Information with respect to our hospitals and our other properties can be found in Item 1 of this report under the caption, "Business -- Properties."
We expect our patient volumes and related revenues to continue to increase as a result of the following factors:
- Expanding Service Offerings. We believe our efforts to improve the quality and broaden the scope of healthcare services available at our facilities will lead to increased patient volumes. Recruiting and retaining both general practitioners and specialists for our non-urban communities is a key to the success of these efforts. Between the date of the distribution of our stock from HCA and December 31, 2000, we recruited 150 physicians, of which approximately 61% are specialists. Adding new physicians should help increase patient volumes which, in turn, should increase revenues. Continuing to add specialists should also allow us to grow by offering new services.
- Aging U.S. Population. In general, the population of the United States and of the communities that we serve is aging. At the end of 2000, approximately 13% of the U.S. population was 65 years old or older compared to 11% of the population at the end of 1980. This aging trend is projected to continue so that by 2025, approximately 18% of the U.S. population is expected to be older than 65.
- Revenues from Medicare, Medicaid and Managed Care Plans. We derive a significant portion of our revenues from Medicare, Medicaid and managed care plans. Admissions related to Medicare, Medicaid and managed care plan patients were 90.4% and 89.2% of total admissions for the years ended December 31, 2000 and 1999, respectively. These payors receive significant discounts compared to other payors.
- Efforts to Reduce Payments. Insurance companies, government programs (other than Medicare) and employers purchasing health care services for their employees also negotiate discounted fees rather than paying standard prices. Hospitals generally receive lower payments per patient under managed care plans than under traditional indemnity insurance plans. In addition, an increasing proportion of our services are reimbursed under prospective payment amounts regardless of the cost incurred.
Effective August 1, 2000, we sold Riverview Medical Center in Gonzales, Louisiana for approximately $20.7 million. We used the proceeds from this transaction and our available cash to pay down existing borrowings under our revolving credit facility.
Income (loss) from continuing operations before income taxes increased to $33.1 million for the year ended December 31, 2000 compared to $(10.1) million for the year ended December 31, 1999 primarily because of the $25.4 million impairment charge we incurred during 1999, increases in revenues and decreases in expenses as described above.
Interest expense increased to $23.4 million for the year ended December 31, 1999 from $19.1 million for the year ended December 31, 1998 primarily as a result of the interest expense we incurred on the debt obligations that we assumed from HCA in connection with the distribution. For the year ended December 31, 1998, our interest expense primarily included interest that we incurred on the net
We rely upon our bank credit facilities and other traditional funding sources to supplement any cash needs not met by operations. At December 31, 2000, we had working capital of $65.4 million compared to $42.2 million at December 31, 1999 primarily due to a $27.2 million increase in cash resulting from net cash collections during 2000 and to a decrease in accounts payable. The increase in working capital was offset by increases in current maturities on long-term debt.
Cash provided by operating activities increased to $83.4 million in 2000 compared to $59.3 million in 1999 and $47.5 million in 1998. The increase in 2000 resulted primarily from receipt of an income tax refund of $4.4 million in 2000 compared to income tax payments of $15.4 million during 1999. The increase in 1999 over 1998 was primarily attributable to less of a net loss in 1999 than in 1998.
Management does not consider the sale of any assets to be necessary to repay our indebtedness or to provide working capital. However, for other reasons, we may sell facilities in the future from time to time. Management expects that operations and amounts available under our bank credit agreement will provide sufficient liquidity for the next twelve months.
We intend to acquire additional hospitals and are actively seeking such acquisitions. These acquisitions may, however, require additional financing. We also continually review our capital needs and financing opportunities and may seek additional financing for our acquisition program or other needs.
On May 11, 1999, we assumed from HCA the obligations under a bank credit agreement with a group of lenders with commitments aggregating $210 million. The credit agreement consists of a $60 million term loan facility, an $85 million term loan facility and a $65 million revolving credit facility.
On May 11, 1999, we assumed from HCA $150 million in senior subordinated notes maturing on May 15, 2009 and bearing interest at 10.75%. In November 1999, in a registered exchange offer, we issued a like aggregate principal amount of notes in exchange for these notes. Interest is payable semi-annually. The notes are unsecured obligations and are subordinated in right of payment to all existing and future senior indebtedness. Our subsidiaries also guarantee our obligations under the notes.
In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," which was required to be adopted in years beginning after June 15, 1999. In June 1999, SFAS No. 137 was issued, deferring
In recent years, an increasing number of legislative proposals have been introduced or proposed to Congress and in some state legislatures. While we are unable to predict which, if any, proposals for healthcare reform will be adopted, there can be no assurance that proposals adverse to our business will not be adopted.
Significant media and public attention recently has focused on the hospital industry due to ongoing investigations related to referrals, cost reporting and billing practices, laboratory and home healthcare services and physician ownership and joint ventures involving hospitals. Both federal and state government agencies have announced heightened and coordinated civil and criminal enforcement efforts. In addition, the Office of the Inspector General of the United States Department of Health and Human Services and the United States Department of Justice periodically establish enforcement initiatives that focus on specific billing practices or other suspected areas of abuse. Recent initiatives include a focus on hospital billing practices.
In public statements, governmental authorities have taken positions on issues for which little official interpretation was previously available. Some of these positions appear to be inconsistent with common practices within the industry and which have not previously been challenged in this manner. Moreover, some government investigations that have in the past been conducted under the civil provisions of federal law are now being conducted as criminal investigations under the Medicare fraud and abuse laws.
There is generally a shortage of nurses. Our hospitals may be forced to hire expensive contract nurses if they are unable to recruit and retain nurses. The shortage of nurses may affect our hospitals' ability to deliver healthcare services efficiently.
of Kentucky and six located in the State of Tennessee. Based on those 20 hospitals, we generated 38.8% of our revenue from our Kentucky hospitals and 20.7% from our Tennessee hospitals for the year ended December 31, 2000. Effective January 2, 2001, we began operating Bluegrass Community Hospital in Versailles, Kentucky. One managed care organization that participates in Tennessee's Medicaid program has been placed in receivership by the State of Tennessee. Other managed care organizations in the states in which we derive significant revenue may encounter similar difficulties in paying claims in the future.
In recent years, the legislatures and attorneys general of several states have become more interested in sales of hospitals by not-for-profit entities. This heightened scrutiny may increase the cost and difficulty, or prevent our completion, of transactions with not-for-profit organizations in the future.
Some states require prior approval for the purchase, construction and expansion of health care facilities, based on a state's determination of need for additional or expanded health care facilities or services. Four states in which we currently own hospitals, Alabama, Florida, Kentucky and Tennessee, require a certificate of need for capital expenditures exceeding a prescribed amount, changes in bed capacity or services and certain other matters. We may not be able to obtain certificates of need required for expansion activities in the future. If we fail to obtain any required certificate of need, our ability to operate or expand operations in these states could be impaired.
Our substantial leverage may limit our ability to successfully run our business.
- require us to pay the indebtedness immediately if we default on any of the numerous financial and other restrictive covenants, including restrictions on our payments of dividends, incurrences of indebtedness and sale of assets.
We depend significantly on key personnel, and the loss of one or more senior or local management personnel could limit our ability to execute our business strategy.
If we become subject to malpractice and related legal claims, we could be required to pay significant damages.
On March 30, 1999, HCA received a private letter ruling from the Internal Revenue Service concerning the United States federal income tax consequences of the distribution by HCA of our common stock and the common stock of Triad Hospitals, Inc., a publicly-traded company comprising the former Pacific Group of HCA, and the restructuring transactions that preceded the distribution. The private letter ruling provides that the distribution generally was tax-free to HCA and HCA's stockholders, except for any cash received instead of fractional shares. The IRS has issued additional private letter rulings that supplement its March 30, 1999 ruling stating that certain transactions occurring after the distribution do not adversely affect the private letter rulings previously issued by the IRS. The March 30, 1999 ruling and the supplemental rulings are based on the accuracy of representations as to numerous factual matters and as to certain intentions of HCA, Triad and LifePoint. The inaccuracy of any of those representations could cause the IRS to revoke all or part of any of the rulings retroactively.
We are subject to provisions of Delaware corporate law which may also restrict some business combination transactions. Delaware law may further discourage, delay or prevent someone from acquiring or merging with us.
Information with respect to this Item is contained in our consolidated financial statements indicated in the Index on Page of this report.