On May 11, 1999, Columbia/HCA completed the Distribution. A description of the Distribution and certain transactions with Columbia/HCA is included in Note 2 of the Notes to the Consolidated Financial Statements included elsewhere in this report.
This "Management's Discussion and Analysis of Financial Condition and Results of Operations" contains disclosures which are forward-looking statements. Forward-looking statements include all statements that do not relate solely to historical or current facts, and can be identified by the use of words such as "may," "believe," "will," "expect," "project," "estimate," "anticipate," "plan" or "continue." These forward-looking statements are based on the current plans and expectations of the Company and are subject to a number of uncertainties and risks that could significantly affect current plans and expectations and the Company's future financial condition and results. These factors include, but are not limited to, (i) the highly competitive nature of the health care business, (ii) the efforts of insurers, health care providers and others to contain health care costs, (iii) possible changes in the Medicare program that may further limit reimbursements to health care providers and insurers, (iv) changes in federal, state or local regulation affecting the health care industry, (v) the possible enactment of federal or state health care reform, (vi) the ability to attract and retain qualified management and personnel, including physicians, (vii) liabilities and other claims asserted against the Company, including without limitation, liabilities for which the Company may be indemnified by Columbia/HCA, (viii) fluctuations in the market value of the Company's Common Stock, (ix) changes in accounting practices, (x) changes in general economic conditions, and (xi) other risk factors. As a consequence, current plans, anticipated actions and future financial condition and results may differ from those expressed in any forward-looking statements made by or on behalf of the Company. You are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in this "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Columbia/HCA is currently the subject of several federal investigations into certain of its business practices, as well as governmental investigations by various states. Management of LifePoint understands that Columbia/HCA is cooperating in these investigations and that Columbia/HCA understands, through written notice and other means, that it is a target in these investigations. Given the breadth of the ongoing investigations, Columbia/HCA expects additional investigative and prosecutorial activity to occur in these and other jurisdictions in the future. Columbia/HCA is the subject of a formal order of investigation by the Commission. The Commission investigation includes the anti-fraud, insider trading, periodic reporting and internal accounting control provisions of the federal securities laws. According to published reports, on July 2, 1999, a federal jury in Tampa, Florida found two Columbia/HCA employees guilty of conspiracy and making
Management believes that the ongoing governmental investigations and related media coverage may have had a negative effect on Columbia/HCA's results of operations (which include the Company for the periods prior to the Distribution Date which are presented herein). The extent to which the Company may or may not continue to be affected after the Distribution by the ongoing investigations of Columbia/HCA, the initiation of additional investigations, if any, and the related media coverage cannot be predicted. It is possible that these matters could have a material adverse effect on the financial condition or results of operations of the Company in future periods.
In connection with the Distribution, Columbia/HCA has agreed to indemnify the Company in respect of any losses which it may incur arising from the proceedings described above. Columbia/HCA has also agreed to indemnify the Company in respect of any losses, which it may incur as a result of proceedings which may be commenced by government authorities or by private parties in the future that arise from acts, practices or omissions engaged in prior to the date of the Distribution and relate to the proceedings described above. Columbia/HCA has also agreed that, in the event that any hospital owned by the Company as of the date of the Distribution is permanently excluded from participation in the Medicare and Medicaid programs as a result of the proceedings described above, then Columbia/HCA will make cash payments to the Company based on amounts as defined in the Distribution Agreement by and among Columbia/HCA and the Company. The Company has agreed with Columbia/HCA that, in connection with the pending governmental investigations, it will negotiate with the government with respect to a compliance agreement setting forth the Company's agreement to comply with applicable laws and regulations. If any of such indemnified matters were successfully asserted against the Company, or any of its facilities, and Columbia/HCA failed to meet its indemnification obligations, then such losses could have a material adverse effect on the business, financial position, results of operations or prospects of the Company. Columbia/HCA has not indemnified the
The Company's revenues also continue to be adversely affected by the trend toward certain services being performed more frequently on an outpatient basis. Generally, the payments received for an outpatient procedure are less than for a similar procedure performed in an inpatient setting. The Company believes that further payment reductions could occur as a result of the implementation of a prospective payment system for Medicare outpatient services (pursuant to the Balanced Budget Act and scheduled for implementation in July 1, 2000). Growth in outpatient services is expected to continue in the health care industry as procedures performed on an inpatient basis are converted to outpatient procedures through continuing advances in pharmaceutical and medical technologies. The redirection of certain procedures to an outpatient basis is also influenced by pressures from payers to perform certain procedures as outpatient care rather than inpatient care.
The following are summaries of results from continuing operations for the years ended December 31, 1999, 1998 and 1997 (dollars in millions):
Operating expenses increased as a percentage of revenues in every expense category except for other operating expenses, which decreased 1.0%. The primary reason for the increases, as a percentage of revenues, was the Company's inability to adjust expenses in line with the decreases experienced in same facility volume and reimbursement trends. The level of management's attention being devoted to the governmental investigations, reactions by certain physicians and patients to the related negative media coverage and management changes at several levels and locations throughout the Company contributed to the Company's inability to implement changes to reduce operating expenses in response to the revenue and volume growth rate declines on a same facility basis.
Management fees allocated by Columbia/HCA were $8.9 million in 1998 and $8.2 million in 1997. These amounts represented allocations, using revenues as the allocation basis, of the corporate, general and administrative expenses of Columbia/HCA.
Cash provided by operating activities was $57.5 million for the year ended December 31, 1999 compared to $45.3 million for the year ended December 31, 1998. This increase was primarily attributable to less of a net loss in 1999 than in 1998.
connection with the Distribution and the Company assumed certain indebtedness from Columbia/HCA (as discussed below).
Management does not consider the sale of any assets to be necessary to repay the Company's indebtedness or to provide working capital. However, for other reasons, certain of the Company's hospitals may be sold in the future from time to time. At December 31, 1999, three of the Company's hospitals were held for sale. One of the hospitals was sold subsequent to December 31, 1999. See Note 16 of the Notes to the Consolidated Financial Statements included elsewhere in this report. Although the Company's indebtedness is much more significant than was the case for its predecessor entities prior to the Distribution, management expects that operations and amounts available under the Company's Credit Agreement (as discussed below) will provide sufficient liquidity in 2000.
The Company does not expect to pay dividends on its Common Stock in the foreseeable future.
The indenture pursuant to which the Notes were made contains certain covenants, including but not limited to restrictions on new indebtedness, the ability to merge or consolidate, asset sales, capital expenditures and dividends.
Prior to May 11, 1999, LifePoint operated as the America Group division of Columbia/HCA. Accordingly, LifePoint does not have a long operating history as an independent, publicly-traded company and, prior to the Distribution, LifePoint had historically relied on Columbia/HCA for various financial, administrative and managerial expertise relevant to the conduct of its business. LifePoint maintains its own lines of credit and banking relationships, employs its own senior executives and performs its own administrative functions, except that Columbia/HCA continues to provide certain support services to LifePoint on a contractual basis. LifePoint did not generate a profit for 1999. There can be no assurance that LifePoint will not continue to have net losses in the future. See "Business -- Arrangements Relating to the Distribution" for more information regarding LifePoint's arrangements with Columbia/HCA and see "Management's Discussion and Analysis of Financial Condition and Results of Operations" for certain factors that could affect LifePoint's ability to generate profits.
In recent years, the legislatures and attorneys general of several states have increased their level of interest in transactions involving the sale of hospitals by not-for-profit entities. Such heightened scrutiny may increase the cost and difficulty or prevent the completion of transactions with not-for-profit organizations in certain states in the future.
The Health Insurance Portability and Accountability Act of 1996, which became effective January 1, 1997, amends, among other things, Title XI (42 U.S.C. sec. 1301 et seq.) to broaden the scope of certain fraud and abuse laws to include all health care services, whether or not they are reimbursed under a federal program, and creates new enforcement mechanisms to combat fraud and abuse, including an incentive program under which individuals can receive up to $1,000 for providing information on Medicare fraud and abuse that leads to the recovery of at least $100 of Medicare funds.
LifePoint exercises care in structuring its arrangements with physicians and other referral sources to comply in all material respects with applicable laws. It is possible, however, that government officials charged with responsibility for enforcing such laws could assert that LifePoint or certain transactions in which it is
Many states have enacted or are considering enacting laws affecting the conversion or sale of not-for-profit hospitals. These laws, in general, include provisions relating to state attorney general approval, advance notification and community involvement. In addition, state attorneys general in states without specific conversion legislation may exercise authority over these transactions based upon existing law. In many states there has been an increased interest in the oversight of not-for-profit conversions. The adoption of conversion legislation and the increased review of not-for-profit hospital conversions may limit the ability of LifePoint to acquire not-for-profit hospitals.
The Company purchases insurance for its professional and general liability risks incurred after the Distribution, subject to a substantial deductible, for which a reserve is recorded on the balance sheets of LifePoint. There can be no assurance that the cash flow of LifePoint will be adequate to provide for professional and general liability claims in the future. Columbia/HCA has indemnified LifePoint for professional and general liability claims incurred prior to the Distribution.
Certain provisions of the Certificate of Incorporation and By-Laws of LifePoint may have the effect of discouraging an acquisition of control not approved by its Board of Directors. These provisions include, for example, terms providing for:
Certain provisions in the Tax Sharing and Indemnification Agreement entered into among Columbia/ HCA, LifePoint and Triad, which are intended to preserve the tax-free status of the Distribution for federal income tax purposes, could discourage certain takeover proposals or make them more expensive. See "Business -- Arrangements Relating to the Distribution -- Tax Sharing and Indemnification Agreement."