | 43,724  |      |  |   | 46,432  |     
|Interest expense, net         |         |   | 173     |      |         |   | 138     |      |         |   | 569     |      |  |   | 260     |     
|Minority interest             |         |   | 4,710   |      |         |   | 5,307   |      |         |   | 5,364   |      |  |   | 6,029   |     
|                              |         |   |         |      |         |   |         |      |         |   |         |      |  |   |         |     
|Income before income taxes    |         |   | 34,677  |      |         |   | 36,518  |      |         |   | 37,791  |      |  |   | 40,143  |     
|Provision for income taxes    |         |   | 13,184  |      |         |   | 13,876  |      |         |   | 14,361  |      |  |   | 15,248  |     
|                              |         |   |         |      |         |   |         |      |         |   |         |      |  |   |         |     
|Net income                    |         | $ | 21,493  |      |         | $ | 22,642  |      |         | $ | 23,430  |      |  | $ | 24,895  |     
|                              |         |   |         |      |         |   |         |      |         |   |         |      |  |   |         |     
|Net income per share:         |         |   |         |      |         |   |         |      |         |   |         |      |  |   |         |     
|                              | Basic   |   | $       | 0.43 |         |   | $       | 0.46 |         |   | $       | 0.48 |  |   | $       | 0.52 | 
|                              |         |   |         |      |         |   |         |      |         |   |         |      |  |   |         |     
|                              | Diluted |   | $       | 0.42 |         |   | $       | 0.44 |         |   | $       | 0.46 |  |   | $       | 0.50 | 
|                              |         |   |         |      |         |   |         |      |         |   |         |      |  |   |         |     

F-24



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##### Table of Contents



Schedule II

Renal Care Group, Inc.
Consolidated Schedule  Valuation and Qualifying Accounts
(in thousands)

|                                  |                              |  |   |           |  |            |   |            |  |        |   |           |   |  |   |        |  | 
|--------------------------------- | ---------------------------- |  | - | --------- |  | ---------- | - | ---------- |  | ------ | - | --------- | - |  | - | ------ |  | 
|                                  |                              |  |   | Balance   |  | Amount     |   |            |  |        |   | Balance  
|                                  |                              |  |   | Beginning |  | Charged to |   |            |  |        |   | At End of
|                                  |                              |  |   | Of Period |  | Expense    |   | Write-Offs |  | Period
|                                  |                              |  |   |           |  |            |   |            |  |       
|Allowances for doubtful accounts: |                              |  |   |           |  |            |   |            |  |        |   |           |   |  |   |       
|                                  | 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 | 
|                                  |                              |  |   |           |  |            |   |            |  |        |   |           |   |  |   |       
|                                  | Year ended December 31, 2002 |  | $ | 45,260    |  |            | $ | 23,501     |  |        | $ | (25,084   | ) |  | $ | 43,677 | 
|                                  |                              |  |   |           |  |            |   |            |  |        |   |           |   |  |   |        | 

F-25



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report 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 18th day of March, 2003.

| |  |     |  |                                                                                                     
| |  | --- |  | ----------------------------------------------------------------------------------------------------
| |  |     |  | RENAL CARE GROUP, INC.                                                                              
|
| |  |     |  |                                                                                                     
|
| |  | By: |  | /s/ Sam A. Brooks, Jr.Sam A. Brooks, Jr.Chairman of the Board, President and
Chief Executive Officer





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##### Table of Contents



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.

|                                                               |  |                                                                                                          |  |               
|-------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------- |  | --------------
|/s/ SAM A. BROOKS, JR.Sam A. Brooks, Jr.                       |  | Chairman of the Board,
President, Chief Executive
Officer and Director
(Principal Executive Officer)     |  | March 18, 2003
|                                                              
|                                                               |  |                                                                                                          |  |               
|                                                              
|/s/ R. DIRK ALLISONR. Dirk Allison                             |  | Executive Vice President,
Chief Financial Officer
Treasurer (Principal Financial
and Accounting Officer) |  | March 18, 2003
|                                                              
|                                                               |  |                                                                                                          |  |               
|                                                              
|/s/ JOSEPH C. HUTTSJoseph C. Hutts                             |  | Director                                                                                                 |  | March 18, 2003
|                                                              
|                                                               |  |                                                                                                          |  |               
|                                                              
|/s/ HARRY R. JACOBSON, M.D.Harry R. Jacobson, M.D.             |  | Director                                                                                                 |  | March 18, 2003
|                                                              
|                                                               |  |                                                                                                          |  |               
|                                                              
|/s/ THOMAS A. LOWERY, M.D.Thomas A. Lowery, M.D.               |  | Director                                                                                                 |  | March 18, 2003
|                                                              
|                                                               |  |                                                                                                          |  |               
|                                                              
|/s/ STEPHEN D. MCMURRAY, M.D.Stephen D. McMurray, M.D.         |  | Director                                                                                                 |  | March 18, 2003
|                                                              
|                                                               |  |                                                                                                          |  |               
|                                                              
|/s/ KENNETH E. JOHNSON, JR., M.D.Kenneth E. Johnson, Jr., M.D. |  | Director                                                                                                 |  | March 18, 2003
|                                                              
|                                                               |  |                                                                                                          |  |               
|                                                              
|/s/ WILLIAM V. LAPHAMWilliam V. Lapham                         |  | Director                                                                                                 |  | March 18, 2003
|                                                              
|                                                               |  |                                                                                                          |  |               
|                                                              
|/s/ WILLIAM P. JOHNSTONWilliam P. Johnston                     |  | Director                                                                                                 |  | March 18, 2003





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##### Table of Contents






CERTIFICATION

I, Sam A. Brooks, Chairman, President and Chief Executive Officer of Renal
Care Group, Inc., certify that:



|1. |  | I have reviewed this annual report on Form 10-K of Renal Care Group,
Inc.;                                                                                                                                                                                                                                              
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present
in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this annual report;                   
|  
|4. |  | The registrants other certifying officers and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
the registrant and have:                                                                                                  



| | (a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this annual report (the Evaluation
Date); and                                                                                                  
|
| | (c) |  | presented in this annual report our conclusions
about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrants
auditors and the audit committee of the registrants board of
directors (or persons performing the equivalent function):
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) |  | any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrants internal controls; and
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------

6.     The registrants other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: March 18, 2003

| |  |                                                                               
| |  | ------------------------------------------------------------------------------
| |  | /s/ Sam A. BrooksSam A. Brooks
Chairman, President and Chief Executive Officer





---



##### Table of Contents






CERTIFICATION

I, R. Dirk Allison, Executive Vice President and Chief Financial Officer
of Renal Care Group, Inc., certify that:



|1. |  | I have reviewed this annual report on Form 10-K of Renal Care Group,
Inc.;                                                                                                                                                                                                                                              
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present
in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this annual report;                   
|  
|4. |  | The registrants other certifying officers and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
the registrant and have:                                                                                                  



| | (a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this annual report is being prepared;
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this annual report (the Evaluation
Date); and                                                                                                  
|
| | (c) |  | presented in this annual report our conclusions
about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrants
auditors and the audit committee of the registrants board of
directors (or persons performing the equivalent function):
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (b) |  | any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrants internal controls; and
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



|6. |  | The registrants other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: March 18, 2003

| |  |                                                                                        
| |  | ---------------------------------------------------------------------------------------
| |  | /s/ R. Dirk AllisonR. Dirk Allison
Executive Vice President and
Chief Financial Officer





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##### Table of Contents






EXHIBIT INDEX

|        |  |                                                                                                                                                                                                                                               
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                               
|Number  |  | Description of Exhibits                                                                                                                                                                                                                       
|        |  |                                                                                                                                                                                                                                               
|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)





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##### Table of Contents



|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|Number  |  | Description of Exhibits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.11   |  | Sublease Agreement, dated February 12, 1996, with Tyler Nephrology Associates, Inc. (5)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.12   |  | Dialysis Center Management Agreement, effective as of July 1, 2001, between Renal Care Group, Inc. and Vanderbilt University                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|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)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|10.18.3 |  | Second Amended and Restated Loan Agreement, dated as of July 1, 2002, among the Company, Bank of America, N.A., SunTrust Bank, AmSouth Bank, and
Wells Fargo Bank. N.A.(21)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|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)*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  





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|        |  |                                                                                                                                                                                        
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                        
|Number  |  | Description of Exhibits                                                                                                                                                                
|        |  |                                                                                                                                                                                        
|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)*                                                                                                 
|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)*                                                                                             





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|        |  |                                                                                                                                                                   
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                   
|Number  |  | Description of Exhibits                                                                                                                                           
|        |  |                                                                                                                                                                   
|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)*                                                                   
|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(19)*                                                                            
|10.58   |  | Stock Option Agreement dated June 7, 2001 between the Company and William V. Lapham(19)*                                                                          
|10.59   |  | Stock Option Agreement dated June 7, 2001 between the Company and W. Thomas Meredith(19)*                                                                         
|10.60   |  | Restricted Stock Award Agreement dated August 2, 2001 between the Company and Sam A. Brooks(20)*                                                                  
|10.61   |  | Loan Agreement dated as of July 1, 2002, among the Company, Bank of America, N.A., SunTrust Bank, AmSouth Bank, and Wells Fargo Bank, N.A.(21)                    
|10.62   |  | Form of Stock Option Agreement for stock option grants to executive employees under the Companys 1999 Long-Term Incentive Plan(22)                               
|10.63   |  | Form of Stock Option Agreement for stock option grants to non-management directors under the Companys 1996 Stock Option Plan for Outside
Directors(22)           
|10.64   |  | Medical Director Services Agreement, dated May 1, 2002, between the Company and Tyler Nephrology Associates, P.A.                                                 
|10.65   |  | Medical Director Services Agreement, dated July 11, 2002 between the Company and Tyler Nephrology Associates, P.A.                                                
|10.66   |  | Amendment No. 1 to Medical Director Services Agreement, effective as of May 1, 2002, between Renal Care Group Arizona, Inc. and Arizona
Nephrology Associates, PLC
|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)                                                                                                
|99.1    |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                           





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|        |  |                                                                                                                                                                                            
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                            
|Number  |  | Description of Exhibits                                                                                                                                                                    
|        |  |                                                                                                                                                                                            
|(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).                                                                   
|(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).                                                                   





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|        |  |                                                                                                                             
|------- |  | ----------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                             
|Number  |  | Description of Exhibits                                                                                                     
|        |  |                                                                                                                             
|(18)    |  | Incorporated by reference to the Companys Form 10-Q for the quarter ended September 30, 2001 (Commission File No. 0-27640).
|(19)    |  | Incorporated by reference to the Companys Form 10-K for the year ended December 31, 2001 (Commission File No. 0-27640).    
|(20)    |  | Incorporated by reference to the Companys Form 10-Q for the quarter ended March 31, 2002 (Commission File No. 0-27640).    
|(21)    |  | Incorporated by reference to the Companys Form 10-Q for the quarter ended June 30, 2002 (Commission File No. 0-27640).     
|(22)    |  | Incorporated by reference to the Companys Form 10-Q for the quarter ended September 30, 2002 (Commission File No. 0-27640).



|* |  | Management contract or executive compensation plan or arrangement.
|- |  | ------------------------------------------------------------------





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##### Table of Contents



STATEMENT OF CHIEF EXECUTIVE OFFICER
AND CHIEF FINANCIAL OFFICER
OF RENAL CARE GROUP, INC.
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
§ 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Renal Care Group, Inc. (the
Company) on Form 10-K for the year ended December 31, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the Report), the
undersigned being the Chief Executive Officer and Chief Financial Officer of
the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to §
906 of the Sarbanes-Oxley Act of 2002, that to our knowledge:



|1) |  | The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and                               
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2) |  | The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of
the Company.

| |  |                                                                                                       
| |  | ------------------------------------------------------------------------------------------------------
| |  | /s/ Sam A. BrooksSam A. Brooks
Chairman, President
and Chief Executive Officer
March 18, 2003         
|
| |  |                                                                                                       
|
| |  | /s/ R. Dirk AllisonR. Dirk Allison
Executive Vice President and
Chief Financial Officer
March 18, 2003