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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, 2003
or 
|(  )                                            | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
|For the transition period from ______to________

Commission file number 0-27640

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

|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 62-1622383                          
|(State or other Jurisdiction of
Incorporation or Organization) |  | (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





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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 $1,703,072,314 as of June 30, 2003, based upon the closing price
of such stock as reported on the New York Stock Exchange (New York Stock
Exchange) on that day (assuming for purposes of this calculation, without
conceding, that all executive officers and directors are affiliates).

There 45,433,033 shares of common stock, $0.01 par value, issued and
outstanding at February 27, 2004.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrants Proxy Statement for its 2004 Annual Meeting
of Stockholders are incorporated by reference in Part III of this Annual
Report.

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|                                                  |                                                                                               |  |  |  |  |  |  | 
|------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                           
|                                                  | Item 1. Business                                                                             
|                                                  | Item 2. Properties                                                                           
|                                                  | Item 3. Legal Proceedings                                                                    
|                                                  | Item 4. Submission of Matters to a Vote of Security Holders                                  
|PART II                                          
|                                                  | Item 5. Market for Companys Common Equity and Related Stockholder Matters.                  
|                                                  | Item 6. Selected Financial Data                                                              
|                                                  | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                  | Item 7a. Quantitative and Qualitative Disclosures About Market Risk                          
|                                                  | Item 8. Financial Statements and Supplementary Data                                          
|                                                  | Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure 
|                                                  | Item 9a. Controls and Procedures                                                             
|PART III                                         
|                                                  | Item 10. Directors and Executive Officers of the Company                                     
|                                                  | Item 11. Executive Compensation                                                              
|                                                  | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|                                                  | Item 13. Certain Relationships and Related Transactions                                      
|                                                  | Item 14. Principal Accountant Fees and Services                                              
|PART IV                                          
|                                                  | Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K                    
|SIGNATURES                                       
|EXHIBIT INDEX                                    
|EX-10.1 EMPLOYMENT AGREEMENT R. HAKIM 12/15/03   
|EX-10.12.3 SECOND AMENDMENT TO LOAN AGREEMENT    
|EX-10.12.4 THIRD AMENDMENT TO LOAN AGREEMENT     
|EX-10.2.1 AMENDMENT NO.1 TO MEDICAL AGREEMENT    
|EX-10.2.2 AMENDMENT NO.2 TO MEDICAL AGREEMENT    
|EX-10.3 MEDICAL DIRECTOR SERVICES AGREEMENT      
|EX-10.44 EMPLOYMENT AGREEMENT DAVID M DILL       
|EX-10.45 EMPLOYMENT AGREEMENT TIMOTHY P MARTIN   
|EX-10.46 EMPLOYMENT AGREEMENT DOUGLAS B. CHAPPELL
|EX-31.1 SECTION 302 CERTIFICATION OF THE CEO     
|EX-31.2 SECTION 302 CERTIFICATION OF THE CFO     
|EX-32.1 SECTION 906 CERTIFICATION OF THE CEO     
|EX-32.2 SECTION 906 CERTIFICATION OF THE CFO     



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PART I

FORWARD LOOKING STATEMENTS

This report contains forward-looking statements. Forward-looking
statements relate to expectations, beliefs, future plans and strategies,
anticipated events or trends and similar expressions concerning matters that
are not historical facts or that necessarily depend upon future events. In
some cases, you can identify forward-looking statements by words like may,
will, should, could, would, expect, plan, anticipate, believe,
estimate, project, predict, potential and similar expressions.
Specifically, this report contains, among others, forward-looking statements
about:



| |  |  | our expectations regarding financial condition or results of operations for periods after December 31, 2003;
| | - |  | ------------------------------------------------------------------------------------------------------------
|
| |  |  | our critical accounting policies;                                                                           
|
| |  |  | our business strategies and our ability to grow our business;                                               
|
| |  |  | the reimbursement levels of third-party payors;                                                             
|
| |  |  | our future sources of and needs for liquidity and capital resources.                                        

The forward-looking statements included in this report reflect our current
views about future events. They are based on assumptions and are subject to
known and unknown risks and uncertainties. Many factors could cause actual
results or achievements to differ materially from future results or
achievements that may be expressed in or implied by our forward-looking
statements. Many of the factors that will determine future events or
achievements are beyond our ability to control or predict. Important factors
that could cause actual results or achievements to differ materially from the
results or achievements reflected in our forward-looking statements include,
among other things, the factors discussed on pages 20 to 26 of this report
under the heading Risk Factors.

You should read this report, the information incorporated by reference
into this report and the documents filed as exhibits to this report completely
and with the understanding that our actual future results or achievements may
be materially different from what we expect or anticipate.

The forward-looking statements contained in this report reflect our views
and assumptions only as of the date this report is filed with the Securities
and Exchange Commission. Except as required by law, we assume no
responsibility to update any forward-looking statements.

Before you invest in our common stock, you should understand that the
occurrence of any of the events described in the risk factors, elsewhere in
this annual report on Form 10-K 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.

We qualify all of our forward-looking statements by these cautionary
statements. In addition, with respect to all of our forward looking
statements, we claim the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995.




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, 2003, we provided dialysis and ancillary services to over 21,400 patients
through 284

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outpatient dialysis centers in 27 states, in addition to providing
acute dialysis services to more than 130 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, 2003, there were 640
nephrologists with privileges to practice at one or more of our outpatient
dialysis centers.

In our 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 1980s and 1990s, 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 we were formed. As a result, we believe that as of
December 31, 2003, approximately 66% of outpatient dialysis centers are now
owned by multi-center dialysis companies, approximately 16% 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; our principal executive
offices are located at 2525 West End Avenue, Suite 600, Nashville, Tennessee
37203; and our telephone number is (615) 345-5500.

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 must receive either dialysis for the remainder of their lives or a
successful kidney transplant. By the end of 2001, dialysis was the primary
treatment for approximately 72% of all ESRD patients in the United States, and
the remaining 28% of ESRD patients had a functioning kidney transplant.

According to United States Renal Data System estimates, direct medical payments for ESRD totaled $22.8 billion during 2001. Of the
total direct medical payments for ESRD, approximately $15.4 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, if they are eligible for Social Security,
regardless of their age or financial circumstances.

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
292,000 as of December 31, 2001. Based on data from the United States Renal
Data System, the rate of ESRD incidence among Medicare-eligible patients was
approximately 334 patients per million in 2001 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 406,000 in 2001 to 661,000 in 2010.
The growth in the number of ESRD patients is expected to result 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 of ESRD 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             

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| |  |  | kidney transplant surgery.
| | - |  | --------------------------

According to CMS data, in 2001 approximately 91% of patients on dialysis
in the United States received hemodialysis in an outpatient setting, and
approximately 9% 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 and continuous cycling peritoneal dialysis are the most
common. Under each method, the patients blood is circulated across the
peritoneal membrane into a dialysis solution that 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 or home dialysis
support facility.

Kidney transplants, when successful, are the most desirable form of
therapy for ESRD patients. However, there is a shortage of 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). A nephrologists other
clinical activities 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 usually 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, 2003, Renal Care Group operated 284 outpatient dialysis
centers in 27 states with 5,177 certified dialysis stations and provided
inpatient dialysis services to more than 130 acute care hospitals. During 2003,
we provided 3,254,447 hemodialysis treatments. We estimate that on average our
centers were operating at approximately 57% of capacity as of December 31,
2003, based on the assumption that a dialysis
center is able to provide up to three treatments a day per station, six days a
week.

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Operation of Facilities

Our 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. Our 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 our
centers are adjacent to areas used for training patients in home dialysis.

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

Home Dialysis

All of our markets offer home dialysis, either home hemodialysis,
peritoneal dialysis or both. As of December 31, 2003, about 11% of the patients
we were treating received home dialysis. In our home dialysis services we
provide equipment and supplies, training, patient monitoring and follow-up
assistance to patients who receive dialysis treatments in their homes.
Management believes that home dialysis is important to providing a full range
of dialysis care, and we continue to work to expand our home dialysis program.

Inpatient Care

We also provide inpatient dialysis services to hospitals in most of our
markets. These services are also referred to as acute dialysis services. As of
December 31, 2003, we provided inpatient services to more than 130 hospitals.
Under these arrangements, we typically provide equipment, supplies and
personnel to perform hemodialysis and peritoneal dialysis in connection with a
hospitals inpatient services. Patients with acute renal failure resulting from
accidents, medical and surgical complications, patients in the early stage of
renal failure and ESRD patients who need to be in the hospital for other
reasons often require inpatient dialysis services. Most of our hospital
contracts specify predetermined fees per dialysis treatment. Management
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 Programs

We currently manage the dialysis programs at Vanderbilt University Medical
Center and are 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
the Medical College of Wisconsin), Northwestern Memorial Hospital of Chicago,
Elmhurst Memorial Hospital, the University of Colorado and the University of
Kentucky. Management expects these affiliations will expand our patient base
and provide opportunities for the development of new centers. Management also
expects these affiliations to provide access to outcomes research and trained
nephrologists who may become medical directors at our 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, we rely on
our 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, 2003,
there were 640 nephrologists with privileges to practice at one or more of our
outpatient dialysis centers.

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Medical Directors

To satisfy the requirements of the Medicare ESRD program, we must engage a
medical director for each of our facilities. We generally engage practicing,
board-certified or board-eligible nephrologists to serve as medical directors
for our centers. The medical director is an independent contractor and provides
services under an agreement with Renal Care Group. Medical directors are
responsible for administering and monitoring our 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. We pay 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 our
medical director agreements also include non-competition clauses with specific
limitations on the medical directors ability to compete with us by owning or
providing medical director services for another dialysis facility for certain
specified periods of time and in specified geographic areas.

Ancillary Services

Renal Care Group provides a variety of ancillary services to treat ESRD
patients in its dialysis operations. 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. EPO
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. Through our RenaLab subsidiary, we
provide clinical laboratory services for our dialysis operations. We
offer other
ancillary services, depending on medical
appropriateness, including 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 our operating philosophy is the belief that providing quality
care is in the best interest not only of patients but also of our 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, we maintain a vigorous quality assurance program. We establish,
maintain and monitor quality criteria for clinical operations and monitor
patient outcomes in all of our centers.

Medical Advisory Board

Our Medical Advisory Board oversees the review of patient outcomes and the
development and communication of clinical protocols. The Medical Advisory Board
is chaired by Raymond Hakim, M.D., Ph.D., our Chief Medical Officer, and is
composed of 12 nephrologists who are medical directors of one or more of our
centers. The Medical Advisory Board is responsible for establishing,
implementing and monitoring our 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 us
in continuously improving the care we provide to patients, with the goal of
providing optimal care to all patients.

Quality Criteria

Continuous quality improvement is our primary clinical objective. We work
to achieve this objective by regularly evaluating dialysis treatments and
patients key physiological parameters. Our Quality Assurance Coordinator is a
registered nurse who oversees our quality assurance program. In addition, each
of our dialysis centers has a quality assurance committee that

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monitors the
quality of care in the center and oversees compliance with applicable
regulations. These committees typically include the medical director, the
center administrator, nurses and other technical personnel..

Outcomes Data

We believe 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, we maintain a broad
database of treatment-specific patient outcomes information. The Quality
Assurance Coordinator oversees the collection of patient outcomes and cost data
in our centers. We make 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. Management believes that the implementation of clinical pathways will
assist in improving the overall quality, while resulting in operating
efficiencies at our dialysis centers.

CORPORATE COMPLIANCE PROGRAM

We have developed and maintain a company-wide compliance program
as part of our commitment to comply fully with all laws and regulations
applicable to our business and to maintain high standards of conduct by our
associates. The primary purposes of the program are to heighten associates and
affiliated professionals awareness of the importance of complying with all
laws and regulations that apply to our business 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 our Board of Directors. The
program 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 we have published
a code of conduct setting forth standards of conduct and principles of business
ethics that we will follow and that we expect each employee and affiliated
professional to follow. The code of conduct is regularly reviewed and updated.
A Compliance Committee comprised of some of our officers and senior managers
and our 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 our
Board of Directors.

We also maintain a compliance program specific to RenaLab, our 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 our
net patient revenue:

|                            |       |  |                         |     |      |  |      |     |   |  |    |     |  
|--------------------------- | ----- |  | ----------------------- | --- | ---- |  | ---- | --- | - |  | -- | --- | -
|                            |       |  | Year Ended December 31,
|                            |       |  |                        
|                            |       |  | 2001                    |     | 2002 |  | 2003
|                            |       |  |                         |     |      |  |     
|Medicare                    |       |  | 49                      | %   |      |  | 50   | %   |   |  | 49 | %  
|Medicaid                    |       |  | 6                       |     |      |  | 7    |     |   |  | 6  |    
|Commercial and other payors |       |  | 40                      |     |      |  | 38   |     |   |  | 40 |    
|Acute dialysis services     |       |  | 5                       |     |      |  | 5    |     |   |  | 5  |    
|                            |       |  |                         |     |      |  |      |     |   |  |    |    
|                            | Total |  |                         | 100 | %    |  |      | 100 | % |  |    | 100 | %
|                            |       |  |                         |     |      |  |      |     |   |  |    |    

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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 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 the Medicare composite rate in 2001 by 2.4%. Congress also
increased the Medicare composite rate in 2000 by 1.2%. Neither Congress nor CMS
approved an increase in the composite rate for 2002, 2003 or 2004. Congress
has approved an increase of 1.6% in the Medicare ESRD composite rate for 2005.
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 2003. 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 we provide. 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. We generally submit Medicare claims monthly
and are usually paid within 30 days of the submission.

Changes in the Medicare ESRD Composite Rate

Congress
has approved 1.6% increase in the Medicare ESRD composite rate
for 2005, following increases of 1.2% in 2000 and 2.4% in 2001. The 2003
Medicare Reform bill provides that beginning in 2005 Medicare will reimburse
dialysis providers for all ancillary drugs (including EPO) at an amount equal
to the drugs acquisition cost (as determined by the Inspector General of the
Department of Health and Human Services) and that the Medicare ESRD composite
rate will be increased by an amount estimated by HHS to be dialysis providers
average profit on these drugs. The increase in the composite rate is intended
to compensate dialysis providers for the cost of administering these drugs.
Overall, Medicare spending for ESRD services in 2005 is required to result in
the same aggregate spending as would have occurred if the current system
had continued until 2005.

Before 2000, the Medicare ESRD composite rate was unchanged from
commencement of the program in 1972 until 1983. From 1983 through December
1990, a series of 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 2000 and
2001 increases in the Medicare ESRD composite rate, our average Medicare rate
per dialysis treatment was $131 during 2003.

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 was delivered
in 2003. It reviewed items included in the composite rate and items that
are currently separately billable (such as EPO and certain laboratory

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services), and analyzed whether the composite rate should be subject to an
annual inflationary update. The study made preliminary recommendations to
expand the services covered by the Medicare ESRD composite rate. The study
made no final recommendations, and Congress has not acted on it. Pending this
study, the Medicare Payment Advisory Commission, also known as MedPAC,
recommended that the ESRD composite rate for 2003 be increased by 2.6%.
Congress did not approve an increase for 2003 or 2004. MedPAC 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.

The 2003 Medicare Reform bill requires additional reports and studies
relating to the Medicare ESRD composite rate. The Secretary of the Department
of Health and Human Services is required to submit a report to Congress by
October 1, 2005 detailing the elements and features for the design and
implementation of a bundled prospective payment system for services furnished
by ESRD facilities including, to the extent feasible, bundling of drugs,
clinical laboratory tests, and other items that are now separately billed by
ESRD facilities. Also, the Secretary is required to conduct a three-year
demonstration project beginning on January 1, 2006 relating to the use of a
payment system for ESRD services that bundles amounts for drugs and biologicals
furnished to ESRD patients, including EPO, and clinical laboratory tests
relating to such drugs and biologicals.

During recent congressional sessions, there have been proposals to
change numerous aspects of Medicare, not all of which were included in the 2003
Medicare Reform Bill. We are 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 our
earnings, financial condition and business.

Medicare Reimbursement for EPO

We also derive a significant portion of our 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. We are unable to predict
whether any changes in EPO reimbursement will occur. Approximately 24% of our
revenue in 2003 was generated from the administration of EPO; therefore, any reduction in Medicare
reimbursement for EPO could have a material adverse effect on our earnings,
financial condition and business.

CMS also places limits on EPO reimbursement based on patients hematocrit
levels. Hematocrit is a measure of a patients anemia. Currently, if a
patients hematocrit is below 36%, CMS approves Medicare reimbursement for EPO
without specific documentation of medical necessity. If a patients average
hematocrit over a three-month period is higher than 36%, Medicare reimbursement
is contingent on medical necessity. Medicares contractors often review claims
in these instances. We are 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 our 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 are below
levels determined by the states. The programs also serve as supplemental
insurance programs for the Medicare co-insurance portion and provide coverage
for some 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. We
are a licensed ESRD Medicaid provider in all of the states in which we do
business.

Some of the states in which we do 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 two of
these states, Washington and Wisconsin, have implemented reductions in

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Medicaid
reimbursement. Reductions in Medicaid reimbursement in other states could have
a material adverse effect on our 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. We have negotiated
contracts with most managed care payors in our markets at rates that are higher
than the Medicare ESRD composite rate. Rates under these managed care
contracts are, however, generally lower than those we charge other private
payors. After Medicare becomes a patients primary payor, private secondary
payors generally reimburse us for the patients copayment of 20% of the
applicable Medicare rate. We also receive payments from hospitals under 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 us and approximate
fair market value of the services we provide.

SUBSEQUENT EVENTS

Midwest Kidney Centers

Effective January 1, 2004, we acquired the assets of Midwest Kidney
Centers and several affiliated companies for $49.5 million in consideration. Through
this acquisition, we added approximately 825 patients and 13 dialysis
facilities in central Illinois.

National Nephrology Associates, Inc.

On February 2, 2004, we announced the signing of a definitive agreement to
acquire National Nephrology Associates, Inc. (NNA), a Nashville,
Tennessee-based dialysis services provider. NNA owns and operates 87
outpatient dialysis facilities in 15 states and provides services to approximately
5,600 patients, as well as acute dialysis services to approximately 55
hospitals.

Under
the terms of the agreement, the total consideration of $345.0 million will
consist of a cash payment of approximately $167.0 million payable to NNAs equity
holders and the assumption of NNAs outstanding debt, including
its $160.0
million of 9% senior subordinated notes due 2011, and other indebtedness,
including capital leases. We plan to finance the acquisition through our new
credit agreement, as described in Managements Discussion and Analysis of
Financial Condition and Results of Operations and Liquidity and Capital
Resources. Completion of the transaction, which is expected to close on or
before March 31, 2004, is subject to customary conditions, including expiration
of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act.

Following completion of the Midwest Kidney Centers acquisition and
assuming completion of the NNA transaction, we will serve almost 28,000
patients at over 370 facilities in 30 states, in addition to providing acute
dialysis services at more than 175 hospitals.

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GOVERNMENT REGULATION

General

Federal, state, and local governments regulate Renal Care
Groups operations extensively, including the operation of the dialysis centers and
laboratory we own. Applicable federal and state statutes and regulations
require us 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, our laboratory operations are
subject, among other laws, to the federal Clinical Laboratory Improvement
Amendments of 1988, also known as CLIA. Our 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. Our 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, our relationships with 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 some 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.

We believe our operations substantially comply with applicable federal and
state laws. However, if a state or the federal government finds that we have
not complied with these laws, then we could be required to change our
operations. Any changes could have a negative impact on us. To date, our
dialysis centers 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 us. Management believes that the
health care services industry will continue to be subject to extensive
regulation at the federal, state, and local levels. We cannot predict the scope
and effect of future regulation of our business and cannot predict whether
health care reform will require us to change our operations or whether such
reform will have a negative impact on us.

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

Medicare and Medicaid Certification and Reimbursement

To receive reimbursement from federal health care programs for dialysis
and laboratory services, our dialysis centers and laboratory must be certified
as meeting certain requirements. For example, to receive Medicare
reimbursement, our dialysis centers and laboratory must be certified by the
Centers for Medicare and Medicaid Services. All of our dialysis centers and our
laboratory operations are certified under the Medicare program and applicable
state Medicaid programs. In connection with our participation in Medicare, we
must comply with conditions for coverage, including requirements concerning
personnel, management, patient care, patient rights, medical records and
physical environment. We 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, but CMS has announced that they will be published soon. We
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 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 us to change our operations and could have a
negative

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effect on our business and profitability. 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 our 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/Tri-Care 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 Medicare 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 dialysis 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. Management believes that our arrangements with laboratories reflect
fair market value and comply with the Anti-Kickback Statute.

Renal Care Group seeks to satisfy as many safe harbor requirements as
possible when we are structuring business arrangements. However, not all of our
arrangements satisfy all elements of a safe harbor. Management believes that we
have a

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reasonable basis for concluding that we substantially comply with the
Anti-Kickback Statute and other applicable related federal and state laws and
regulations. Management believes that Renal Care Groups current arrangements
with physicians including nephrologists owning our 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 our interpretations or may
require us to change our 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. We have compensation
arrangements with 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 our common stock. In addition, other
physicians who refer patients to our centers may own our stock. If so, the
medical directors and other physicians would have a financial relationship with
us. Accordingly, these physicians would not be able to refer patients to our
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 that we may provide to patients 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 certain other drugs required as part of dialysis if certain
requirements are met. If the requirements are met, this exception applies
whether or not these drugs are included in the Medicare ESRD composite rate.

The final regulations also exclude from the definition of inpatient
hospital services any dialysis services provided by a hospital that is not
certified by CMS to provide outpatient dialysis services. This rule would have
the effect of excluding from the Stark Law prohibition, any dialysis services
we provide 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

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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. We cannot predict whether HHS
will revise the final regulations or will adopt additional regulations that
affect our business.

If the Stark Law applies to our relationships with referring physicians,
there are exceptions to the Stark Law, which, if certain requirements are met,
would permit such physicians to refer patients to us 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. Management
believes our compensation arrangements with referring physicians meet the
requirements for an exception under the Stark Law. For example, management
believes that our 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 December 31, 2003, Renal Care Group had stockholders
equity of more than $570.0 million. Management believes that physician ownership
of our 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 our relationships with
referring physicians and no exceptions under the Stark Law are available, then
we will be required to restructure these relationships or refuse to accept
referrals for designated health services from these physicians. If we were
found to have submitted claims to Medicare for services provided pursuant to a
referral prohibited by the Stark Law, then we would be required to repay
amounts we received from Medicare for those services and could be subject to
civil monetary penalties. If we are required to repay amounts to
Medicare or is subject to fines, we could be harmed.

Many states have physician relationship and referral statutes that are
similar to the Stark Law. Management believes we are in substantial
compliance with applicable state laws with respect to physician relationships
and referrals. However, any finding that we are not in compliance with these
state laws could require us to change our operations and could have a negative
impact on us.

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.

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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. We have 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, we had paid premiums for Medicare supplemental insurance
for some patients with demonstrated financial need. We stopped making such
payments following the adoption of HIPAA. Consistent with the advisory
opinions, we have made donations to charitable foundations that may,
but are not required to, make premium payments on behalf of ESRD patients. We
believe, but cannot promise, that our current practices regarding supplemental
insurance substantially comply with the general principles expressed by the OIG
in these advisory opinions.

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 had until October 16, 2003 to comply with the Transaction Standards rule.
However, the Transaction Standards rules implementation has been delayed
indefinitely. This rule will apply 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, we filed a timely compliance extension plan with HHS. We believe that our
operations comply with the Transaction Standards rule.

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,                     
| | - |  | --------------------------------------------------------------------------------------------------------------------------
|
| |  |  | 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. During 2003, we
implemented new policies and procedures to maintain patient privacy and comply
with HIPAAs privacy requirements. The privacy regulations

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are
extensive, and we may need to change some of our practices to comply with them

as they are interpreted and as we deal with issues that arise.

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. We are studying the new regulations
and may be required to change some of our 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.

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. We expect that the
number of government investigations of dialysis providers will continue to
increase in 2004. The

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OIG has indicated in its 2004 Work Plan that it will be
focusing this year on a number of areas of ESRD services, including billing for
home dialysis.

The federal government also continues to investigate practices of
laboratories. Each of the laboratories owned and operated by the major
dialysis providers, including our laboratory, 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. We believe our 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 our services. Federal and state statutes or regulations
may be enacted to impose additional requirements on us 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 of dialysis providers or the manner in which dialysis companies provide services to patients could have a material impact on
us and could adversely affect our profitability.

Joint Ventures

A number of the dialysis centers we operate are owned by joint ventures in
which we own a controlling interest and one or more physicians or physician
practice groups own a minority interest. The physician owners also may provide
medical director services to those centers and/or to other centers we own and
operate. Because our relationships with physicians are governed by the
Anti-Kickback Statute, we have sought to satisfy as many safe harbor
requirements as possible in structuring these joint venture arrangements.
However, our joint venture arrangements do not satisfy all elements of a safe
harbor. Management believes that we have a reasonable basis for concluding
that we substantially comply with the Anti-Kickback Statute. Also, we believe
we have structured the physician relationships in these joint ventures in a way
that meets applicable exceptions under the Stark Law or that otherwise complies
with the Stark Law. If the joint ventures were found to be in violation of the
Anti-Kickback Statute or the Stark Law, we could be required to restructure
them or refuse to accept referrals for designated health services from the
physicians with whom the joint venture centers have a relationship. We also
could be required to repay to Medicare amounts received by the joint ventures
pursuant to prohibited referrals, and we could be subject to monetary
penalties. If the joint venture centers are subject to any of these penalties,
our business could be damaged.

Recent Regulatory Developments

In addition to the other matters discussed in this section, during 2003,
the following regulatory studies, actions and decisions took place:



| |  | In May of 2003, the OIG issued a report, Home Dialysis Payment
Vulnerabilities, concerning home dialysis billing processes. The OIG
recommended, among other things, changing regulations to limit payments
for some home dialysis supplies and collecting any incorrect payments
made to providers.                                                                                                                                  
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | On September 22, 2003, CMS issued a letter inviting submission of
scientific evidence on EPO dosing and hematocrit/hemoglobin levels to
assist CMS in developing of a permanent policy to ensure appropriate
administration of EPO to ESRD patients. The comment period ended on
January 15, 2004. A draft policy is expected on May 1, 2004, and CMS is
scheduled to issue a final policy or memorandum on this matter on
July 2, 2004.
| 
| |  | On November 20, 2003, the OIG Office of Audit Services issued a
report, End Stage Renal Disease Pricing Errors at Independent
Facilities, concerning its audit of Medicare overpayments to
independent ESRD providers by a fiscal                                                                                                                                                                                                     

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|  |  | intermediary, AdminaStar Federal.
The overpayments involved injectable drugs that are billed outside of
the Medicare composite rate for ESRD services. The OIG recommended,
among other things, recovery of identified overpayments.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | On December 22, 2003, CMS finalized a proposed rule removing the cap
on ESRD bad debt reimbursement, which limits payment of allowable bad
debt to the facilitys unrecovered costs.                                                

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. We believe that as of December 31, 2003,
approximately 66% of these facilities were owned by multi-center dialysis
companies, approximately 16% were owned by independent physicians, small chains
and other small operators, and approximately 18% were hospital-affiliated
centers. The largest multi-center dialysis company is Fresenius Medical Care,
Inc. 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 other health care
providers that have entered or may decide to enter the dialysis business. Some
of our competitors have substantially greater financial resources than ours,
and they may compete with us for acquisitions, development and/or management of
dialysis centers and nephrology practices. We believe that competition for
acquisitions has, over time, increased the cost of acquiring dialysis centers.
We may also experience competition from centers established by former medical
directors or other referring physicians. There can be no assurance that we will
compete effectively with any of our competitors.

INSURANCE

We maintain professional liability insurance and general liability
insurance policies for all of its operations. We also maintain insurance in
amounts management deems adequate to cover property and casualty risks,
workers compensation, and directors and officers liability. During 2003, our
cost for most types of insurance, particularly professional liability
insurance, general liability insurance, and directors and officers liability
insurance increased substantially, both in terms of premiums and deductibles.
In addition, the availability of insurance diminished in 2002 and 2003.
Management expects that these trends will continue in 2004 and that we may be
required to take more risk in our insurance program. There can be no assurance
that the aggregate amount and types of our insurance are adequate to cover all
risks we may incur or that insurance will be available in the future.

EMPLOYEES

At December 31, 2003, we employed 5,818 full-time employees and 931
part-time employees. Of the total employees, 56 were employed at our
headquarters and 6,693 were employed at our dialysis facilities, laboratory or
regional business offices. In managements opinion, employee relations are
good.

INTERNET WEBSITE

Our internet website can be found at www.renalcaregroup.com. We make
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.

CODE OF ETHICS

We have adopted a code of ethics that applies to all of our directors,
officers and employees. This code is publicly available in the investor
relations area of our website at www.renalcaregroup.com. Copies of our code of
ethics may also be requested in print by writing to Investor Relations at 2525
West End Avenue, Suite 600, Nashville, Tennessee 37203.

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RISK FACTORS

You should carefully consider the risks described below before investing
in our securities. The risks and uncertainties described beloware notthe only
ones we face. Other risks and uncertainties that we have not predicted or
assessed may also adversely affect us.

If any of the following risks occurs, 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 49% of our net revenue for
2001, 50% of our net revenue for 2002 and 49% of our net revenue for 2003
consisted of reimbursements from Medicare, including reimbursement for the
administration of EPO to treat anemia. We also estimate that approximately 6%
of our net revenue for 2001, 7% of our net revenue for 2002 and 6% of our net
revenue for 2003 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 expanding the drugs and
services that are included in the flat composite rate. CMS has indicated that
it believes such a mechanism would be fairer and easier to administer. In
addition, Congress mandated a change in the way we will be paid beginning in
2005 for some of the drugs (including EPO) that we bill for outside of the flat
composite rate. This change will result in lower reimbursement for these drugs
and a higher composite rate. Congress stated that these changes are not
intended to reduce overall reimbursement to dialysis providers, but until
actual rates are set, we do not know how the changes will affect us.

If States Lower Medicaid Reimbursement, Then We Would be Less Profitable

The Medicaid programs in some of the states in which we operate have
formerly reimbursed us, or currently reimburse us, at rates higher than those
paid by Medicare. Some of these programs, like Washingtons and Wisconsins,
have approved and implemented reductions in reimbursement. Other programs 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. We are unable
to predict whether and, if so, when any reductions in Medicaid
reimbursement,
other than those approved and implemented in Washington and Wisconsin, might
occur and what their precise effect will be.

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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, then 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 25% of our net revenue for 2001, 23% of our net revenue for
2002, and 24% of our net revenue for 2003. Most of our payments for EPO come
from government programs. For the year ended December 31, 2003, Medicare and
Medicaid reimbursement represented approximately 55% of the total revenue we
derived from EPO. A reduction in the reimbursement rate for EPO could
materially and adversely affect our revenue and earnings.

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 did adversely affect our
earnings in 2003. 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 that is 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 margins 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 45% of our net revenue for 2001,
43% of our net revenue for 2002 and 45% of our net revenue for 2003 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. Management
believes that health insurance pricing is cyclical and that we may be at or
near the top of the cycle. As a result, management believes that our ability to
maintain or raise rates to private insurers and managed care companies will
likely be more limited over the next several years than it has been in the
recent past. We have recently experienced reductions in reimbursement from two
commercial insurers, and management believes that the reductions in
reimbursement by these two commercial insurers along with pricing pressure from
other commercial insurers and managed care organizations will likely adversely
impact our revenue per treatment and earnings per share in 2004. 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;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  |  | 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;     
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | a portion of our business that is currently reimbursed by
private insurers at rates based on our billed charges may become
reimbursed under a contract at lower rates; or                           
|
| |  |  | the scope of coverage by Medicare or Medicaid under the flat
composite rate could expand and, as a result, reduce the extent of
our services being reimbursed at the higher private-insurance rates.

If 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 found 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.

A number of our medical director agreements will expire over the next
three years, unless they are renewed or renegotiated. We were not able to renew
or renegotiate a small number of our medical director agreements that expired
in 2003, and we may not be able to renew or renegotiate expiring medical
director agreements successfully, or we may not be able to enforce the
non-competition provisions of some of our medical director or other agreements.
Any of these factors 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 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.                                                                                                                                                                                                      

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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:



| |  |  | 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,
then 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.

If Our Joint Ventures are Found to Violate the Law, Our Business Could Be
Damaged

A number of the dialysis centers we operate are owned by joint ventures in
which we own a controlling interest and one or more physicians or physician
practice groups maintain a minority interest. The physician owners also may
provide medical director services to those centers and/or other centers we own
and operate. Because our relationships with physicians are governed by the
Anti-Kickback Statute, we have sought to satisfy as many safe harbor
requirements as possible in structuring these joint venture arrangements.
However, our joint venture arrangements do not satisfy all elements of a safe
harbor. Also, we believe we have structured the physician relationships in
these joint ventures in a way that meets applicable exceptions under the Stark
Law or that otherwise complies with the Stark Law. If the joint ventures were
found to be in violation of the Anti-Kickback Statute or the Stark Law, we
could be required to restructure them or refuse to accept referrals for
designated health services from the physicians with whom the joint venture
centers have a relationship. We also could be required to repay to Medicare
amounts received by the joint ventures pursuant to prohibited referrals, and we
could be subject to monetary penalties. If the joint venture centers are
subject to any of these penalties, our business could be damaged.

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.

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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 larger than we are and have greater financial resources and
more established operations. We may also face competition from new entrants
into the market, including centers established by former medical directors or
other referring physicians. We cannot assure you that we will be able to
compete effectively with any of our competitors.

If We Lose Any of Our Executive Officers, 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 William P. Johnston,
our chairman of the board, Gary A. Brukardt, our president and chief executive
officer, Raymond M. Hakim, M.D., Ph.D., David M. Dill and Timothy P. Martin,
each an executive vice president, and Douglas B. Chappell, our general counsel.
Mr. Brukardt and Dr. Hakim have each been with Renal Care Group since 1996. The
services of our executive officers would be difficult to replace. We selected
Mr. Johnston as our chairman, Mr. Brukardt as our president and chief executive
officer, Mr. Dill as our chief financial officer and Mr. Martin as executive
vice president, operations in 2003.

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 business, 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, as of December 31, 2003, the four largest providers of
outpatient dialysis services owned approximately 66% 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 generally
accepted accounting principles, we are required to review all of these assets
at regular intervals for impairment and to charge an appropriate amount to expense when we identify impairment. If
we identify impairment and 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 Complete our Acquisition of National Nephrology Associates and Planned
Share Repurchases, Then We Will Have Substantial Leverage

We have announced a definitive agreement to acquire National Nephrology
Associates and our intention to repurchase $250.0 million of our common stock
between November 1, 2003 and March 31, 2004. If we complete both of these
initiatives as planned, then we will have indebtedness of more than $475.0
million and will incur substantial interest expense in 2004 and beyond. For
the last several years, we have had very little indebtedness coupled with
strong cash flow, which have given us substantial financial flexibility. Our
new level of indebtedness could restrict our ability to make

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investments in our
business or to expand it through the development of new facilities, to make
other acquisitions or to acquire additional common stock. In addition, we are
or will be subject to a number of covenants in the agreements governing this
indebtedness that could restrict the way we do business, acquire new businesses
and repurchase common stock.

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 recently acquired Midwest Kidney Centers and announced
a definitive agreement to acquire National Nephrology Associates, Inc. and 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
like the acquisition of National Nephrology Associates. We may be unable to
integrate the businesses we acquire successfully or to achieve anticipated
benefits from an acquisition in a timely manner, which could lead to
substantial costs and delays or other operational, technical or financial
problems, including diverting managements attention from our existing
business. Any of these results could damage our profitability and our prospects
for future growth.

If 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

We currently maintain programs of general and professional liability
insurance and directors and officers insurance with significant deductible or
self-insured retention 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 part of the increases in premiums for the programs. These
deductibles and premiums increased substantially in 2002 and 2003. Our earnings
could be materially and adversely affected by any of the following:



| |  |  | further increases in premiums, deductibles and self-insurance
retentions;                                                  
| | - |  | ---------------------------------------------------------------------------------------------------------------------------
|
| |  |  | 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,
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 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 include the
following:

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| |  |  | a staggered board of directors that would require two annual
meetings to replace a majority of the board of directors;                                                                                         
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | restrictions on calling special meetings at which an
acquisition or change in control might be brought to a vote of the
shareholders;                                                                          
|
| |  |  | blank check preferred stock that may be issued by our board of
directors without shareholder approval and that may be substantially
dilutive or contain preferences or rights objectionable to an
acquiror; and
|
| |  |  | a poison pill that would substantially dilute the interest sought by
an acquiror.                                                                                                                              

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

Our Stock Price Is Volatile and as a Result, the Value of Your Investment May
Go Down for Reasons Unrelated To the Performance of Our Business

Our common stock is traded on the New York Stock Exchange. The market
price of our common stock has been volatile, ranging from a low closing price
of $28.05 per share to a high closing price of $41.62 per share during the year
ended December 31, 2003. 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.

26



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##### Table of Contents






Item 2.Properties

PROPERTIES

As of December 31, 2003, we operated 284 dialysis centers in 27 states, of
which 251 are located in leased facilities and 33 are owned. The following is a
summary of our outpatient dialysis centers by state.

OUTPATIENT FACILITIES BY STATE

|               |  |  |     | 
|-------------- |  |  | --- | 
|Alabama        |  |  | 4   | 
|Alaska         |  |  | 2   | 
|Arizona        |  |  | 31  | 
|Arkansas       |  |  | 10  | 
|Colorado       |  |  | 2   | 
|Florida        |  |  | 7   | 
|Idaho          |  |  | 1   | 
|Illinois       |  |  | 18  | 
|Indiana        |  |  | 27  | 
|Kansas         |  |  | 12  | 
|Kentucky       |  |  | 3   | 
|Louisiana      |  |  | 1   | 
|Michigan       |  |  | 6   | 
|Mississippi    |  |  | 33  | 
|Missouri       |  |  | 10  | 
|Nebraska       |  |  | 2   | 
|New Jersey     |  |  | 3   | 
|New Mexico     |  |  | 3   | 
|Ohio           |  |  | 22  | 
|Oklahoma       |  |  | 4   | 
|Oregon         |  |  | 10  | 
|Pennsylvania   |  |  | 11  | 
|South Carolina |  |  | 3   | 
|Tennessee      |  |  | 6   | 
|Texas          |  |  | 41  | 
|Washington     |  |  | 10  | 
|Wisconsin      |  |  | 2   | 
|               |  |  |     | 
|TOTAL          |  |  | 284 | 
|               |  |  |     | 

Some of our centers are leased from physicians who practice at the center
and who are stockholders. Our leases generally have terms ranging from one to
15 years and typically contain renewal options. The size of our centers ranges
from approximately 1,000 to 25,000 square feet. We lease office space in
Nashville, Tennessee for our corporate headquarters under a lease that expires
in 2009. We lease other office space in and around Nashville, Tennessee for
certain billing and computer operations. We consider our physical properties to
be in good operating condition and suitable for the purposes for which they are
being used.

Expansion or relocation of our 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 a certificate of need
application is usually necessary for expansion of an existing dialysis center
or development of a new center.

We generally own the equipment used in our outpatient centers. We consider
our 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 our dialysis
centers in Youngstown, Ohio. One of the 19 hospitalized patients also died
some time later.

In March 2001, we were sued in Mahoning County, Ohio by one of the
affected patients for injuries related to the August 30, 2000 illnesses. Ten
additional suits were filed, and as of December 31, 2003, a total of five of
these 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. We have
denied the allegations and have filed cross-claims against the water system
vendors. We intend to pursue these cross-claims vigorously.

Management believes that our insurance should be adequate to cover these
illnesses and does not anticipate a material adverse effect on our consolidated
financial position or results of operation.

In addition, we are subject to claims and suits in the ordinary course of
business, including those arising from patient treatment, and we believe these
claims and suits will be covered by our liability insurance and reserves we
have established to satisfy these claims.




Item 4.Submission of Matters to a Vote of Security Holders

We did not submit any matter to a vote of our shareholders during the
fourth quarter of 2003.

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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 is traded 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 New York Stock Exchange for the last
two fiscal years.

|               |  |      |       |     |  |   |       | 
|-------------- |  | ---- | ----- | --- |  | - | ----- | 
|2002           |  | High |       | Low
|               |  |      |       |    
|First quarter  |  | $    | 33.65 |     |  | $ | 28.30 | 
|Second quarter |  | $    | 35.80 |     |  | $ | 31.15 | 
|Third quarter  |  | $    | 33.65 |     |  | $ | 27.72 | 
|Fourth quarter |  | $    | 34.01 |     |  | $ | 30.35 | 

|               |  |      |       |     |  |   |       | 
|-------------- |  | ---- | ----- | --- |  | - | ----- | 
|2003           |  | High |       | Low
|               |  |      |       |    
|First quarter  |  | $    | 31.60 |     |  | $ | 28.05 | 
|Second quarter |  | $    | 35.21 |     |  | $ | 30.00 | 
|Third quarter  |  | $    | 37.60 |     |  | $ | 34.05 | 
|Fourth quarter |  | $    | 41.62 |     |  | $ | 33.04 | 

HOLDERS

As of February 26, 2004, the approximate number of registered stockholders
was 166, and the Company had approximately 11,000 beneficial owners.

DIVIDEND POLICY

Renal Care Group has never paid any cash dividend on its capital stock.
Renal Care Group currently anticipates that all of its earnings will be
retained to finance the growth and development of its business or to repurchase
common stock. Renal Care Group does currently 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, 2003.

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Securities Authorized for Issuance Under Equity Compensation Plans(number of
shares in thousands)

The following table summarizes our equity compensation plans as of
December 31, 2003:

|                                                           |  |                     |       |                   |                      |                    |  |  |  |   |       |  |  |                     |       | 
|---------------------------------------------------------- |  | ------------------- | ----- | ----------------- | -------------------- | ------------------ |  |  |  | - | ----- |  |  | ------------------- | ----- | 
|                                                           |  |                     |       |                   |                      |                    |  |  |  |   |       |  |  | 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         |  |                     | 5,646 |                   |                      |                    |  |  |  | $ | 26.50 |  |  |                     | 1,242 | 
|Equity compensation plans not
approved by
Stockholders (2) |  |                     | 353   |                   |                      |                    |  |  |  | $ | 12.86 |  |  |                     |      | 
|                                                           |  |                     |       |                   |                      |                    |  |  |  |   |       |  |  |                     |       | 
|Total                                                      |  |                     | 5,999 |                   |                      |                    |  |  |  | $ | 25.70 |  |  |                     | 1,242 | 

(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 nine options issued and outstanding to purchase shares at a
weighted average exercise price of $19.65. The second plan was adopted by
Dialysis Centers of America, Inc. (DCA) in 1995 under which there are 16
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
eight 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 options plans to
certain employees, officers, directors, and other key persons. These options
vest over various periods up to five years and have a term of ten years from
the date of issuance.

Further information concerning these plans is incorporated by reference to
Footnote 8 in the Consolidated Financial Statements included in this annual
report.

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Item 6.Selected Financial Data

The selected financial data for the years ended December 31, 1999, 2000,
2001, 2002 and 2003 are derived from the audited consolidated financial
statements of the Company and its subsidiaries. The consolidated financial
statements and related notes for the years ended December 31, 2001, 2002 and
2003, 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,
|                                                 |  |                        
|                                                 |  | 1999                    |         | 2000 |  | 2001 |         | 2002 |  | 2003
|                                                 |  |                         |         |      |  |      |         |      |  |     
|INCOME STATEMENT DATA:                           |  |                         |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |           | 
|Net revenue                                      |  | $                       | 541,895 |      |  | $    | 622,575 |      |  | $    | 755,082 |  |  | $ | 903,387 |  |  | $ | 1,005,319 | 
|Patient care costs                               |  |                         | 351,367 |      |  |      | 402,009 |      |  |      | 489,271 |  |  |   | 589,696 |  |  |   | 653,307   | 
|General and administrative expenses              |  |                         | 51,315  |      |  |      | 57,104  |      |  |      | 64,530  |  |  |   | 78,079  |  |  |   | 90,249    | 
|Provision for doubtful accounts                  |  |                         | 14,632  |      |  |      | 16,949  |      |  |      | 20,290  |  |  |   | 23,501  |  |  |   | 26,200    | 
|Depreciation and amortization                    |  |                         | 27,835  |      |  |      | 32,321  |      |  |      | 38,945  |  |  |   | 40,432  |  |  |   | 44,905    | 
|Restructuring charge                             |  |                         |        |      |  |      | 9,235   |      |  |      |        |  |  |   |        |  |  |   |          | 
|Merger expenses                                  |  |                         | 4,300   |      |  |      | 3,766   |      |  |      |        |  |  |   |        |  |  |   |          | 
|                                                 |  |                         |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |           | 
|Total operating costs and expenses               |  |                         | 449,449 |      |  |      | 521,384 |      |  |      | 613,036 |  |  |   | 731,708 |  |  |   | 814,661   | 
|                                                 |  |                         |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |           | 
|Income from operations                           |  |                         | 92,446  |      |  |      | 101,191 |      |  |      | 142,046 |  |  |   | 171,679 |  |  |   | 190,658   | 
|Interest expense, net                            |  |                         | 6,224   |      |  |      | 5,015   |      |  |      | 2,636   |  |  |   | 1,140   |  |  |   | 629       | 
|                                                 |  |                         |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |           | 
|Income before minority interest and income taxes |  |                         | 86,222  |      |  |      | 96,176  |      |  |      | 139,410 |  |  |   | 170,539 |  |  |   | 190,029   | 
|Minority interest                                |  |                         | 7,768   |      |  |      | 10,011  |      |  |      | 15,478  |  |  |   | 21,410  |  |  |   | 25,431    | 
|                                                 |  |                         |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |           | 
|Income before income taxes                       |  |                         | 78,454  |      |  |      | 86,165  |      |  |      | 123,932 |  |  |   | 149,129 |  |  |   | 164,598   | 
|Provision for income taxes                       |  |                         | 31,367  |      |  |      | 34,706  |      |  |      | 47,331  |  |  |   | 56,669  |  |  |   | 62,542    | 
|                                                 |  |                         |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |           | 
|Net income                                       |  | $                       | 47,087  |      |  | $    | 51,459  |      |  | $    | 76,601  |  |  | $ | 92,460  |  |  | $ | 102,056   | 
|                                                 |  |                         |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |           | 
|Basic net income per share                       |  | $                       | 1.05    |      |  | $    | 1.12    |      |  | $    | 1.59    |  |  | $ | 1.89    |  |  | $ | 2.11      | 
|                                                 |  |                         |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |           | 
|Basic weighted average shares outstanding        |  |                         | 45,015  |      |  |      | 46,048  |      |  |      | 48,113  |  |  |   | 48,978  |  |  |   | 48,479    | 
|                                                 |  |                         |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |           | 
|Diluted net income per share                     |  | $                       | 1.00    |      |  | $    | 1.07    |      |  | $    | 1.52    |  |  | $ | 1.82    |  |  | $ | 2.05      | 
|                                                 |  |                         |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |           | 
|Diluted weighted average shares outstanding      |  |                         | 47,052  |      |  |      | 47,948  |      |  |      | 50,433  |  |  |   | 50,767  |  |  |   | 49,835    | 
|                                                 |  |                         |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |           | 

|                     |  |              |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|-------------------- |  | ------------ | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- |  |  | - | ------- | 
|                     |  | December 31,
|                     |  |             
|                     |  | 1999         |         | 2000 |  | 2001 |         | 2002 |  | 2003
|                     |  |              |         |      |  |      |         |      |  |     
|BALANCE SHEET DATA:  |  |              |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|Working capital      |  | $            | 73,651  |      |  | $    | 108,915 |      |  | $    | 104,047 |  |  | $ | 110,481 |  |  | $ | 122,667 | 
|Total assets         |  |              | 500,906 |      |  |      | 582,672 |      |  |      | 651,049 |  |  |   | 740,123 |  |  |   | 819,873 | 
|Long-term debt       |  |              | 79,690  |      |  |      | 58,316  |      |  |      | 3,776   |  |  |   | 10,161  |  |  |   | 2,652   | 
|Stockholders equity |  |              | 311,839 |      |  |      | 394,122 |      |  |      | 510,251 |  |  |   | 543,888 |  |  |   | 570,845 | 

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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 20 to 26 under
the heading Risk Factors. Also, please read the cautionary notice regarding
forward-looking statements set forth at the beginning of this annual report.

Please read the following discussion in conjunction with our 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, 2003, we provided dialysis and ancillary
services to over 21,400 patients through 284 outpatient dialysis centers in 27
states, in addition to providing acute dialysis services to more than 130
hospitals.

Our net revenue has been derived primarily from the following sources:



| |  |  | outpatient hemodialysis services;                                                                           
| | - |  | ------------------------------------------------------------------------------------------------------------
|
| |  |  | ancillary services associated with outpatient dialysis, primarily the administration of EPO and other drugs;
|
| |  |  | home dialysis services;                                                                                     
|
| |  |  | inpatient hemodialysis services provided to acute care hospitals and skilled nursing facilities;            
|
| |  |  | laboratory services; and                                                                                    
|
| |  |  | management contracts with hospital-based medical university dialysis programs.                              

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, 2003, approximately 55% of our 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. Neither Congress nor CMS approved an increase in the composite
rate for 2002, 2003 or 2004.

The Medicaid programs in some of the states in which we operate have
formerly reimbursed us, or currently reimburse us, at rates higher than those
paid by Medicare. Some of these programs, like Washingtons and Wisconsins,
have approved and implemented reductions in reimbursement. Other programs have
proposed reductions or have announced that they are considering reductions. If
all the states in which we operate that have Medicaid rates that are higher
than Medicare rates were to reduce their rates to Medicare rates, and giving
effect to the reductions already implemented in Washington and Wisconsin, our
earnings per share will likely be adversely affected by between $0.10 and $0.15
per share in 2004. We assumed that these reductions would occur when we set
and communicated our corporate goals for 2004.

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 we provide. We receive separate reimbursement outside the
composite rate for some other services, drugs (including specific drugs such as
EPO) and some physician-ordered tests, including laboratory tests, provided to
dialysis patients.

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If a patient has private health insurance, then that patients treatment
is typically reimbursed at rates significantly higher than those paid by
Medicare during the first 30 months of care. 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 Medicare rates. Because dialysis is a life-sustaining therapy to
treat a chronic disease, utilization is predictable and is not subject to
seasonal fluctuations.

We derive a significant portion of our 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. Because we were already under contract with Amgen through 2002, this
price increase did not affect our results of operations during 2002. Key
components of the 2002 pricing formula were maintained in our 2003 contract
with Amgen. Therefore, while the 2002 price increase had an adverse affect on
our 2003 results of operations, we were able to mitigate approximately 80% of
the increase. Amgen did not implement a price increase in 2003, but changes in
our contract with Amgen for 2004 may result in an increase in our cost of EPO.
We estimated the impact of these changes and
assumed they would take place when we set and
communicated our corporate goals for 2004.

Critical Accounting Policies

The Securities and Exchange Commission issued a financial reporting
release, FR-60, Cautionary Advice Regarding Disclosure About Critical
Accounting Policies. In accordance with that release, we have identified accounting policies that we consider critical to our business.
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 our consolidated
financial statements and related notes, contained elsewhere in this annual
report on Form 10-K.

Our discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in
the United States. The preparation of these financial statements requires us to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosures of contingent
assets and liabilities. We continuously evaluate our critical accounting
policies and estimates, including those related to net revenue and contractual
provisions and provision for doubtful accounts. We base our estimates on
historical experience and on various assumptions that we believe to be
reasonable under the circumstances. The results of these estimates form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ
from these estimates under different assumptions or conditions.

We believe the following critical accounting policies require significant
judgments and estimates in the preparation of our consolidated financial
statements.

Net Revenue and Contractual Provisions

We recognize revenue net of contractual provisions as services are
provided. Contractual provisions represent the difference between our gross
billed charges and the amount we expect 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 us under contractual arrangements or based on
our charges. Each of these payor sources provides unique challenges to the
process of recording contractual provisions.

We have made significant investments in human resources and information
systems to enable us 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, we may in fact collect more or less
than the amount expected when the services are provided. In addition,
regulations and contracts may be changed, making system updates and maintenance
necessary for estimating net revenue accurately. As a result, management

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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 our success. Our
primary source of collection risk is related to the portion of our charges for
which the patient is responsible. The patients responsibility is typically
between 10% and 15% of gross charges. We record an 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 our payor mix or business office operations
could have a significant impact on our results of operations and cash flows.

Self- Insurance Accruals

From time to time, we are subject to professional liability, general
liability and workers compensation claims or lawsuits in the ordinary course of
business. To mitigate a portion of this risk, we maintain insurance for
professional liability and general liability claims exceeding certain
individual amounts and workers compensation claims exceeding certain individual
and aggregate amounts. We estimate the self-insured retention portion of
professional liability, general liability and workers compensation risks using
third-party actuarial calculations that include historical claims data,
demographic factors and other assumptions. The estimated accrual for
professional liability, general liability 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 our ability to make precise estimates.

Impairment of Goodwill and Long-Lived Assets

We review 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.

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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,
|                                    |  |                        
|                                    |  | 2001                    |         | 2002 |  | 2003
|                                    |  |                         |         |      |  |     
|Net revenue                         |  | $                       | 755,082 |      |  |      | 100.0 | % |  | $ | 903,387 |  |  |  | 100.0 | % |  | $ | 1,005,319 |  |  |  | 100.0 | %
|Patient care costs                  |  |                         | 489,271 |      |  |      | 64.8  |   |  |   | 589,696 |  |  |  | 65.3  |   |  |   | 653,307   |  |  |  | 65.0  |  
|General and administrative expenses |  |                         | 64,530  |      |  |      | 8.5   |   |  |   | 78,079  |  |  |  | 8.6   |   |  |   | 90,249    |  |  |  | 9.0   |  
|Provision for doubtful accounts     |  |                         | 20,290  |      |  |      | 2.7   |   |  |   | 23,501  |  |  |  | 2.6   |   |  |   | 26,200    |  |  |  | 2.6   |  
|Depreciation and amortization       |  |                         | 38,945  |      |  |      | 5.2   |   |  |   | 40,432  |  |  |  | 4.5   |   |  |   | 44,905    |  |  |  | 4.4   |  
|                                    |  |                         |         |      |  |      |       |   |  |   |         |  |  |  |       |   |  |   |           |  |  |  |       |  
|Total operating costs and expenses  |  |                         | 613,036 |      |  |      | 81.2  |   |  |   | 731,708 |  |  |  | 81.0  |   |  |   | 814,661   |  |  |  | 81.0  |  
|                                    |  |                         |         |      |  |      |       |   |  |   |         |  |  |  |       |   |  |   |           |  |  |  |       |  
|Income from operations              |  |                         | 142,046 |      |  |      | 18.8  |   |  |   | 171,679 |  |  |  | 19.0  |   |  |   | 190,658   |  |  |  | 19.0  |  
|Interest expense, net               |  |                         | 2,636   |      |  |      | 0.3   |   |  |   | 1,140   |  |  |  | 0.1   |   |  |   | 629       |  |  |  | 0.1   |  
|Minority interest                   |  |                         | 15,478  |      |  |      | 2.0   |   |  |   | 21,410  |  |  |  | 2.4   |   |  |   | 25,431    |  |  |  | 2.5   |  
|                                    |  |                         |         |      |  |      |       |   |  |   |         |  |  |  |       |   |  |   |           |  |  |  |       |  
|Income before income taxes          |  |                         | 123,932 |      |  |      | 16.4  |   |  |   | 149,129 |  |  |  | 16.5  |   |  |   | 164,598   |  |  |  | 16.4  |  
|Provision for income taxes          |  |                         | 47,331  |      |  |      | 6.3   |   |  |   | 56,669  |  |  |  | 6.3   |   |  |   | 62,542    |  |  |  | 6.2   |  
|                                    |  |                         |         |      |  |      |       |   |  |   |         |  |  |  |       |   |  |   |           |  |  |  |       |  
|Net income                          |  | $                       | 76,601  |      |  |      | 10.1  | % |  | $ | 92,460  |  |  |  | 10.2  | % |  | $ | 102,056   |  |  |  | 10.2  | %
|                                    |  |                         |         |      |  |      |       |   |  |   |         |  |  |  |       |   |  |   |           |  |  |  |       |  

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

Net RevenueNet revenue increased from $903.4 million for the year ended
December 31, 2002 to $1,005.3 million for the year ended December 31, 2003, an
increase of $101.9 million, or 11.3%. This increase resulted primarily from a
7.8% increase in the number of treatments we performed from 3,019,675 in 2002
to 3,254,447 in 2003 and a 3.7% increase in the average patient revenue per
dialysis treatment from $297 in 2002 to $308 in 2003. The growth in treatments was the
result of the acquisition and development of various dialysis facilities and a
4.7% increase in same-market treatments for 2003 over 2002. We anticipate
reductions in same-market treatment rate of growth during 2004. We estimate
that approximately $10 of the $11 increase in revenue per treatment
in 2003 was largely
attributable to the rate increase to private payors that we implemented during
the fourth quarter of 2002. The remaining $1 per treatment increase
was the net
result of both favorable and unfavorable payor contract resolutions. During
2003 we experienced favorable payor contract resolutions of $5 per treatment,
which was offset by $4 per treatments of unfavorable payor resolutions a
portion of which relate to reduced reimbursement experienced with certain
managed care contracts and reduced reimbursement in certain state Medicaid
programs. Assuming a full year impact in these reductions, we expect our 2004
patient revenue per dialysis treatment to be negatively impacted by
approximately $5. Consistent with previous years we implemented a rate
increase to private payors during the fourth quarter of 2003, and we believe
this increase will offset most of the decrease noted above. Accordingly, we
expect patient revenue per dialysis treatment to remain flat or increase
slightly in 2004 as compared to 2003.

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 $589.7 million for the year ended December 31, 2002 to $653.3 million for
the year ended December 31, 2003, an increase of 10.8%. 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 decreased
from 65.3% in 2002 to 65.0% in 2003. Patient care costs per treatment increased
3.1% from $195 in 2002 to $201 in 2003. The increase in patient care costs per
treatment was due to increases in the price of EPO, labor costs, the cost of
insurance, increases in self-insurance accruals, and the utilization of certain
ancillary drugs. Management believes that the Company will continue to face
increases in the cost of labor and insurance in 2004.

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 $78.1
million for the year ended December 31, 2002 to $90.2 million for the year
ended December 31, 2003, an increase of 15.6%. This increase was due primarily
to a $5.4 million charge recorded in the first quarter of 2003 for a retirement
benefit plan for our former chairman, chief executive officer and president
that was adopted in January 2003. General and administrative expenses as
percentage of revenue increased from 8.6% in 2002 to 9.0% in 2003. The charge
for the retirement package accounted for substantially all of the increase in
general and administrative expenses as a percentage of net revenue.

Provision for Doubtful Accounts.Management determines the provision for
doubtful accounts as a function of payor mix, billing practices and other
factors. We reserve 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 $23.5 million in 2002 to $26.2 million in 2003, an increase of
$2.7 million, or 11.5%. The provision for doubtful accounts as a percentage of
net revenue remained consistent in 2002 and 2003 at 2.6%.

Depreciation and Amortization.Depreciation and amortization increased
from $40.4 million for the year ended December 31, 2002 to $44.9 million for
the year ended December 31, 2003, an increase of 11.1%. 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 slightly from 4.5% in 2002 to 4.4% in 2003.

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Income from Operations.Income from operations increased from $171.7
million for the year ended December 31, 2002 to $190.7 million for the year
ended December 31, 2003, an increase of 11.1%. Income from operations as a
percentage of net revenue remained consistent in 2002 and 2003 at 19.0%.

Interest Expense, Net.Interest expense decreased from $1.1 million for
the year-ended December 31, 2002 to $629,000 for the year ended December 31,
2003. This decrease was the result of lower average borrowings in 2003. We
expect substantially higher interest expense in 2004 as the result of
borrowings associated with the planned acquisition of National Nephrology
Associates and our previously announced plan to repurchase $250.0 million of
our common stock by March 31, 2004.

Minority Interest.Minority interest represents the proportionate equity
interest of other owners of entities that are not wholly owned whose financial
results are included in our consolidated results. Minority interest as a
percentage of net revenue increased to 2.5% in 2003 from 2.4% in 2002. This
increase was the result of continued financial improvements of our larger joint
ventures, primarily those in Ohio, Oregon and Washington, as well as an
increase in the number of facilities operated as joint ventures. As of
December 31, 2003, we were the majority and controlling owner in 50 joint
ventures compared to 36 as of December 31, 2002.

Provision for Income Taxes.Income tax expense increased from $56.7
million in 2002 to $62.5 million in 2003, an increase of $5.9 million or 10.4%.
The increase is a result of pre-tax earnings increasing by 10.4%. Our effective
tax rate was 38.0% in both 2002 and 2003.

Net Income.Net income increased from $92.5 million in 2002 to $102.1
million in 2003, an increase of $9.6 million or 10.4%. This increase was a
result of the items discussed above.

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

Net RevenueNet 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 we performed 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.
We estimate that approximately $10 of the $19 per treatment increase
was
attributable to the rate increase to private payors that we implemented during
the fourth quarter of 2001. The remaining $9 per treatment increase was the
result of favorable resolutions of various payor contract issues of $4, and $5 relating to the increase in the 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 our 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.

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.

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Provision for Doubtful Accounts.Management determines the provision for
doubtful accounts as a function of payor mix, billing practices and other
factors. We reserve 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 we stopped amortizing goodwill
effective January 1, 2002. For 2001, we 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.

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 we restructured our lines of
credit in 2002.

Minority Interest.Minority interest represents the proportionate equity
interest of other owners of entities that are not wholly owned whose financial
results are included in our 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 our 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%. Our 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 some goodwill continues 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.

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 our common stock and to finance working capital needs.
At December 31, 2003, our working capital was $122.7 million; cash and cash
equivalents were $50.3 million; and our current ratio was 1.7 to 1.0. Our
working capital increased during the year primarily as a result of the increase
in operating cash flows.

Net cash provided by operating activities was $186.5 million for the year
ended December 31, 2003. 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. Net cash used in
investing activities was $78.5 million for the year ended December 31, 2003.
Cash used in investing activities consisted primarily of $63.8 million of
purchases of property and equipment and $14.2 million of cash paid for
acquisitions, net of cash acquired. Net cash used in financing activities was
$96.1 million for

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the year ended December 31, 2003. Cash used in financing activities primarily
reflects $140.5 million in repurchases of our common stock, partially offset by
$51.8 million in net proceeds from the issuance of common stock as stock
options were exercised.

In July 2002, we entered into two credit agreements with a group of banks
totaling $150.0 million consisting of a $100.0 million Second Amended and
Restated Loan Agreement (the Multi-Year Facility) and a $50.0 million Loan
Agreement (the 364-day Facility). The Multi-Year Facility had a final maturity
of July 1, 2005, and the 364-day facility had a final maturity of June 30,
2004, based on an amendment made in June 2003. As of December 31, 2003 there
were no amounts outstanding under the Multi-Year Facility or the 364-day
Facility, and the Company had $150.0 million available under these agreements.

On February 10, 2004, we entered into a new credit agreement (the 2004
Agreement) with a group of banks totaling up to $700.0 million. The 2004
Agreement replaced the Multi-Year Facility and the 364-day Facility discussed
above. This credit agreement has a $150.0 million revolving credit facility, a
committed $325.0 million dollar term loan facility and a $225.0 million
incremental term loan facility. Our ability to borrow under the committed term
loan facility expires in May 2004. All of these committed facilities have a
final maturity of February 10, 2009. The credit agreement provides that $175.0
million of the committed term loan facility may only be used to finance our
acquisition of National Nephrology Associates. To the extent we do not use
that amount to fund the acquisition, unborrowed amounts will increase the size
of the incremental term loan facility. Borrowings under the incremental term
loan facility are subject to obtaining commitments from the banks finalizing
specific terms.

Borrowings under the revolving credit facility and $150.0 million of the
committed term loan facility may be used for acquisitions, repurchases of our
stock, capital expenditures, working capital and general corporate purposes.
Borrowings under the 2004 Agreement bear interest at variable rates determined
by our leverage ratio. This variable rate debt instrument carries a degree of
interest rate risk. Specifically, we will face higher interest costs on this
debt if interest rates rise. Each of our wholly-owned subsidiaries has
guaranteed all of our obligations under the 2004 Agreement. Further, our
obligations under the 2004 Agreement, and our subsidiaries obligations under
their guarantees, are secured by a pledge of the equity interests we hold in
each of our subsidiaries. The 2004 Agreement includes financial covenants that
are customary based on the amount and duration of the agreement.

We intend to use this facility to complete our previously announced $250.0 million share repurchase and our acquisition of National Nephrology Associates.
Assuming we complete both of these initiatives we will have more than $475.0
million in outstanding indebtedness. This indebtedness will include $160.0 million in senior subordinated notes of National Nephrology Associates that we
will assume in the acquisition. These notes bear interest at the rate of 9%
per annum. As a result of this indebtedness, we will incur substantial
interest expense in 2004.

A significant component of our growth strategy is the acquisition and
development of dialysis facilities. There can be no assurance that we 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 our new
credit facility, will be sufficient to meet our acquisition, expansion, capital
expenditure and working capital needs for the foreseeable future. However, in
order to finance certain large strategic acquisition opportunities, we 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 we will be able
to secure additional financing, if required, on acceptable terms.

We plan to make capital expenditures of between $70.0 million and $80.0
million, primarily for equipment replacement, expansion of existing dialysis
facilities and construction of de novo facilities. We expect that these capital
expenditures will be funded with cash provided by operating activities and our
existing credit facilities. Management believes that capital resources
available to us will be sufficient to meet the needs of our 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 2001, we began
repurchasing shares of our common stock by purchasing 100,000 shares of common
stock for approximately $3.1 million. In 2002, we repurchased 2.9

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million shares of our common stock for approximately $90.9 million. In
October 2003, we announced that the Board of Directors had approved an increase
in the repurchase plan to allow the purchase of up to a total of $450.0 million
in common stock, and we announced that we intended to repurchase $250.0 million
in common stock between November 1, 2003 and March 31, 2004. During 2003, we
repurchased 3.7 million shares of common stock for $140.5 million. Through
December 31, 2003, we had repurchased an aggregate of 6.6 million shares under
the plan, for a total of approximately $234.4 million. As of February 23,
2004, we had repurchased approximately $181.9 million of our common stock
between November 1, 2003 and that date, leaving $68.1 million remaining of the
$250.0 million we intend to repurchase in early 2004.

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 our existing contractual obligations. At December 31, 2003, we had no
significant contingent commitments.

|                                   |  |                                       |         |      |  |             |        |             |  |               |        |  |  |   |        |  |  |   |        | 
|---------------------------------- |  | ------------------------------------- | ------- | ---- |  | ----------- | ------ | ----------- |  | ------------- | ------ |  |  | - | ------ |  |  | - | ------ | 
|                                   |  | Payments Due by Period (in thousands)
|                                   |  |                                      
|                                   |  |                                       |         |      |  | Less than 1 |        |             |  |               |        |  |  |   |        |  |  |  
|Contractual Obligations            |  | Total                                 |         | year |  | 1 - 3 years |        | 3 - 5 years |  | After 5 years
|                                   |  |                                       |         |      |  |             |        |             |  |              
|Long-Term Obligations:             |  |                                       |         |      |  |             |        |             |  |               |        |  |  |   |        |  |  |   |        | 
|Capital leases and long term debt  |  | $                                     | 2,834   |      |  | $           | 182    |             |  | $             | 321    |  |  | $ | 265    |  |  | $ | 2,066  | 
|Operating leases                   |  |                                       | 195,891 |      |  |             | 30,413 |             |  |               | 53,219 |  |  |   | 43,890 |  |  |   | 68,369 | 
|Medical director fee obligations   |  |                                       | 75,172  |      |  |             | 13,902 |             |  |               | 25,571 |  |  |   | 19,313 |  |  |   | 16,386 | 
|                                   |  |                                       |         |      |  |             |        |             |  |               |        |  |  |   |        |  |  |   |        | 
|Total contractual cash obligations |  | $                                     | 273,897 |      |  | $           | 44,497 |             |  | $             | 79,111 |  |  | $ | 63,468 |  |  | $ | 86,821 | 
|                                   |  |                                       |         |      |  |             |        |             |  |               |        |  |  |   |        |  |  |   |        | 

Newly Issued Accounting Standards

In December 2002, the Financial Accounting Standards Board (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. 123). 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.

In December 2003, the FASB issued revised Interpretation No. 46,
Consolidation of Variable Interest Entities(FIN 46). Until this
interpretation, a company generally included another entity in its consolidated
financial statements only if it controlled the entity through voting interests.
FIN 46 requires a variable interest entity to be consolidated by a company if
that company is subject to a majority of the risk of loss from the variable
interest entitys activities or entitled to receive a majority of the entitys
residual returns. Application of FIN 46 is required during the fourth quarter
of 2003 for interests in structures that are commonly referred to as
special-purpose entities; immediately for all new entities created after
February 1, 2003; and for all other types of variable interest entities in the
first quarter of 2004. The effect of applying the initial consolidation
provisions of FIN 46 on Renal Care Groups results of operations or financial
position as of December 31, 2003 was not significant. We do not expect the
application of the remaining consolidation provisions of FIN 46, as required in
the first quarter of 2004, will have a material effect on Renal Care Groups
results of operations or financial position.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity(SFAS
No. 150). This statement establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both liabilities
and equity. SFAS No. 150 is effective for financial instruments entered into
or modified after May 31, 2003, and the first interim period beginning after
June 15, 2003. We

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currently have no financial instruments that fall within the guidelines of
the new requirements and, as such, there was no effect of adopting SFAS No. 150
on our results of operations or financial position.

Impact of Inflation

A substantial portion of our net revenue is subject to reimbursement rates
that are regulated by the federal government and do not automatically adjust
for inflation. We are unable to increase the amount we receive for the
services provided by our dialysis business that are reimbursed under or by
reference to the Medicare composite rate. 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 our
results of operations, financial condition and business.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial condition, changes
in financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources.




Item 7a.Quantitative and Qualitative Disclosures About Market Risk

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.

Interest Rate Risk

On February 10, 2004, we entered a new credit agreement with a group of
banks, which agreement has a total of $475.0 million in committed facilities.
Under the 2004 Agreement, outstanding balances have interest at rates that are
adjusted on specific consolidated leverage ratios defined in the agreement.
These variable rate debt instruments carry a degree of interest rate risk.
Specifically, variable rate debt may result in higher costs to us if interest
rates rise.




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.




Item 9a.Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the period covered by this report. Our Chief
Executive Officer and Chief Financial Officer concluded that, as of the end of
the period covered by this report, we maintain disclosure controls and
procedures that provide reasonable assurance that information that we are
required to disclose in the reports that we file or submit under the Securities
Exchange Act of 1934, as amended, is recorded, processed, summarized and
reported within the time periods specified in the SECs rules and forms, and
that such information is accumulated and communicated to our management,
including our Chief Executive Officer and our Chief Financial Officer, as
appropriate to allow timely decisions regarding required disclosure.

41



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There were no changes in our internal control over financial reporting
that occurred during the quarter ended December 31, 2003 that materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.

42



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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
2004 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 2004 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 2004 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 2004
Annual Meeting of Stockholders.




Item 14.Principal Accountant Fees and Services

The information required by this item will appear in, and is incorporated
by reference from, the section entitled Auditors included in the Companys
definitive Proxy Statement relating to the 2004 Annual Meeting of Stockholders.

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PART IV




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

|    |  |                                                                                                                                                       |  |     
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|    |  |                                                                                                                                                       |  | Page
|    |  |                                                                                                                                                       |  |     
|(a) |  | Documents filed as part of this Report:                                                                                                               |  |     
|(1) |  | Consolidated Financial Statements                                                                                                                     |  |     
|    |  | Report of Independent Auditors                                                                                                                        |  | F-1 
|    |  | Consolidated Balance Sheets at December 31, 2002
and 2003                                                                                             |  | F-2 
|    |  | Consolidated Income Statements for the years
ended December 31, 2001, 2002, and 2003                                                                  |  | F-4 
|    |  | Consolidated Statements of Stockholders Equity
for the years ended December 31, 2001, 2002, and 2003                                                 |  | F-5 
|    |  | Consolidated Statements of Cash Flows for the years
ended December 31, 2001, 2002, and 2003                                                           |  | 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, 2002 and 2003, 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, 2003. 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, 2002 and 2003 and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2003, in conformity with accounting principles generally accepted
in the United States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.

|                     |  |                      
|-------------------- |  | ---------------------
|                     |  | /s/ ERNST & YOUNG LLP
|Nashville, Tennessee |  |                      
|February 13, 2004    |  |                      

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##### Table of Contents



Renal Care Group, Inc.
Consolidated Balance Sheets
(in thousands)

|                                   |                                                                                                  |                      |         |             |         |      |         |         |         | 
|---------------------------------- | ------------------------------------------------------------------------------------------------ | -------------------- | ------- | ----------- | ------- | ---- | ------- | ------- | ------- | 
|                                   |                                                                                                  |                      |         | December 31
|                                   |                                                                                                  |                      |         |            
|                                   |                                                                                                  |                      |         | 2002        |         | 2003
|                                   |                                                                                                  |                      |         |             |         |     
|ASSETS                             |                                                                                                  |                      |         |             |         |      |         |        
|Current assets:                    |                                                                                                  |                      |         |             |         |      |         |        
|                                   | Cash and cash equivalents                                                                        |                      | $       | 38,359      |         |      | $       | 50,295  |        
|                                   | Accounts receivable, less allowance for doubtful
accounts of $43,677 in 2002 and $32,161 in 2003 |                      |         | 152,440     |         |      |         | 173,679 |        
|                                   | Inventories                                                                                      |                      |         | 23,336      |         |      |         | 26,345  |        
|                                   | Prepaid expenses and other current assets                                                        |                      |         | 19,486      |         |      |         | 28,050  |        
|                                   | Income taxes receivable                                                                          |                      |         |            |         |      |         | 1,910   |        
|                                   | Deferred income taxes                                                                            |                      |         | 12,240      |         |      |         | 11,825  |        
|                                   |                                                                                                  |                      |         |             |         |      |         |         |        
|                                   |                                                                                                  | Total current assets |         |             | 245,861 |      |         |         | 292,104 | 
|Property, plant and equipment, net |                                                                                                  |                      | 202,972 |             |         |      | 224,397 |        
|Intangible assets, net             |                                                                                                  |                      | 12,110  |             |         |      | 14,046  |        
|Goodwill                           |                                                                                                  |                      | 275,666 |             |         |      | 286,578 |        
|Other assets                       |                                                                                                  |                      | 3,514   |             |         |      | 2,748   |        
|                                   |                                                                                                  |                      |         |             |         |      |         |         |        
|                                   |                                                                                                  | Total assets         |         | $           | 740,123 |      |         | $       | 819,873 | 
|                                   |                                                                                                  |                      |         |             |         |      |         |         |        

See accompanying notes to consolidated financial statements.

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Renal Care Group, Inc.

Consolidated Balance Sheets
(in thousands, except per share data)

|                                       |                                                                                                                                      |                                            |                           |         |             |         |        |          |         |         | 
|-------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | ------------------------- | ------- | ----------- | ------- | ------ | -------- | ------- | ------- | 
|                                       |                                                                                                                                      |                                            |                           |         | December 31
|                                       |                                                                                                                                      |                                            |                           |         |            
|                                       |                                                                                                                                      |                                            |                           |         | 2002        |         | 2003  
|                                       |                                                                                                                                      |                                            |                           |         |             |         |       
|LIABILITIES AND STOCKHOLDERS EQUITY   |                                                                                                                                      |                                            |                           |         |             |         |        |         
|Current liabilities:                   |                                                                                                                                      |                                            |                           |         |             |         |        |         
|                                       | Accounts payable                                                                                                                     |                                            | $                         | 33,655  |             |         | $      | 36,795   |        
|                                       | Accrued compensation                                                                                                                 |                                            |                           | 32,066  |             |         |        | 40,619   |        
|                                       | Due to third-party payors                                                                                                            |                                            |                           | 32,611  |             |         |        | 46,049   |        
|                                       | Income taxes payable                                                                                                                 |                                            |                           | 1,423   |             |         |        |         |        
|                                       | Accrued expenses and other current liabilities                                                                                       |                                            |                           | 35,492  |             |         |        | 45,792   |        
|                                       | Current portion of long-term debt                                                                                                    |                                            |                           | 133     |             |         |        | 182      |        
|                                       |                                                                                                                                      |                                            |                           |         |             |         |        |         
|                                       |                                                                                                                                      |                                            | Total current liabilities |         |             | 135,380 |        |          |         | 169,437 | 
|Long-term debt, net of current portion |                                                                                                                                      |                                            | 10,161                    |         |             |         | 2,652  |         
|Deferred income taxes                  |                                                                                                                                      |                                            | 19,288                    |         |             |         | 38,390 |         
|Other long-term liabilities            |                                                                                                                                      |                                            |                          |         |             |         | 5,898  |         
|Minority interest                      |                                                                                                                                      |                                            | 31,406                    |         |             |         | 32,651 |         
|                                       |                                                                                                                                      |                                            |                           |         |             |         |        |         
|                                       |                                                                                                                                      |                                            | Total liabilities         |         |             | 196,235 |        |          |         | 249,028 | 
|                                       |                                                                                                                                      |                                            |                           |         |             |         |        |         
|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,
51,176 and 53,643 shares issued at December 31, 2002 and 2003, respectively |                                            |                           | 512     |             |         |        | 536      |        
|                                       | Treasury stock, 2,983 and 6,641 shares of common stock at December 31, 2002
and 2003, respectively                                   |                                            |                           | (93,953 | )           |         |        | (234,404 | )      
|                                       | Additional paid-in capital                                                                                                           |                                            |                           | 309,355 |             |         |        | 374,683  |        
|                                       | Retained earnings                                                                                                                    |                                            |                           | 327,974 |             |         |        | 430,030  |        
|                                       |                                                                                                                                      |                                            |                           |         |             |         |        |         
|                                       |                                                                                                                                      | Total stockholders equity                 |                           |         | 543,888     |         |        |          | 570,845 |        
|                                       |                                                                                                                                      |                                            |                           |         |             |         |        |         
|                                       |                                                                                                                                      | Total liabilities and stockholders equity |                           | $       | 740,123     |         |        | $        | 819,873 |        
|                                       |                                                                                                                                      |                                            |                           |         |             |         |        |         

See accompanying notes to consolidated financial statements.

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Renal Care Group, Inc.

Consolidated Income Statements
(in thousands, except per share data)

|                                     |                                                  |            |         |         |                        |   |         |         |        |   |           |         |         |  | 
|------------------------------------ | ------------------------------------------------ | ---------- | ------- | ------- | ---------------------- | - | ------- | ------- | ------ | - | --------- | ------- | ------- |  | 
|                                     |                                                  |            |         |         | Year Ended December 31
|                                     |                                                  |            |         |         |                       
|                                     |                                                  |            |         |         | 2001                   |   | 2002    |         | 2003  
|                                     |                                                  |            |         |         |                        |   |         |         |       
|Net revenue                          |                                                  | $          | 755,082 |         |                        | $ | 903,387 |         |        | $ | 1,005,319 |        
|Operating costs and expenses:        |                                                  |            |         |         |                        |   |         |         |        |   |           |        
|                                     | Patient care costs                               |            |         | 489,271 |                        |   |         | 589,696 |        |   |           | 653,307 |        
|                                     | General and administrative expenses              |            |         | 64,530  |                        |   |         | 78,079  |        |   |           | 90,249  |        
|                                     | Provision for doubtful accounts                  |            |         | 20,290  |                        |   |         | 23,501  |        |   |           | 26,200  |        
|                                     | Depreciation and amortization                    |            |         | 38,945  |                        |   |         | 40,432  |        |   |           | 44,905  |        
|                                     |                                                  |            |         |         |                        |   |         |         |        |   |           |        
|                                     | Total operating costs and expenses               |            |         | 613,036 |                        |   |         | 731,708 |        |   |           | 814,661 |        
|                                     |                                                  |            |         |         |                        |   |         |         |        |   |           |        
|Income from operations               |                                                  |            | 142,046 |         |                        |   | 171,679 |         |        |   | 190,658   |        
|Interest expense, net                |                                                  |            | 2,636   |         |                        |   | 1,140   |         |        |   | 629       |        
|                                     |                                                  |            |         |         |                        |   |         |         |        |   |           |        
|                                     | Income before minority interest and income taxes |            |         | 139,410 |                        |   |         | 170,539 |        |   |           | 190,029 |        
|Minority interest                    |                                                  |            | 15,478  |         |                        |   | 21,410  |         |        |   | 25,431    |        
|                                     |                                                  |            |         |         |                        |   |         |         |        |   |           |        
|                                     | Income before income taxes                       |            |         | 123,932 |                        |   |         | 149,129 |        |   |           | 164,598 |        
|Provision for income taxes           |                                                  |            | 47,331  |         |                        |   | 56,669  |         |        |   | 62,542    |        
|                                     |                                                  |            |         |         |                        |   |         |         |        |   |           |        
|                                     |                                                  | Net income |         | $       | 76,601                 |   |         | $       | 92,460 |   |           | $       | 102,056 | 
|                                     |                                                  |            |         |         |                        |   |         |         |        |   |           |        
|Net income per share:                |                                                  |            |         |         |                        |   |         |         |        |   |           |        
|                                     |                                                  | Basic      |         | $       | 1.59                   |   |         | $       | 1.89   |   |           | $       | 2.11    | 
|                                     |                                                  |            |         |         |                        |   |         |         |        |   |           |        
|                                     |                                                  | Diluted    |         | $       | 1.52                   |   |         | $       | 1.82   |   |           | $       | 2.05    | 
|                                     |                                                  |            |         |         |                        |   |         |         |        |   |           |        
|Weighted average shares outstanding: |                                                  |            |         |         |                        |   |         |         |        |   |           |        
|                                     |                                                  | Basic      |         |         | 48,113                 |   |         |         | 48,978 |   |           |         | 48,479  | 
|                                     |                                                  |            |         |         |                        |   |         |         |        |   |           |        
|                                     |                                                  | Diluted    |         |         | 50,433                 |   |         |         | 50,767 |   |           |         | 49,835  | 
|                                     |                                                  |            |         |         |                        |   |         |         |        |   |           |        

See accompanying notes to
consolidated financial statements.

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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, 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 | 
|                             |  | Net income                                         |        |              |      |                |     |         |   |          |       |               |      |          |          |        |         |   |         |            |       |   |         |  | 102,056 |       |         |  | 102,056  |  
|                             |  | Common stock issued and related
income tax benefit |        |              | 2,467 |                |     |         | 24 |          |       |               |      |          |          |        |         |   |         |            | 65,328 |   |         |  |        |       |         |  | 65,352   |  
|                             |  | Repurchase of common stock
held in
treasury        |        |              |      |                |     |         |   |          |       |               | 3,658 |          |          |        | (140,451 | ) |         |            |       |   |         |  |        |       |         |  | (140,451 | )
|                             |  |                                                    |        |              |       |                |     |         |    |          |       |               |       |          |          |        |          |   |         |            |        |   |         |  |         |       |         | 
|Balance at December 31, 2003 |  |                                                    | 53,643 |              |       | $              | 536 |         |    |          | 6,641 |               |       | $        | (234,404 | )      |          | $ | 374,683 |            |        | $ | 430,030 |  |         | $     | 570,845 | 
|                             |  |                                                    |        |              |       |                |     |         |    |          |       |               |       |          |          |        |          |   |         |            |        |   |         |  |         |       |         | 

See accompanying notes to consolidated financial statements.

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Renal Care Group, Inc.

Consolidated Statements of Cash Flows
(in thousands)

|                                                                                  |                                                                                |                                                |                                           |         |                        |          |         |        |         |         |          |         |         |         |  
|--------------------------------------------------------------------------------- | ------------------------------------------------------------------------------ | ---------------------------------------------- | ----------------------------------------- | ------- | ---------------------- | -------- | ------- | ------ | ------- | ------- | -------- | ------- | ------- | ------- | -
|                                                                                  |                                                                                |                                                |                                           |         | Year Ended December 31
|                                                                                  |                                                                                |                                                |                                           |         |                       
|                                                                                  |                                                                                |                                                |                                           |         | 2001                   |          | 2002    |        | 2003   
|                                                                                  |                                                                                |                                                |                                           |         |                        |          |         |        |        
|OPERATING ACTIVITIES                                                              |                                                                                |                                                |                                           |         |                        |          |         |        |         |         |          |        
|Net income                                                                        |                                                                                | $                                              | 76,601                                    |         |                        | $        | 92,460  |        |         | $       | 102,056  |        
|Adjustments to reconcile net income to net cash provided by operating activities: |                                                                                |                                                |                                           |         |                        |          |         |        |         |         |          |        
|                                                                                  | Depreciation and amortization                                                  |                                                |                                           | 38,945  |                        |          |         | 40,432 |         |         |          | 44,905  |        
|                                                                                  | Loss on sale of property and equipment                                         |                                                |                                           | 1,266   |                        |          |         | 1,167  |         |         |          | 886     |        
|                                                                                  | Income applicable to minority interest                                         |                                                |                                           | 15,478  |                        |          |         | 21,410 |         |         |          | 25,431  |        
|                                                                                  | Distributions to minority shareholders                                         |                                                |                                           | (16,446 | )                      |          |         | (7,934 | )       |         |          | (24,634 | )      
|                                                                                  | Deferred income taxes                                                          |                                                |                                           | 1,488   |                        |          |         | 11,214 |         |         |          | 19,517  |        
|                                                                                  | Changes in operating assets and liabilities, net of effects from acquisitions: |                                                |                                           |         |                        |          |         |        |         |         |          |         |        
|                                                                                  |                                                                                | Accounts receivable                            |                                           |         | (4,240                 | )        |         |        | (23,814 | )       |          |         | (20,253 | )      
|                                                                                  |                                                                                | Inventories                                    |                                           |         | (2,832                 | )        |         |        | (6,587  | )       |          |         | (2,754  | )      
|                                                                                  |                                                                                | Prepaid expenses and other current assets      |                                           |         | 604                    |          |         |        | (902    | )       |          |         | (8,564  | )      
|                                                                                  |                                                                                | Accounts payable                               |                                           |         | 2,247                  |          |         |        | 5,369   |         |          |         | 3,140   |        
|                                                                                  |                                                                                | Accrued compensation                           |                                           |         | 2,625                  |          |         |        | 18      |         |          |         | 8,553   |        
|                                                                                  |                                                                                | Due to third-party payors                      |                                           |         | 649                    |          |         |        | 4,712   |         |          |         | 13,313  |        
|                                                                                  |                                                                                | Accrued expenses and other current liabilities |                                           |         | 5,168                  |          |         |        | 12,747  |         |          |         | 8,838   |        
|                                                                                  |                                                                                | Income taxes                                   |                                           |         | 11,648                 |          |         |        | 18,331  |         |          |         | 10,217  |        
|                                                                                  |                                                                                | Other long-term liabilities                    |                                           |         |                       |          |         |        |        |         |          |         | 5,898   |        
|                                                                                  |                                                                                |                                                |                                           |         |                        |          |         |        |         |         |          |        
|                                                                                  |                                                                                |                                                | Net cash provided by operating activities |         |                        | 133,201  |         |        |         | 168,623 |          |         |         | 186,549 |  
|INVESTING ACTIVITIES                                                              |                                                                                |                                                |                                           |         |                        |          |         |        |         |         |          |        
|Proceeds from sale of property and equipment                                      |                                                                                |                                                | 1,078                                     |         |                        |          | 218     |        |         |         | 2,270    |        
|Purchases of property and equipment                                               |                                                                                |                                                | (65,672                                   | )       |                        |          | (61,551 | )      |         |         | (63,762  | )      
|Cash paid for acquisitions, net of cash acquired                                  |                                                                                |                                                | (38,403                                   | )       |                        |          | (40,495 | )      |         |         | (14,154  | )      
|(Increase) decrease in other assets                                               |                                                                                |                                                | (4,415                                    | )       |                        |          | 4,408   |        |         |         | (2,858   | )      
|                                                                                  |                                                                                |                                                |                                           |         |                        |          |         |        |         |         |          |        
|                                                                                  |                                                                                |                                                | Net cash used in investing activities     |         |                        | (107,412 | )       |        |         | (97,420 | )        |         |         | (78,504 | )
|FINANCING ACTIVITIES                                                              |                                                                                |                                                |                                           |         |                        |          |         |        |         |         |          |        
|Net (payments) borrowings under line of credit                                    |                                                                                |                                                | (54,000                                   | )       |                        |          | 7,394   |        |         |         | (7,080   | )      
|Payments on long-term debt                                                        |                                                                                |                                                | (516                                      | )       |                        |          | (1,884  | )      |         |         | (380     | )      
|Net proceeds from issuance of common stock                                        |                                                                                |                                                | 29,307                                    |         |                        |          | 22,221  |        |         |         | 51,802   |        
|Repurchase of treasury shares                                                     |                                                                                |                                                | (3,059                                    | )       |                        |          | (90,894 | )      |         |         | (140,451 | )      
|Proceeds from sale of minority interest investment                                |                                                                                |                                                |                                          |         |                        |          | 2,896   |        |         |         |         |        
|                                                                                  |                                                                                |                                                |                                           |         |                        |          |         |        |         |         |          |        
|                                                                                  |                                                                                |                                                | Net cash used in financing activities     |         |                        | (28,268  | )       |        |         | (60,267 | )        |         |         | (96,109 | )
|(Decrease) increase in cash and cash equivalents                                  |                                                                                |                                                | (2,479                                    | )       |                        |          | 10,936  |        |         |         | 11,936   |        
|Cash and cash equivalents, at beginning of year                                   |                                                                                |                                                | 29,902                                    |         |                        |          | 27,423  |        |         |         | 38,359   |        
|                                                                                  |                                                                                |                                                |                                           |         |                        |          |         |        |         |         |          |        
|Cash and cash equivalents, at end of year                                         |                                                                                | $                                              | 27,423                                    |         |                        | $        | 38,359  |        |         | $       | 50,295   |        
|                                                                                  |                                                                                |                                                |                                           |         |                        |          |         |        |         |         |          |        

See accompanying notes to consolidated financial statements.

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Renal Care Group, Inc.

Consolidated Statements of Cash Flows
(in thousands)

|                                      |                                |                                                  |   |                        |        |      |   |        |        |  |   |        |        | 
|------------------------------------- | ------------------------------ | ------------------------------------------------ | - | ---------------------- | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|                                      |                                |                                                  |   | Year Ended December 31
|                                      |                                |                                                  |   |                       
|                                      |                                |                                                  |   | 2001                   |        | 2002 |   | 2003  
|                                      |                                |                                                  |   |                        |        |      |   |       
|DISCLOSURES OF CASH FLOW INFORMATION: |                                |                                                  |   |                        |        |      |   |        |        |  |   |       
|                                      | Cash paid during the year for: |                                                  |   |                        |        |      |   |        |        |  |   |        |       
|                                      |                                | Interest                                         |   | $                      | 2,520  |      |   | $      | 782    |  |   | $      | 922    | 
|                                      |                                |                                                  |   |                        |        |      |   |        |        |  |   |        |        | 
|                                      |                                | Income taxes                                     |   | $                      | 48,963 |      |   | $      | 27,126 |  |   | $      | 32,808 | 
|                                      |                                |                                                  |   |                        |        |      |   |        |        |  |   |        |        | 
|DISCLOSURES OF BUSINESS ACQUISITIONS: |                                |                                                  |   |                        |        |      |   |        |        |  |   |       
|                                      | Fair value of assets acquired  |                                                  | $ | 39,108                 |        |      | $ | 41,478 |        |  | $ | 14,388 |       
|                                      | Liabilities assumed            |                                                  |   | 705                    |        |      |   | 983    |        |  |   | 234    |       
|                                      |                                |                                                  |   |                        |        |      |   |        |        |  |   |        |        | 
|                                      |                                | Cash paid for acquisitions, net of cash acquired |   | $                      | 38,403 |      |   | $      | 40,495 |  |   | $      | 14,154 | 
|                                      |                                |                                                  |   |                        |        |      |   |        |        |  |   |        |        | 

See accompanying notes to consolidated financial statements.

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Renal Care Group, Inc.

Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)
December 31, 2003

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, 2003, the Company provided dialysis and ancillary services to
over 21,400 patients through 284 outpatient dialysis centers in 27 states. In
addition to its outpatient dialysis center operations, as of December 31, 2003,
the Company provided acute dialysis services through contractual relationships
with more than 130 hospitals.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Consolidation

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 used 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

The Company adopted Statements of Financial Accounting Standards (SFAS) No.
142, Goodwill and Other Intangible Assets(SFAS No. 142), on January 1, 2002.
In accordance with the transitional requirements of this statement, during
2001, the Company did not amortize goodwill or intangible assets with
indefinite lives acquired after June 30, 2001. However, during 2001, the
Company amortized goodwill and intangibles acquired prior to July 1, 2001 in
accordance with Accounting Principles Board (APB) Opinion No. 16, Business
Combinations. For periods subsequent to December 31,

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2001, the Company did not amortize goodwill or intangible assets with
indefinite lives in accordance with SFAS No. 142. As of December 31, 2002 and
2003, the carrying amount of goodwill was $275,666 and $286,578, respectively.

During 2001, separately identifiable intangible assets with definite lives,
such as non-competition agreements, acquired after June 30, 2001 were amortized
over the estimated useful life of such assets. For periods subsequent to
December 31, 2001, all separately identifiable intangible assets, whether
acquired before or after June 30, 2001, with definite lives were amortized over
their respective useful lives.

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, 2003 the Company was the majority and controlling owner in 50
joint ventures.

Stock Based Compensation

In December 2002, the Financial Accounting Standards Board issued SFAS 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. These consolidated financial statements and related notes include
the disclosure requirements of SFAS No. 148. However, the Company has elected
to account for its stock-based compensation plans under the intrinsic
value-based method of accounting prescribed by APB Opinion No. 25, Accounting
for Stock Issued to Employees(APB Opinion No. 25),and does not utilize the
fair value method.

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;
|
| |  |  | 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

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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 is subject to regional differences based on certain factors, including
labor costs. 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 55%, 57% and 55% of net
revenue for the years ended December 31, 2001, 2002 and 2003, 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 professional liability, general liability and workers
compensation claims or lawsuits in the ordinary course of business.
Accordingly, the Company maintains insurance for professional liability and
general liability 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 professional liability, general liability and workers
compensation risks using third party actuarial calculations that include
historical claims data, demographic factors 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% and 46% of gross accounts receivable at December 31, 2002 and
2003, respectively. Concentration of credit risk relating to accounts receivable is limited
to some extent by the diversity of the number of patients and payors and the
geographic dispersion of the Companys operations.

The 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 25% of the net revenue of the Company for the year
ended December 31, 2001, 23% of the net revenue of the Company for the year
ended December 31, 2002 and 24% of the net revenue of the Company for the year
ended December 31, 2003. EPO is produced by a single manufacturer.

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

The Company reviews goodwill, long-lived assets and separately 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. During the fourth quarter of 2003, the Company completed
its annual impairment testing, and, as of December 31, 2003, in the opinion of
management, there has been no impairment of goodwill, long-lived assets or
separately identifiable intangible assets.

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3. BUSINESS ACQUISITIONS

2003 Acquisitions

During 2003, the Company completed three acquisitions, which were accounted for
under the purchase method of accounting. The combined purchase price paid in
these acquisitions was $14,154 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 2003:

|                                   |                     |                           |        |        |        | 
|---------------------------------- | ------------------- | ------------------------- | ------ | ------ | ------ | 
|Accounts receivable                |                     | $                         | 986    |       
|Inventory                          |                     |                           | 255    |       
|Property, plant and equipment, net |                     |                           | 1,579  |       
|Intangible assets                  |                     |                           | 656    |       
|Goodwill                           |                     |                           | 10,912 |       
|                                   |                     |                           |        |       
|                                   |                     | Total assets acquired     |        |        | 14,388 | 
|                                   |                     | Total liabilities assumed |        |        | 234    | 
|                                   |                     |                           |        |       
|                                   | Net assets acquired |                           | $      | 14,154 |       
|                                   |                     |                           |        |       

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 $10,912 and was not amortized
during 2003 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.

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

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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 intangibles of $6,428. This goodwill was amortized during 2001 using a
35-year blended useful life. The other two transactions were completed after
June 30, 2001. Goodwill and other intangible assets 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.

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 each year below,
giving effect to adjustments such as amortization of intangibles, interest
expense and related income taxes.

|                               |         |   |         |      |      |   |         |      |  |   |           |      | 
|------------------------------ | ------- | - | ------- | ---- | ---- | - | ------- | ---- |  | - | --------- | ---- | 
|                               |         |   | 2001    |      | 2002 |   | 2003   
|                               |         |   |         |      |      |   |        
|Pro forma net revenue          |         | $ | 794,409 |      |      | $ | 919,244 |      |  | $ | 1,013,965 |     
|                               |         |   |         |      |      |   |         |      |  |   |           |     
|Pro forma net income           |         | $ | 77,492  |      |      | $ | 93,060  |      |  | $ | 102,383   |     
|                               |         |   |         |      |      |   |         |      |  |   |           |     
|Pro forma net income per share |        
|                               | Basic   |   | $       | 1.61 |      |   | $       | 1.90 |  |   | $         | 2.11 | 
|                               |         |   |         |      |      |   |         |      |  |   |           |     
|                               | Diluted |   | $       | 1.54 |      |   | $       | 1.83 |  |   | $         | 2.05 | 
|                               |         |   |         |      |      |   |         |      |  |   |           |     

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.

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4. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

|                                |  |              |          |      |  |   |          |  
|------------------------------- |  | ------------ | -------- | ---- |  | - | -------- | -
|                                |  | December 31,
|                                |  |             
|                                |  | 2002         |          | 2003
|                                |  |              |          |     
|Medical equipment               |  | $            | 124,347  |      |  | $ | 143,758  |  
|Computer software and equipment |  |              | 58,285   |      |  |   | 57,718   |  
|Furniture and fixtures          |  |              | 24,532   |      |  |   | 27,027   |  
|Leasehold improvements          |  |              | 84,807   |      |  |   | 101,113  |  
|Buildings                       |  |              | 24,862   |      |  |   | 23,511   |  
|Construction-in-progress        |  |              | 10,437   |      |  |   | 15,058   |  
|                                |  |              |          |      |  |   |          |  
|                                |  |              | 327,270  |      |  |   | 368,185  |  
|Less accumulated depreciation   |  |              | (124,298 | )    |  |   | (143,788 | )
|                                |  |              |          |      |  |   |          |  
|                                |  | $            | 202,972  |      |  | $ | 224,397  |  
|                                |  |              |          |      |  |   |          |  

Depreciation expense was $30,836, $38,191 and $42,561 for the years ended
December 31, 2001, 2002 and 2003, respectively.

5. GOODWILL AND INTANGIBLE ASSETS

In accordance with the requirements of SFAS No. 142, the Company discontinued
amortizing goodwill effective January 1, 2002, and is required to disclose
goodwill separately from other intangible assets in the balance sheet.
Additionally, goodwill must be tested for impairment on a periodic basis. The
Company completed its annual impairment testing and identified no impairments.

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 |  | 2003        
|                                              |  |      |        |      |  |             
|Reported net income                           |  | $    | 76,601 |      |  | $            | 92,460 |  |  | $ | 102,056 | 
|Add: goodwill amortization, net of tax        |  |      | 3,956  |      |  |              |       |  |  |   |        | 
|                                              |  |      |        |      |  |              |        |  |  |   |         | 
|Pro forma adjusted net income                 |  | $    | 80,557 |      |  | $            | 92,460 |  |  | $ | 102,056 | 
|                                              |  |      |        |      |  |              |        |  |  |   |         | 
|Reported basic earnings per share             |  | $    | 1.59   |      |  | $            | 1.89   |  |  | $ | 2.11    | 
|Add: goodwill amortization, net of tax        |  |      | 0.08   |      |  |              |       |  |  |   |        | 
|                                              |  |      |        |      |  |              |        |  |  |   |         | 
|Pro forma adjusted basic earnings per share   |  | $    | 1.67   |      |  | $            | 1.89   |  |  | $ | 2.11    | 
|                                              |  |      |        |      |  |              |        |  |  |   |         | 
|Reported diluted earnings per share           |  | $    | 1.52   |      |  | $            | 1.82   |  |  | $ | 2.05    | 
|Add: goodwill amortization, net of tax        |  |      | 0.08   |      |  |              |       |  |  |   |        | 
|                                              |  |      |        |      |  |              |        |  |  |   |         | 
|Pro forma adjusted diluted earnings per share |  | $    | 1.60   |      |  | $            | 1.82   |  |  | $ | 2.05    | 
|                                              |  |      |        |      |  |              |        |  |  |   |         | 

Changes in the carrying amount of goodwill for the year ended December 31,
2003, 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 | 
|Goodwill acquired during the period |  |   | 10,912  | 
|                                    |  |   |         | 
|Balance as of December 31, 2003     |  | $ | 286,578 | 
|                                    |  |   |         | 

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

|                         |  |              |        |      |  |   |         |  
|------------------------ |  | ------------ | ------ | ---- |  | - | ------- | -
|                         |  | December 31,
|                         |  |             
|                         |  | 2002         |        | 2003
|                         |  |              |        |     
|Carrying amount          |  | $            | 20,076 |      |  | $ | 24,113  |  
|Accumulated amortization |  |              | (7,966 | )    |  |   | (10,067 | )
|                         |  |              |        |      |  |   |         |  
|Net                      |  | $            | 12,110 |      |  | $ | 14,046  |  
|                         |  |              |        |      |  |   |         |  

Separately identifiable intangible assets are being amortized over their useful
lives, ranging from five to ten years. Amortization expense was $2,241 and
$2,344 for the years ended December 31, 2002 and 2003, respectively. Estimated
amortization expense for each of the next five fiscal years is as follows:

|                         |  |        |       | 
|------------------------ |  | ------ | ----- | 
|Year ending December 31, |  | Amount
|                         |  |       
|2004                     |  | $      | 2,856 | 
|2005                     |  |        | 2,856 | 
|2006                     |  |        | 2,712 | 
|2007                     |  |        | 2,308 | 
|2008                     |  |        | 2,141 | 

6. LONG-TERM DEBT

Long-term debt consists of the following:

|                                                                           |  |              |        |      |  |   |       | 
|-------------------------------------------------------------------------- |  | ------------ | ------ | ---- |  | - | ----- | 
|                                                                           |  | December 31,
|                                                                           |  |             
|                                                                           |  | 2002         |        | 2003
|                                                                           |  |              |        |     
|Line of credit, bearing interest at LIBO rate (3.96% at
December 31, 2002) |  | $            | 7,394  |      |  | $ |      | 
|Other                                                                      |  |              | 2,900  |      |  |   | 2,834 | 
|                                                                           |  |              |        |      |  |   |       | 
|                                                                           |  |              | 10,294 |      |  |   | 2,834 | 
|Less current portion                                                       |  |              | 133    |      |  |   | 182   | 
|                                                                           |  |              |        |      |  |   |       | 
|                                                                           |  | $            | 10,161 |      |  | $ | 2,652 | 
|                                                                           |  |              |        |      |  |   |       | 

Lines of Credit

Effective July 1, 2002, the Company 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 had a final
maturity of July 1, 2005 and the 364-day Facility had a final maturity of June
30, 2004, based on an amendment made in June 2003. As of December 31, 2003
there were no amounts outstanding under the Multi-Year Facility or the 364-day
Facility, and the Company had $150,000 available under these agreements.

Each of the Companys wholly-owned subsidiaries has guaranteed all of the
obligations outstanding under the Multi-Year Facility and the 364-day Facility.
Further, the Companys obligations under the credit facility, and the
obligations of each of its subsidiaries under its guaranty, are secured by a
pledge of the equity interests held by the Company 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, 2003.

On February 10, 2004, the Company entered into a new credit agreement (the
2004 Agreement) with a group of banks totaling up to $700,000. The
2004 Agreement replaced the Multi-Year Facility and the 364-day Facility
discussed

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above. The 2004 Agreement has a
$150,000 revolving credit facility, a
committed $325,000 term loan facility and a $225,000 incremental term loan facility. Our ability to borrow under the committed term
loan facility expires in May 2004. All of the committed facilities have a
final maturity of February 10, 2009. The 2004 Agreement provides that $175,000 of the committed term loan facility may only be used to finance the
Companys acquisition of National Nephrology Associates. To the extent the
Company does not use that amount to fund the acquisition, unborrowed amounts
will increase the size of the incremental term loan facility. Borrowings under
the incremental term loan facility are subject to obtaining final commitments
from the banks finalizing specific terms.

Borrowings under the revolving credit facility and $150,000 of the
committed term loan facility under the 2004 Agreement may be used for
acquisitions, repurchases of Company common stock, capital expenditures, working capital
and general corporate purposes. Borrowings under the 2004 Agreement bear
interest at variable rates determined by the Companys leverage ratio. This variable
rate debt instrument carries a degree of interest rate risk. Specifically, the
Company will face higher interest costs on this debt if interest rates rise.
Each of the Companys wholly-owned subsidiaries has guaranteed all of the
Companys obligations under the 2004 Agreement. Further, the Companys
obligations under the 2004 Agreement, and the Companys subsidiaries
obligations under their guarantees, are secured by a pledge of the equity
interests the Company holds in each of its subsidiaries. The 2004 Agreement
includes financial covenants that are customary based on the amount and
duration of the agreement.

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, 2003 are as follows:

|           |  |   |       | 
|---------- |  | - | ----- | 
|2004       |  | $ | 182   | 
|2005       |  |   | 227   | 
|2006       |  |   | 94    | 
|2007       |  |   | 119   | 
|2008       |  |   | 146   | 
|Thereafter |  |   | 2,066 | 
|           |  |   |       | 
|           |  | $ | 2,834 | 
|           |  |   |       | 

7. INCOME TAXES

The provision for income taxes consists of the following:

|          |                            |  |                         |        |      |  |        |        |  |  |        |        | 
|--------- | -------------------------- |  | ----------------------- | ------ | ---- |  | ------ | ------ |  |  | ------ | ------ | 
|          |                            |  | Year Ended December 31,
|          |                            |  |                        
|          |                            |  | 2001                    |        | 2002 |  | 2003  
|          |                            |  |                         |        |      |  |       
|Current:  |                            |  |                         |        |      |  |        |        |  |  |        |       
|          | Federal                    |  | $                       | 42,002 |      |  | $      | 40,205 |  |  | $      | 38,716 | 
|          | State and local            |  |                         | 3,841  |      |  |        | 5,250  |  |  |        | 4,309  | 
|          |                            |  |                         |        |      |  |        |        |  |  |        |       
|          |                            |  | 45,843                  |        |      |  | 45,455 |        |  |  | 43,025 |       
|          |                            |  |                         |        |      |  |        |        |  |  |        |       
|Deferred: |                            |  |                         |        |      |  |        |        |  |  |        |       
|          | Federal                    |  |                         | 1,364  |      |  |        | 10,079 |  |  |        | 17,152 | 
|          | State and local            |  |                         | 124    |      |  |        | 1,135  |  |  |        | 2,365  | 
|          |                            |  |                         |        |      |  |        |        |  |  |        |       
|          |                            |  | 1,488                   |        |      |  | 11,214 |        |  |  | 19,517 |       
|          |                            |  |                         |        |      |  |        |        |  |  |        |       
|          | Provision for income taxes |  | $                       | 47,331 |      |  | $      | 56,669 |  |  | $      | 62,542 | 
|          |                            |  |                         |        |      |  |        |        |  |  |        |       

At December 31, 2003, the Company has net operating loss carryforwards of
approximately $231,000 for state income tax purposes that expire in years 2002
through 2022, and a capital loss carryforward of approximately $2,200 that
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

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has recorded a valuation allowance of $7,756 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 $1,715
in 2003.

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

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

|                           |                                                |   |              |        |      |   |         |        |  
|-------------------------- | ---------------------------------------------- | - | ------------ | ------ | ---- | - | ------- | ------ | -
|                           |                                                |   | December 31,
|                           |                                                |   |             
|                           |                                                |   | 2002         |        | 2003
|                           |                                                |   |              |        |     
|Deferred tax assets:       |                                                |   |              |        |      |   |         |       
|                           | Net operating loss carryforwards               |   | $            | 5,282  |      |   | $       | 6,928  |  
|                           | Capital loss carryforward                      |   |              | 759    |      |   |         | 828    |  
|                           | Allowance for doubtful accounts                |   |              | 7,258  |      |   |         | 2,840  |  
|                           | Accrued vacation and other accrued liabilities |   |              | 9,367  |      |   |         | 11,770 |  
|                           | Other                                          |   |              | 106    |      |   |         | 53     |  
|                           | Less: valuation allowance                      |   |              | (6,041 | )    |   |         | (7,756 | )
|                           |                                                |   |              |        |      |   |         |        |  
|                           |                                                |   | 16,731       |        |      |   | 14,663  |       
|                           |                                                |   |              |        |      |   |         |        |  
|Deferred tax liabilities:  |                                                |   |              |        |      |   |         |       
|                           | Depreciation                                   |   |              | 8,572  |      |   |         | 17,851 |  
|                           | Amortization                                   |   |              | 12,788 |      |   |         | 22,629 |  
|                           | Investments in partnerships                    |   |              | 2,419  |      |   |         | 748    |  
|                           |                                                |   |              |        |      |   |         |        |  
|                           |                                                |   | 23,779       |        |      |   | 41,228  |       
|                           |                                                |   |              |        |      |   |         |        |  
|Net deferred tax liability |                                                | $ | (7,048       | )      |      | $ | (26,565 | )     
|                           |                                                |   |              |        |      |   |         |        |  

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,
|                                                    |  |                        
|                                                    |  | 2001                    |      | 2002 |  | 2003
|                                                    |  |                         |      |      |  |     
|U.S. federal income tax rate                        |  |                         | 35.0 | %    |  |      | 35.0 | % |  |  | 35.0 | %
|State income tax, net of federal
income tax benefit |  |                         | 2.5  |      |  |      | 1.2  |   |  |  | 1.7  |  
|Increase in valuation allowances                    |  |                         | 0.1  |      |  |      | 1.8  |   |  |  | 1.0  |  
|Other                                               |  |                         | 0.6  |      |  |      |     |   |  |  | 0.3  |  
|                                                    |  |                         |      |      |  |      |      |   |  |  |      |  
|Effective income tax rate                           |  |                         | 38.2 | %    |  |      | 38.0 | % |  |  | 38.0 | %
|                                                    |  |                         |      |      |  |      |      |   |  |  |      |  

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

Stock Option Plans

As of December 31, 2003, 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 7,500 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 and SFAS
No. 148, but applies APB Opinion No. 25 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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The following is a summary of option transactions during the period from
January 1, 2001 through December 31, 2003:

|                                         |           |  |          |      |               |  |               |        |        |  |       |        |           |  |      |    |       |  |          |    |   |  |     |    |   |  |          |    |         |   |              |               |  |   |          |       | 
|---------------------------------------- | --------- |  | -------- | ---- | ------------- |  | ------------- | ------ | ------ |  | ----- | ------ | --------- |  | ---- | -- | ----- |  | -------- | -- | - |  | --- | -- | - |  | -------- | -- | ------- | - | ------------ | ------------- |  | - | -------- | ----- | 
|                                         |           |  |          |      |               |  |               |        |        |  |       |        |           |  |      |    |       |  |          |    |   |  |     |    |   |  |          |    |         |   |              |               |  |   | Weighted
|                                         |           |  |          |      |               |  | 1999          |        | 1996   |  |       |        |           |  |      |    |       |  |          |    |   |  |     |    |   |  | Exercise |    | Average
|                                         |           |  | Free     |      | Employee Plan |  | Employee Plan |        | Equity |  | 1994  |        | Directors |  | RDM  |    | Price |  | Exercise
|                                         |           |  | Standing |      | Plan          |  | Plan          |        | Plan   |  | Plan  |        | Plan      |  | Plan |    | Range |  | Price   
|                                         |           |  |          |      |               |  |               |        |        |  |       |        |           |  |      |    |       |  |         
|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    |      
|                                         | Granted   |  |          |     |               |  |               | 1,912  |        |  |       |       |           |  |      |   |       |  |          |   |   |  |     | 28 |   |  |          |   |         |   |              | 30.00  37.81 |  |   |          | 34.46 | 
|                                         | Exercised |  |          | (229 | )             |  |               | (1,324 | )      |  |       | (800   | )         |  |      | (1 | )     |  |          |   |   |  |     |   |   |  |          | (5 | )       |   |              | 3.33  29.03  |  |   |          | 20.80 | 
|                                         | Forfeited |  |          | (35  | )             |  |               | (545   | )      |  |       | (62    | )         |  |      |   |       |  |          |   |   |  |     |   |   |  |          |   |         |   |              | 15.94  34.65 |  |   |          | 27.53 | 
|                                         |           |  |          |      |               |  |               |        |        |  |       |        |           |  |      |    |       |  |          |    |   |  |     |    |   |  |          |    |         |   |              |               |  |   |          |      
|Balance at
December 31, 2003             |           |  | 353      |      |               |  | 4,443         |        |        |  | 1,069 |        |           |  | 16   |    |       |  | 8        |    |   |  | 101 |    |   |  | 9        |    |         | $ | 3.33$37.81  |               |  | $ | 25.70    |      
|                                         |           |  |          |      |               |  |               |        |        |  |       |        |           |  |      |    |       |  |          |    |   |  |     |    |   |  |          |    |         |  
|Available for grant at
December 31, 2003 |           |  |         |      |               |  | 946           |        |        |  | 189   |        |           |  |     |    |       |  |         |    |   |  | 107 |    |   |  |         |    |         |   |              |               |  |   |          |      
|                                         |           |  |          |      |               |  |               |        |        |  |       |        |           |  |      |    |       |  |          |    |   |  |     |    |   |  |          |    |         |   |              |               |  |   |          |      
|Exercisable at
December 31, 2001         |           |  | 571      |      |               |  | 800           |        |        |  | 1,935 |        |           |  | 17   |    |       |  | 8        |    |   |  | 67  |    |   |  | 17       |    |         |   |              |               |  |   |          |      
|                                         |           |  |          |      |               |  |               |        |        |  |       |        |           |  |      |    |       |  |          |    |   |  |     |    |   |  |          |    |         |   |              |               |  |   |          |      
|Exercisable at
December 31, 2002         |           |  | 428      |      |               |  | 1,216         |        |        |  | 1,720 |        |           |  | 16   |    |       |  | 8        |    |   |  | 73  |    |   |  | 13       |    |         |   |              |               |  |   |          |      
|                                         |           |  |          |      |               |  |               |        |        |  |       |        |           |  |      |    |       |  |          |    |   |  |     |    |   |  |          |    |         |   |              |               |  |   |          |      
|Exercisable at
December 31, 2003         |           |  | 294      |      |               |  | 1,040         |        |        |  | 999   |        |           |  | 15   |    |       |  | 8        |    |   |  | 101 |    |   |  | 9        |    |         |   |              |               |  |   |          |      
|                                         |           |  |          |      |               |  |               |        |        |  |       |        |           |  |      |    |       |  |          |    |   |  |     |    |   |  |          |    |         |   |              |               |  |   |          |      

The weighted-average fair value of options granted during 2001, 2002 and 2003
is $12.40, $11.55 and $13.48, respectively.

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The following table summarizes information about stock options outstanding at
December 31, 2003:

|                |  |                |       |             |  |          |      |                |  |          |       |  |  |  |       |  |  |   |       | 
|--------------- |  | -------------- | ----- | ----------- |  | -------- | ---- | -------------- |  | -------- | ----- |  |  |  | ----- |  |  | - | ----- | 
|                |  | Number         |       | Weighted    |  |          |      |                |  | Number   |       |  |  | 
|                |  | Outstanding as |       | Average     |  | Weighted |      | Exercisable as |  | Weighted
|                |  | of             |       | Remaining   |  | Average  |      | of             |  | Average 
|Range of        |  | December 31,   |       | Contractual |  | Exercise |      | December 31,   |  | Exercise
|Exercise Prices |  | 2003           |       | Life        |  | Price    |      | 2003           |  | Price   
|                |  |                |       |             |  |          |      |                |  |         
|$3.33 - $18.25  |  |                | 1,703 |             |  |          | 4.76 |                |  | $        | 14.39 |  |  |  | 1,390 |  |  | $ | 14.01 | 
|$19.36 - $28.39 |  |                | 2,426 |             |  |          | 7.44 |                |  |          | 27.02 |  |  |  | 974   |  |  |   | 25.14 | 
|$28.50 - $34.65 |  |                | 1,653 |             |  |          | 9.43 |                |  |          | 33.86 |  |  |  | 85    |  |  |   | 30.30 | 
|$34.89 - $37.81 |  |                | 217   |             |  |          | 9.82 |                |  |          | 37.58 |  |  |  | 17    |  |  |   | 34.89 | 
|                |  |                |       |             |  |          |      |                |  |          |       |  |  |  |       |  |  |   |       | 
|$3.33 - $37.81  |  |                | 5,999 |             |  |          | 7.31 |                |  | $        | 25.70 |  |  |  | 2,466 |  |  | $ | 19.11 | 
|                |  |                |       |             |  |          |      |                |  |          |       |  |  |  |       |  |  |   |       | 

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,
|                         |  |                        
|                         |  | 2001                    |      | 2002   |  | 2003  
|                         |  |                         |      |        |  |       
|Expected volatility      |  |                         | 45.0 | %      |  |        | 40.0 | % |  |  | 39.0 | %
|Expected dividend yield  |  | None                    |      | None   |  | None  
|Risk-free interest rate  |  |                         | 3.75 | %      |  |        | 3.75 | % |  |  | 3.25 | %
|Expected life of options |  | 5years                  |      | 5years |  | 5years

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
|                                                                                                                           |                      |   |                       
|                                                                                                                           |                      |   | 2001                   |      | 2002 |   | 2003  
|                                                                                                                           |                      |   |                        |      |      |   |       
|Net income, as reported                                                                                                    |                      | $ | 76,601                 |      |      | $ | 92,460 |      |  | $ | 102,056 |     
|Add: stock-based
compensation expense, net
of related tax effects,
included in the
determination of net
income as reported |                      |   | 338                    |      |      |   | 380    |      |  |   | 424     |     
|Less: stock-based
compensation expense, net
of related tax effects,
determined by the fair
value-based method              |                      |   | (8,036                 | )    |      |   | (8,028 | )    |  |   | (8,663  | )   
|                                                                                                                           |                      |   |                        |      |      |   |        |      |  |   |         |     
|Pro forma net income                                                                                                       |                      | $ | 68,903                 |      |      | $ | 84,812 |      |  | $ | 93,817  |     
|                                                                                                                           |                      |   |                        |      |      |   |        |      |  |   |         |     
|Net income per share:                                                                                                      |                      |   |                        |      |      |   |        |      |  |   |         |     
|                                                                                                                           | Basic, as reported   |   | $                      | 1.59 |      |   | $      | 1.89 |  |   | $       | 2.11 | 
|                                                                                                                           |                      |   |                        |      |      |   |        |      |  |   |         |     
|                                                                                                                           | Basic, pro forma     |   | $                      | 1.43 |      |   | $      | 1.73 |  |   | $       | 1.94 | 
|                                                                                                                           |                      |   |                        |      |      |   |        |      |  |   |         |     
|                                                                                                                           | Diluted, as reported |   | $                      | 1.52 |      |   | $      | 1.82 |  |   | $       | 2.05 | 
|                                                                                                                           |                      |   |                        |      |      |   |        |      |  |   |         |     
|                                                                                                                           | Diluted, pro forma   |   | $                      | 1.37 |      |   | $      | 1.67 |  |   | $       | 1.88 | 
|                                                                                                                           |                      |   |                        |      |      |   |        |      |  |   |         |     

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.

9. 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, 2003, future minimum rental payments under
non-cancelable operating leases with terms of one year or more consist of the
following:

|           |  |   |         | 
|---------- |  | - | ------- | 
|2004       |  | $ | 30,413  | 
|2005       |  |   | 27,766  | 
|2006       |  |   | 25,453  | 
|2007       |  |   | 23,242  | 
|2008       |  |   | 20,648  | 
|Thereafter |  |   | 68,369  | 
|           |  |   |         | 
|           |  | $ | 195,891 | 
|           |  |   |         | 

Rent expense was $22,624, $27,074 and $30,729 for the years ending December 31,
2001, 2002 and 2003, respectively.

10. 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 $1,960, $2,518 and $2,978 for the years ended
December 31, 2001, 2002 and 2003, respectively.

Defined Benefit Plan

Effective January 29, 2003, the Company implemented a retirement benefit plan
for Sam A. Brooks, the Companys former Chairman, Chief Executive Officer and
President. Mr. Brooks died March 20, 2003. The plan provides that the Company
will make 120 monthly payments of $54 each to Mr. Brooks beneficiary,
beginning in April 2003. As a result, the Company recorded a $5,350 charge representing the pre-tax net present value of
such payments during the first quarter of 2003. As of December 31, 2003 the
Company has accrued liabilities totaling $5,019 related to this defined benefit
plan.

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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 85 shares are available for purchase under
the plan. At December 31, 2002 and 2003, $2,347 and $3,055, respectively, were
included in accrued wages and benefits relating to the Stock Purchase Plan.

11. 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.

|                             |                                                                                                       |               |      |        |       |      |      |        |       |   |      |         |       | 
|---------------------------- | ----------------------------------------------------------------------------------------------------- | ------------- | ---- | ------ | ----- | ---- | ---- | ------ | ----- | - | ---- | ------- | ----- | 
|                             |                                                                                                       |               |      | 2001   |       | 2002 |      | 2003  
|                             |                                                                                                       |               |      |        |       |      |      |       
|Numerator:                   |                                                                                                       |               |      |        |       |      |      |        |       |   |      |        
|                             | Numerator for basic and diluted net income per share                                                  |               | $    | 76,601 |       |      | $    | 92,460 |       |   | $    | 102,056 |      
|Denominator:                 |                                                                                                       |               |      |        |       |      |      |        |       |   |      |        
|                             | Denominator for basic net income per share weighted-average shares                                    |               |      | 48,113 |       |      |      | 48,978 |       |   |      | 48,479  |      
|                             | Effect of dilutive securities:                                                                        |               |      |        |       |      |      |        |       |   |      |         |      
|                             |                                                                                                       | Stock options |      |        | 2,087 |      |      |        | 1,712 |   |      |         | 1,356 | 
|                             |                                                                                                       | Warrants      |      |        | 233   |      |      |        | 77    |   |      |         |      | 
|                             |                                                                                                       |               |      |        |       |      |      |        |       |   |      |        
|                             | Denominator for diluted net income per share-adjusted weighted-average
shares and assumed conversions |               |      | 50,433 |       |      |      | 50,767 |       |   |      | 49,835  |      
|                             |                                                                                                       |               |      |        |       |      |      |        |       |   |      |        
|Basic net income per share   |                                                                                                       | $             | 1.59 |        |       | $    | 1.89 |        |       | $ | 2.11 |        
|                             |                                                                                                       |               |      |        |       |      |      |        |       |   |      |        
|Diluted net income per share |                                                                                                       | $             | 1.52 |        |       | $    | 1.82 |        |       | $ | 2.05 |        
|                             |                                                                                                       |               |      |        |       |      |      |        |       |   |      |        

12. 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, 2003, a total of five
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 claims for these illnesses and does not anticipate a material
adverse effect on the Companys consolidated financial position or results of
operations.

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.

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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, 2003, estimated commitments for medical director fees for the year 2004 are
$13,902 and are $61,270 over the remaining lives of the agreements.

13. SUBSEQUENT EVENTS

Midwest Kidney Centers

Effective January 1, 2004, the Company acquired certain operating assets and
liabilities of Midwest Kidney Centers and several affiliated companies (MKC)
for $49,500 in consideration. Through this acquisition, the Company added
approximately 825 patients and 13 dialysis facilities in central Illinois.

National Nephrology Associates, Inc.

On February 2, 2004, the Company announced the signing of a definitive
agreement to acquire National Nephrology Associates, Inc. (NNA), a Nashville,
Tennessee-based dialysis services provider. NNA owns and operates 87
outpatient dialysis facilities in 15 states and provides services to
approximately 5,600 patients, as well as acute dialysis services to
approximately 55 hospitals.

Under the terms of the agreement, the total consideration of $345,000 will
consist of a cash payment of approximately $167,000 payable to NNAs equity
holders and the assumption of NNAs outstanding debt, including its $160,000 of
9% senior subordinated notes due 2011, and other indebtedness, including
capital leases. Renal Care Group plans to finance the acquisition through the
new 2004 Agreement as discussed in Note 6. Completion of the transaction, which
is expected to close on or before March 31, 2004, is subject to customary
conditions, including expiration of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act.

Following completion of the MKC acquisition and assuming completion of the NNA
transaction, Renal Care Group will serve almost 28,000 patients at over 370
facilities in 30 states, in addition to providing acute dialysis services at
more than 175 hospitals.

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14. SELECTED QUARTERLY FINANCIAL DATA (unaudited)

The following tables include, for 2002 and 2003, 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.

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

|                              |         |   |         |      |         |   |         |      |         |   |         |      |  |   |         |      | 
|----------------------------- | ------- | - | ------- | ---- | ------- | - | ------- | ---- | ------- | - | ------- | ---- |  | - | ------- | ---- | 
|                              |         |   | 2003   
|                              |         |   |        
|                              |         |   | First   |      | Second  |   | Third   |      | Fourth 
|                              |         |   | Quarter |      | Quarter |   | Quarter |      | Quarter
|                              |         |   |         |      |         |   |         |      |        
|Net revenue                   |         | $ | 242,143 |      |         | $ | 247,061 |      |         | $ | 253,835 |      |  | $ | 262,280 |     
|Operating expenses            |         |   | 190,177 |      |         |   | 187,653 |      |         |   | 192,743 |      |  |   | 199,183 |     
|Depreciation and amortization |         |   | 10,298  |      |         |   | 11,579  |      |         |   | 11,365  |      |  |   | 11,663  |     
|                              |         |   |         |      |         |   |         |      |         |   |         |      |  |   |         |     
|Income from operations        |         |   | 41,668  |      |         |   | 47,829  |      |         |   | 49,727  |      |  |   | 51,434  |     
|Interest expense, net         |         |   | 285     |      |         |   | 165     |      |         |   | 76      |      |  |   | 103     |     
|Minority interest             |         |   | 6,308   |      |         |   | 6,029   |      |         |   | 6,837   |      |  |   | 6,257   |     
|                              |         |   |         |      |         |   |         |      |         |   |         |      |  |   |         |     
|Income before income taxes    |         |   | 35,075  |      |         |   | 41,635  |      |         |   | 42,814  |      |  |   | 45,074  |     
|Provision for income taxes    |         |   | 13,323  |      |         |   | 15,822  |      |         |   | 16,269  |      |  |   | 17,128  |     
|                              |         |   |         |      |         |   |         |      |         |   |         |      |  |   |         |     
|Net income                    |         | $ | 21,752  |      |         | $ | 25,813  |      |         | $ | 26,545  |      |  | $ | 27,946  |     
|                              |         |   |         |      |         |   |         |      |         |   |         |      |  |   |         |     
|Net income per share:         |         |   |         |      |         |   |         |      |         |   |         |      |  |   |         |     
|                              | Basic   |   | $       | 0.45 |         |   | $       | 0.53 |         |   | $       | 0.54 |  |   | $       | 0.58 | 
|                              |         |   |         |      |         |   |         |      |         |   |         |      |  |   |         |     
|                              | Diluted |   | $       | 0.44 |         |   | $       | 0.52 |         |   | $       | 0.53 |  |   | $       | 0.56 | 
|                              |         |   |         |      |         |   |         |      |         |   |         |      |  |   |         |     

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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
|                                 |                              |  |           |        |            |  |            |        |       
|Allowance for doubtful accounts: |                              |  |           |        |            |  |            |        |        |  |           |         |   |  |   |       
|                                 | 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 | 
|                                 |                              |  |           |        |            |  |            |        |        |  |           |         |   |  |   |       
|                                 | Year ended December 31, 2003 |  | $         | 43,677 |            |  | $          | 26,200 |        |  | $         | (37,716 | ) |  | $ | 32,161 | 
|                                 |                              |  |           |        |            |  |            |        |        |  |           |         |   |  |   |       

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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 4th day of March, 2004.

| |  |                        |  |                                                                                    |  | 
| |  | ---------------------- |  | ---------------------------------------------------------------------------------- |  | 
| |  | RENAL CARE GROUP, INC.
| |  |                        |  |                                                                                    |  | 
| |  | By:                    |  | Gary A. Brukardt

     Gary A. Brukardt
     President and Chief Executive Officer |  | 

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KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Gary A. Brukardt and David M. Dill 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/ Gary A. Brukardt          |  | President, Chief Executive     |  | March 4, 2004
|                              |  | Officer and Director           |  |              
|Gary A. Brukardt              |  | (Principal Executive Officer)  |  |              
|                              |  |                                |  |              
|                              |  |                                |  |              
|/s/ David M. Dill             |  | Executive Vice President,      |  | March 4, 2004
|                              |  | Chief Financial Officer        |  |              
|David M. Dill                 |  | Treasurer (Principal Financial |  |              
|                              |  | and Accounting Officer)        |  |              
|                              |  |                                |  |              
|                              |  |                                |  |              
|/s/ Peter J. Grua             |  | Director                       |  | March 4, 2004
|                              |  |                                |  |              
|Peter J. Grua                 |  |                                |  |              
|                              |  |                                |  |              
|/s/ Joseph C. Hutts           |  | Director                       |  | March 4, 2004
|                              |  |                                |  |              
|Joseph C. Hutts               |  |                                |  |              
|                              |  |                                |  |              
|/s/ Harry R. Jacobson, M.D.   |  | Director                       |  | March 4, 2004
|                              |  |                                |  |              
|Harry R. Jacobson, M.D.       |  |                                |  |              
|                              |  |                                |  |              
|/s/ William P. Johnston       |  | Chairman of the Board          |  | March 4, 2004
|                              |  | Director                       |  |              
|William P. Johnston           |  |                                |  |              
|                              |  |                                |  |              
|/s/ William V. Lapham         |  | Director                       |  | March 4, 2004
|                              |  |                                |  |              
|William V. Lapham             |  |                                |  |              
|                              |  |                                |  |              
|/s/ Thomas A. Lowery, M.D.    |  | Director                       |  | March 4, 2004
|                              |  |                                |  |              
|Thomas A. Lowery, M.D.        |  |                                |  |              
|                              |  |                                |  |              
|/s/ Stephen D. McMurray, M.D. |  | Director                       |  | March 4, 2004
|                              |  |                                |  |              
|Stephen D. McMurray, M.D.     |  |                                |  |              
|                              |  |                                |  |              
|/s/ C. Thomas Smith           |  | Director                       |  | March 4, 2004
|                              |  |                                |  |              
|C. Thomas Smith               |  |                                |  |              

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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 (10)                                                                                                        
|        |  |                                                                                                                                                                                                          
|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, effective as of December 15, 2003, between the Company and
Raymond Hakim, M.D.*                                                                                                    
|        |  |                                                                                                                                                                                                          
|10.2    |  | Medical Director Services Agreement, dated February 12, 1996, between the
Company and Indiana Dialysis Management, P.C. (4)                                                                              
|        |  |                                                                                                                                                                                                          
|10.2.1  |  | Amendment
Number 1, to Medical Director Services Agreement, effective as of
January 1, 1999, between the Company and Indiana Dialysis
Management, P.C.                                                   
|        |  |                                                                                                                                                                                                          
|10.2.2  |  | Amendment
Number 2 to Medical Director Services Agreement, effective as of
February 12, 2002, between the Company and Indiana Dialysis
Management.                                                       
|        |  |                                                                                                                                                                                                          
|10.3    |  | Medical Director Services Agreement, effective as of
February 12, 2003, between the
Company and Tyler Nephrology Associates, P.A.                                                                        
|        |  |                                                                                                                                                                                                          
|10.4    |  | 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 (4)
|        |  |                                                                                                                                                                                                          
|10.5    |  | 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 (4)  
|        |  |                                                                                                                                                                                                          
|10.6    |  | Sublease Agreement, dated February 12, 1996, with Tyler Nephrology
Associates, Inc. (4)                                                                                                                  
|        |  |                                                                                                                                                                                                          
|10.7    |  | Dialysis Center Management Agreement, effective as of July 1, 2001,
between Renal Care Group, Inc. and Vanderbilt University (23)                                                                        
|        |  |                                                                                                                                                                                                          
|10.8    |  | 1996 Stock Option Plan for Outside Directors (1)*                                                                                                                                                        
|        |  |                                                                                                                                                                                                          
|10.9    |  | Fourth Amended and Restated 1996 Stock Incentive Plan (5)*                                                                                                                                               
|        |  |                                                                                                                                                                                                          
|10.10   |  | Amended and Restated Employee Stock Purchase Plan (2)*                                                                                                                                                   
|        |  |                                                                                                                                                                                                          
|10.11   |  | Employment Agreement, April 28, 2003, between the Company and
Gary Brukardt (20)*                                                                                                                        

47





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##### Table of Contents



|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|Number  |  | Description of Exhibits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.12   |  | 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. (16)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.12.1 |  | 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.(16)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.12.2 |  | Second Amendment dated as of July 27, 2003 to the 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.(20)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.12.3 |  | Second Amendment to Second Amended and Restated Loan Agreement and
Consent dated as of December 23, 2003                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.12.4 |  | Third Amendment to Loan Agreement and Consent dated as of December 23,
2003                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.13   |  | Stock Option Agreement, dated April 30, 1997, between the Company and
Gary Brukardt (2)*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.14   |  | 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. (6)
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.15   |  | Stock Option Agreement, dated May 22, 1998, between the Company
and Gary A. Brukardt (7)*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.16   |  | Stock Option Agreement, dated May 22, 1998, between the Company
and Raymond Hakim, M.D. (7)*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.17   |  | Stock Option Agreement, dated June 5, 1998, between the Company
and Joseph C. Hutts (7)*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.18   |  | Stock Option Agreement, dated June 5, 1998, between the Company
and Harry R. Jacobson, M.D. (7)*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.19   |  | 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.)(15)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.19.1 |  | Amendment #2 dated February 10, 2003 to Agreement No. 200010240 between
Renal Care Group, Inc. and Amgen Inc. (The Company has requested
confidential treatment of certain portions of this Exhibit.)(21)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.20   |  | Restricted Stock Award Agreement, dated January 25, 1999, between the
Company and Harry R. Jacobson (8)*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.21   |  | Restricted Stock Award Agreement, dated January 25, 1999, between the
Company and Stephen D. McMurray (8)*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.22   |  | Renal Care Group, Inc. 1999 Long-Term Incentive Plan (9)*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.22.1 |  | Amendment to the Renal Care Group, Inc. 1999 Long-Term Incentive Plan
(12)*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.22.2 |  | Amended and Restated Renal Care Group, Inc. 1999 Long-Term Incentive
Plan (19)*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.23   |  | Stock Option Agreement, dated August 30, 1999, between the
Company and Gary A. Brukardt (11)*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.24   |  | Stock Option Agreement, dated August 30, 1999, between the Company and
Raymond Hakim, M.D. (11)*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

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|        |  |                                                                                                                                                        
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                        
|Number  |  | Description of Exhibits                                                                                                                                
|        |  |                                                                                                                                                        
|10.25   |  | Stock Option Agreement, dated June 2, 1999, between the Company
and Joseph C. Hutts (11)*                                                              
|        |  |                                                                                                                                                        
|10.26   |  | Stock Option Agreement, dated June 2, 1999, between the Company
and Harry R. Jacobson, M.D. (11)*                                                      
|        |  |                                                                                                                                                        
|10.27   |  | Stock Option Agreement, dated July 22, 1999, between the Company
and William V. Lapham (11)*                                                           
|        |  |                                                                                                                                                        
|10.28   |  | Stock Option Agreement, dated June 8, 2000, between the Company
and Joseph C. Hutts (13)*                                                              
|        |  |                                                                                                                                                        
|10.29   |  | Stock Option Agreement, dated June 8, 2000, between the Company
and Harry R. Jacobson, M.D.(13)*                                                       
|        |  |                                                                                                                                                        
|10.30   |  | Stock Option Agreement, dated June 8, 2000, between the Company
and William V. Lapham(13)*                                                             
|        |  |                                                                                                                                                        
|10.31   |  | Stock Option Agreement, dated September 19, 2000, between the
Company and Gary A. Brukardt(13)*                                                        
|        |  |                                                                                                                                                        
|10.32   |  | Stock Option Agreement, dated September 19, 2000, between the Company
and Raymond Hakim, M.D.(13)*                                                     
|        |  |                                                                                                                                                        
|10.33   |  | Stock Option Agreement dated August 2, 2001 between the Company
and Gary Brukardt(14)*                                                                 
|        |  |                                                                                                                                                        
|10.34   |  | Stock Option Agreement dated August 2, 2001 between the Company
and Raymond Hakim(14)*                                                                 
|        |  |                                                                                                                                                        
|10.35   |  | Stock Option Agreement dated June 7, 2001 between the Company
and Joseph C. Hutts(15)*                                                                 
|        |  |                                                                                                                                                        
|10.36   |  | Stock Option Agreement dated June 7, 2001 between the Company
and William V. Lapham(15)*                                                               
|        |  |                                                                                                                                                        
|10.37   |  | Form of Stock Option Agreement for stock option grants to executive
employees under the Companys 1999 Long-Term Incentive Plan(17)                    
|        |  |                                                                                                                                                        
|10.38   |  | Form of Stock Option Agreement for stock option grants to non-management
directors under the Companys 1996 Stock Option Plan for Outside
Directors(17)
|        |  |                                                                                                                                                        
|10.39   |  | Medical Director Services Agreement, dated May 1, 2002, between the
Company and Tyler Nephrology Associates, P.A.(18)                                  
|        |  |                                                                                                                                                        
|10.40   |  | Medical Director Services Agreement, dated July 11, 2002 between the
Company and Tyler Nephrology Associates, P.A.(18)                                 
|        |  |                                                                                                                                                        
|10.41   |  | Renal Care Group Supplemental Benefit Plan(19)*                                                                                                        
|        |  |                                                                                                                                                        
|10.42   |  | Plan Agreement dated February 25, 2003 between Renal Care Group, Inc.
and Sam A. Brooks(19)*                                                           
|        |  |                                                                                                                                                        
|10.42.1 |  | Amendment #1 to Plan Agreement under the Renal Care Group, Inc.
Supplemental Benefit Plan dated as of May 29, 2003(20)*                                
|        |  |                                                                                                                                                        
|10.43   |  | Form of Indemnity Agreement between the Company and directors and
certain officers(19)                                                                 
|        |  |                                                                                                                                                        
|10.44   |  | Employment Agreement, effective as of November 3, 2003, between the
Company and David M. Dill*                                                         
|        |  |                                                                                                                                                        
|10.45   |  | Employment Agreement, effective as of November 30, 2003, between the
Company and Timothy P. Martin*                                                    

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|        |  |                                                                                                                         
|------- |  | ------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                         
|Number  |  | Description of Exhibits                                                                                                 
|        |  |                                                                                                                         
|10.46   |  | Employment Agreement effective as of December 31, 2003 between the Company and Douglas B. Chappell*                     
|        |  |                                                                                                                         
|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)                                                      
|        |  |                                                                                                                         
|31.1    |  | Certification pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
|        |  |                                                                                                                         
|31.2    |  | Certification pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
|        |  |                                                                                                                         
|32.1* * |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002  
|        |  |                                                                                                                         
|32.2* * |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002  

|     |  |                                                                                                                                                                                            
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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-Q for the quarter
ended March 31, 1996 (Commission File No. 0-27640).                                                                   
|     |  |                                                                                                                                                                                            
|(5)  |  | 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).
|     |  |                                                                                                                                                                                            
|(6)  |  | Incorporated by reference to the Companys Form 10-K for the year ended
December 31, 1996 (Commission File No. 0-27640).                                                                   
|     |  |                                                                                                                                                                                            
|(7)  |  | Incorporated by reference to the Companys Form 10-Q for the quarter
ended June 30, 1998 (Commission File No. 0-27640).                                                                    
|     |  |                                                                                                                                                                                            
|(8)  |  | Incorporated by reference to the Companys Form 10-Q for the quarter
ended March 31, 1999 (Commission File No. 0-27640).                                                                   
|     |  |                                                                                                                                                                                            
|(9)  |  | 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).
|     |  |                                                                                                                                                                                            
|(10) |  | Incorporated by reference to the Companys Form 10-Q for the quarter
ended June 30, 1999 (Commission File No. 0-27640).                                                                    
|     |  |                                                                                                                                                                                            
|(11) |  | Incorporated by reference to the Companys Form 10-Q for the quarter
ended September 30, 1999 (Commission File No. 0-27640).                                                               
|     |  |                                                                                                                                                                                            
|(12) |  | Incorporated by reference to the Companys definitive Proxy
Statement filed April 28, 2000 relating to the 2001 Annual Meeting of
Stockholders (Commission File No. 0-27640).              
|     |  |                                                                                                                                                                                            
|(13) |  | Incorporated by reference to the Companys Form 10-K for the year ended
December 31, 2000 (Commission File No. 0-27640).                                                                   

50





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|     |  |                                                                                                                             
|---- |  | ----------------------------------------------------------------------------------------------------------------------------
|(14) |  | Incorporated by reference to the Companys Form 10-Q for the quarter
ended September 30, 2001 (Commission File No. 0-27640).
|     |  |                                                                                                                             
|(15) |  | Incorporated by reference to the Companys Form 10-K for the year ended
December 31, 2001 (Commission File No. 0-27640).    
|     |  |                                                                                                                             
|(16) |  | Incorporated by reference to the Companys Form 10-Q for the quarter
ended June 30, 2002 (Commission File No. 0-27640).     
|     |  |                                                                                                                             
|(17) |  | Incorporated by reference to the Companys Form 10-Q for the quarter
ended September 30, 2002 (Commission File No. 0-27640).
|     |  |                                                                                                                             
|(18) |  | Incorporated by reference to the Companys Form 10-K for the year ended
December 31, 2002 (Commission File No. 0-27640).    
|     |  |                                                                                                                             
|(19) |  | Incorporated by reference to the Companys Form 10-Q for the quarter
ended March 31, 2003 (Commission File No. 0-27640).    
|     |  |                                                                                                                             
|(20) |  | Incorporated by reference to the Companys Form 10-Q for the quarter
ended June 30, 2003 (Commission File No. 0-27640).     
|     |  |                                                                                                                             
|(21) |  | Incorporated by reference to the Companys Form 10-Q for the quarter
ended September 30, 2003 (Commission File No. 0-27640).
|     |  |                                                                                                                             
|*    |  | Management contract or executive compensation plan or arrangement.                                                          

*     In accordance with Release No. 34-47551, this exhibit is hereby furnished
to the SEC as an accompanying document and is not deemed to be filed for
purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise
subject to the liabilities of that Section, and it shall not be deemed
incorporated by reference into any filing under the Securities Act of 1933.

51