(d) Licensed beds are those beds for which a facility has been granted approval to operate from the applicable state licensing agency. (e) Represents the average number of licensed beds, weighted based on periods owned. (f) Available beds are those beds a facility actually has in use. (g) Represents the total number of patients admitted (in the facility for a period in excess of 23 hours) to Triad's hospitals and is used by management and certain investors as a general measure of inpatient volume. (h) Adjusted admissions are used by management and certain investors as a general measure of combined inpatient and outpatient volume. Adjusted admissions are computed by multiplying admissions (inpatient volume) by the sum of gross inpatient revenue and gross outpatient revenue and then dividing the resulting amount by gross inpatient revenue. The adjusted admissions computation "adjusts" outpatient revenue to the volume measure (admissions) used to measure inpatient volume resulting in a general measure of combined inpatient and outpatient volume. (i) Represents the average number of days admitted patients stay in Triad's hospitals. Average length of stay has declined due to the continuing pressures from managed care and other payers to restrict admissions and reduce the number of days that are covered by the payers for certain procedures, and by technological and pharmaceutical improvements. (j) Represents the average number of patients in Triad's hospital beds each day. (k) Represents the percentage of hospital available beds occupied by patients. Both average daily census and occupancy rate provide measures of the utilization of inpatient rooms. (l) Triad's earnings were insufficient to cover fixed charges for the years ended December 31, 1999, 1998 and 1997 by $112.4 million, $115.6 million and $15.1 million, respectively.
Triad owns and operates the health care service business which comprised the Pacific Group of HCA until the distribution by HCA to its shareholders of all of the shares of outstanding common stock of Triad. The distribution, which occurred on May 11, 1999, marked the beginning of Triad's operations as an independent, publicly-traded company. As such, the historical financial statements prior to the distribution of Triad may not be indicative of Triad's future performance, nor do they necessarily reflect what the financial position and results of operations of Triad would have been if it had operated as a separate, stand-alone entity during the entire periods presented.
During 1999, Triad sold ten hospitals and two ambulatory surgery centers and opened one new hospital, which is accounted for using the equity method. During 2000, Triad ceased operations of two hospitals, sold one hospital and purchased two hospitals.
. the ability to attract and retain qualified management and personnel, including physicians,
. the availability and terms of capital to fund the expansion of Triad,
As discussed previously, management of Triad has focused on streamlining its portfolio of facilities to eliminate those with poor financial performance, weak competitive market positions or locations in certain urban markets. During the year ended December 31, 1999, Triad and HCA sold ten hospitals and during the year ended December 31, 2000, Triad sold one hospital and ceased operations of two hospitals. Net revenues for these facilities were $54.1 million and $249.9 million and losses before impairment charges, gain on sale, and income tax benefit of $11.6 million and $51.5 million for the years ended December 31, 2000 and 1999, respectively.
Revenues decreased 7.0% to $1,235.5 million in the year ended December 31, 2000 compared to $1,329.1 million in the year ended December 31, 1999. Revenues declined primarily as a result of the facilities that were sold or closed. In the year ended December 31, 1999, these facilities had revenues of $249.9 million compared to $54.1 million in the year ended December 31, 2000. For the year ended December 31, 2000, revenues in the facilities that were sold or closed included $3.5 million in favorable prior year cost report settlements and contractual estimates. The decrease in revenues was partially offset by a 9.5% increase for the facilities that comprise ongoing operations. Revenues for ongoing operations included $19.3 million from the acquisition of two facilities in the fourth quarter of 2000. For the year ended December 31, 2000 compared to the year ended December 31, 1999, admissions for the ongoing operations increased 5.7%, adjusted admissions from ongoing operations increased 6.3%, and revenues per adjusted admissions from ongoing operations increased 2.4%. Additionally, outpatient visits increased 2.5%, outpatient revenues per visit increased 4.2% and surgeries increased 8.5%. Another factor was $4.8 million in favorable prior year cost report settlements and contractual estimates during the year ended December 31, 2000. The increases were partially offset by an unfavorable $5.2 million change in estimate for contractual discounts at one facility.
Interest expense allocated from HCA, which was represented by interest incurred on the net intercompany balance with HCA, was $22.5 million in the year ended December 31, 1999. The intercompany balances were eliminated at the distribution.
Gain on sale of assets was $7.9 million during the year ended December 31, 2000 primarily due to the sale of one hospital facility and Triad's partnership interest in a rehabilitation hospital during 2000. Gain on sale of
assets was $8.6 million during the year ended December 31, 1999 due primarily to the sale of ten facilities during the period.
Revenues decreased 16.3% to $1,329.1 million in the year ended December 31, 1999 compared to $1,588.7 million in the year ended December 31, 1998. Inpatient admissions decreased 13.0% and adjusted admissions, adjusted to reflect combined inpatient and outpatient volume, decreased 13.0% in the year ended December 31, 1999 compared to the year ended December 31, 1998. Revenues, admissions and adjusted admissions declined primarily as a result of the facilities that were leased in January 1999 and the facilities that were sold during 1999. The leased facilities had revenues of $216.6 million, admissions of 18,134 and adjusted admissions of 30,562 during year ended December 31, 1998. The ten hospitals sold had net revenues of $189.7 million and $330.3 million, admissions of 22,821 and 38,280 and adjusted admissions of 33,277 and 55,381 during the years ended December 31, 1999 and 1998, respectively. Additionally, $3.0 million of favorable cost report settlements were received in 1998. These were partially offset by $16.7 million of lease income from the leased facilities in the year ended December 31, 1999 and increases in net revenues of $85.7 million, admissions of 7,691 and adjusted admissions of 13,443 in the facilities that will remain after divestitures. Revenues have been decreasing over the past several years due to several additional factors. These factors include decreases in Medicare rates of reimbursement mandated by the Balanced Budget Act which became effective October 1, 1997; such rates lowered revenues by approximately $12.0 million and $17.0 million during the years ended December 31, 1999 and 1998, respectively, and continued increases in discounts from the growing number of managed care payers; managed care as a percent of net revenues increased to 32.7% compared to 27.0% during the year ended December 31, 1999 and 1998, respectively.
Provision for doubtful accounts, as a percentage of revenues, increased to 9.7% in the year ended December 31, 1999 from 8.7% in the year ended December 31, 1998 due primarily to additional reserves necessary on the accounts receivables retained at the sold facilities because Triad would not have a presence in the local markets to facilitate collections. Additionally, a $2.0 million adjustment was made at one facility in the first quarter of 1999 to reflect deterioration in accounts receivable and the uncertain status of the sold facilities while the sales process was ongoing contributed to the increase.
Depreciation and amortization increased as a percentage of revenues to 7.4% in the year ended December 31, 1999 from 6.9% in the year ended December 31, 1998, primarily due to increased capital expenditures during 1999 and to the decrease in net revenues.
Triad received loan repayments from one of its hospital joint ventures of $37.0 million on February 28, 2000 and $3.7 million on April 11, 2000.
On April 28, 2000, Triad purchased 28.7 acres of land for $2.5 million in Las Cruces, New Mexico for future development. This project is expected to commence in early 2001 with projected costs of approximately $60 million over an 18-month period. The project will be funded with either operating cash flows or existing credit facilities.
On June 1, 2000, Triad's partner in an ambulatory surgery center joint venture in Arizona contributed the assets of an ambulatory surgery center to the joint venture. Triad purchased a majority interest in these assets for $0.6 million.
On July 27, 2000, Triad purchased 47 acres of undeveloped land in Sherman, Texas for $2.0 million. This land was not included in the sale of the hospital described below. Triad is currently in process of selling this land.
The transaction is subject to approval of each company's shareholders, antitrust clearance and other conditions customary for transactions of this type. The transaction is also conditioned upon Triad's and HCA's receipt of an acceptable private letter ruling from the Internal Revenue Service that the merger and related transactions will not cause the spin-off of Triad or LifePoint from HCA or the restructuring transactions that preceded the spin-off to fail to qualify for the tax treatment specified in IRS private letter rulings previously issued to HCA. The merger is further conditioned upon the receipt of necessary financing. Triad has received a financing commitment of $1.7 billion from its investment banker to fund the cash purchase price and to refinance certain existing debt of Triad and Quorum.
Upon consummation of the transaction, Triad's board of directors will be increased by the addition of two members of Quorum's current board. Triad expects that the transaction will be completed in the first half of 2001.
alleges that Quorum's directors breached their fiduciary duties of loyalty and due care by failing to implement reasonable procedures designed to maximize shareholder value and to obtain the highest price reasonably available for Quorum's shareholders. The complaint alleges that Triad aided and abetted Quorum's directors' breach of their fiduciary duties. The complaint seeks an injunction preventing consummation of the merger, or Quorum's business combination with any third party, until Quorum adopts and implements a procedure or process, such as an auction, to obtain the highest possible price for Quorum. Alternatively, the complaint seeks compensatory damages in the event the acquisition is consummated. The complaint also seeks an award of costs and attorneys' fees. Triad believes the claims are without merit and will vigorously defend the action.
HCA is a defendant in several qui tam actions, or actions brought by private parties, known as relators, on behalf of the United States of America, which have been unsealed and served on HCA. The actions allege, in general, that HCA and certain subsidiaries and/or affiliated partnerships violated the False Claims Act, 31 U.S.C. (S) 3729 et seq., by submitting improper claims to the government for reimbursement. The lawsuits seek three times the amount of damages caused to the United States by the submission of any Medicare or Medicaid false claims presented by the defendants to the Federal government, civil penalties of not less than $5,000 nor more than $10,000 for each such Medicare or Medicaid claim, attorneys' fees and costs. HCA has disclosed that, to its knowledge, the government has elected to intervene in, or join, six qui tam actions in which HCA is a defendant. HCA has also disclosed that it is aware of additional qui tam actions that remain under seal and believes that there may be other sealed qui tam cases of which it is unaware.
HCA is a defendant in a number of other suits, which allege, in general, improper and fraudulent billing, overcharging, coding and physician referrals, as well as other violations of law. Certain of the suits have been conditionally certified as class actions. Since April 1997, numerous securities class action and derivative lawsuits have been filed in the United States District Court for the Middle District of Tennessee against HCA and a number of its current and former directors, officers and/or employees. Several derivative actions have been filed in state
. any express or implied warranty claims or other claims for defective or deficient products or services, including quality of goods and services, provided by HCA;
. any civil or administrative claims of the United States against individuals.
HCA will not indemnify Triad under the distribution agreement for losses relating to any acts, practices or omissions engaged in by Triad after the distribution, whether or not Triad is indemnified for similar acts, practices and omissions occurring prior to the distribution. If indemnified matters were asserted successfully against Triad or any of its facilities, and HCA failed to meet its indemnification obligations, then this event could have a material adverse effect on Triad's business, financial condition, or results of operations. See "NOTE 13 - AGREEMENTS WITH HCA" in the consolidated financial statements for a more detailed description of such arrangements.
The extent to which Triad may or may not continue to be affected by the ongoing investigations of HCA and the initiation of additional investigations, if any, cannot be predicted. These matters could have a material adverse effect on Triad's business, financial condition, or results of operations in future periods.