Health Management Associates 10-Q 2012 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period endedSeptember 30, 2012

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:001-11141

HEALTH MANAGEMENT ASSOCIATES, INC.

(Exact name of registrant as specified in its charter)

Delaware	61-0963645
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

5811 Pelican Bay Boulevard, Suite 500, Naples, Florida	34108-2710
(Address of principal executive offices)	(Zip Code)

(239) 598-3131

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

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 registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

As of October 26, 2012, there were 256,368,432 shares of the registrant’s Class A common stock outstanding.

HEALTH MANAGEMENT ASSOCIATES, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2012

INDEX

		Page
PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements.
Consolidated Statements of Income – Three and Nine Months Ended September 30, 2012 and 2011			3
Consolidated Statements of Comprehensive Income – Three and Nine Months Ended September 30, 2012 and 2011			4
Condensed Consolidated Balance Sheets – September 30, 2012 and December 31, 2011			5
Consolidated Statements of Stockholders’ Equity – Nine Months Ended September 30, 2012 and 2011			6
Condensed Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2012 and 2011			7
Notes to Interim Condensed Consolidated Financial Statements			8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		34
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		44
Item 4.	Controls and Procedures		44
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings		45
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		48
Item 6.	Exhibits		48
Signatures			49
Index to Exhibits			50

2

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

HEALTH MANAGEMENT ASSOCIATES, INC.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Net revenue before the provision for doubtful accounts	$	1,664,187		$	1,398,495		$	5,037,246		$	4,220,677
Provision for doubtful accounts		(224,078	)		(178,873	)		(639,902	)		(521,729	)
Net revenue		1,440,109			1,219,622			4,397,344			3,698,948
Salaries and benefits		637,305			549,857			1,942,322			1,665,093
Supplies		216,819			179,993			677,416			560,248
Rent expense		41,882			38,117			130,746			110,738
Other operating expenses		331,935			267,140			969,350			762,115
Medicare and Medicaid HCIT incentive payments		(24,224	)		(1,749	)		(31,685	)		(1,749	)
Depreciation and amortization		91,610			65,605			255,716			194,434
Interest expense		76,814			50,018			240,743			152,088
Other		(2,363	)		(1,450	)		(1,745	)		(1,783	)
		1,369,778			1,147,531			4,182,863			3,441,184
Income from continuing operations before income taxes		70,331			72,091			214,481			257,764
Provision for income taxes		(20,913	)		(22,387	)		(70,931	)		(89,178	)
Income from continuing operations		49,418			49,704			143,550			168,586
Income (loss) from discontinued operations, including gains/losses on disposals, net of income taxes		(1,389	)		255			(5,805	)		(1,182	)
Consolidated net income		48,029			49,959			137,745			167,404
Net income attributable to noncontrolling interests		(6,685	)		(6,231	)		(21,757	)		(19,541	)
Net income attributable to Health Management Associates, Inc.	$	41,344		$	43,728		$	115,988		$	147,863
Earnings (loss) per share attributable to Health Management Associates, Inc. common stockholders:
Basic and diluted
Continuing operations	$	0.17		$	0.17		$	0.48		$	0.59
Discontinued operations		(0.01	)		—			(0.03	)		(0.01	)
Net income	$	0.16		$	0.17		$	0.45		$	0.58
Weighted average number of shares outstanding:
Basic		254,516			252,157			254,111			251,327
Diluted		256,784			255,124			256,172			254,703

See accompanying notes.

3

HEALTH MANAGEMENT ASSOCIATES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Consolidated net income	$	48,029		$	49,959		$	137,745		$	167,404
Components of other comprehensive income (loss) before income taxes attributable to:
Interest rate swap contract
Changes in fair value		—			7,323			—			27,553
Reclassification adjustments for amortization of expense into net income		19,404			—			59,937			—
Net activity attributable to the interest rate swap contract		19,404			7,323			59,937			27,553
Available-for-sale securities
Unrealized gains (losses), net		4,244			(5,485	)		8,828			(4,313	)
Adjustments for net (gains) losses reclassified into net income		(443	)		(979	)		(340	)		(1,020	)
Net activity attributable to available-for-sale securities		3,801			(6,464	)		8,488			(5,333	)
Other comprehensive income (loss) before income taxes		23,205			859			68,425			22,220
Income tax (expense) benefit related to items of other comprehensive income (loss)		(8,863	)		(2,897	)		(26,240	)		(7,963	)
Other comprehensive income (loss), net		14,342			(2,038	)		42,185			14,257
Total consolidated comprehensive income		62,371			47,921			179,930			181,661
Total comprehensive income attributable to noncontrolling interests		(6,685	)		(6,231	)		(21,757	)		(19,541	)
Total comprehensive income attributable to Health Management Associates, Inc. common stockholders	$	55,686		$	41,690		$	158,173		$	162,120

See accompanying notes.

4

HEALTH MANAGEMENT ASSOCIATES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

(unaudited)

	September 30, 2012			December 31, 2011
ASSETS
Current assets:
Cash and cash equivalents	$	35,218		$	64,143
Available-for-sale securities		146,569			122,277
Accounts receivable, less allowances for doubtful accounts of $715,507 and $578,972 at September 30, 2012 and December 31, 2011, respectively		972,104			903,517
Supplies, prepaid expenses and other assets		218,975			215,595
Prepaid and recoverable income taxes		14,626			61,756
Restricted funds		28,609			28,289
Assets of discontinued operations		8,100			14,561
Total current assets		1,424,201			1,410,138
Property, plant and equipment		5,410,805			5,086,496
Accumulated depreciation and amortization		(1,995,374	)		(1,823,324	)
Net property, plant and equipment		3,415,431			3,263,172
Restricted funds		120,161			96,244
Goodwill		1,022,313			999,380
Deferred charges and other assets		324,622			235,255
Total assets	$	6,306,728		$	6,004,189
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	187,708		$	198,120
Accrued expenses and other liabilities		613,263			469,729
Deferred income taxes		8,986			50,466
Current maturities of long-term debt and capital lease obligations		92,721			85,509
Total current liabilities		902,678			803,824
Deferred income taxes		281,644			234,080
Long-term debt and capital lease obligations, less current maturities		3,476,368			3,489,489
Other long-term liabilities		477,981			491,037
Total liabilities		5,138,671			5,018,430
Redeemable equity securities		212,663			200,643
Stockholders’ equity:
Health Management Associates, Inc. equity:
Preferred stock, $0.01 par value, 5,000 shares authorized, none issued		—			—
Common stock, Class A, $0.01 par value, 750,000 shares authorized, 256,368 shares and 254,156 shares issued at September 30, 2012 and December 31, 2011, respectively		2,564			2,542
Accumulated other comprehensive income (loss), net of income taxes		(53,255	)		(95,440	)
Additional paid-in capital		169,020			156,859
Retained earnings		821,168			705,180
Total Health Management Associates, Inc. stockholders’ equity		939,497			769,141
Noncontrolling interests		15,897			15,975
Total stockholders’ equity		955,394			785,116
Total liabilities and stockholders’ equity	$	6,306,728		$	6,004,189

See accompanying notes.

5

HEALTH MANAGEMENT ASSOCIATES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Nine Months Ended September 30, 2012 and 2011

(in thousands)

(unaudited)

	Health Management Associates, Inc.
	Common Stock				Accumulated Other Comprehensive			Additional Paid-in			Retained		Noncontrolling			Total Stockholders’
	Shares		Par Value		Income (Loss), Net			Capital			Earnings		Interests			Equity
Balances at January 1, 2012		254,156	$	2,542	$	(95,440	)	$	156,859		$	705,180	$	15,975		$	785,116
Net income		—		—		—			—			115,988		21,757			137,745
Unrealized gains (losses) on available-for-sale securities and reclassifications into net income, net		—		—		5,515			—			—		—			5,515
Change in fair value of interest rate swap contract and amortization of expense into net income, net		—		—		36,670			—			—		—			36,670
Issuances of deferred stock and restricted stock and related tax matters, net of forfeitures		2,212		22		—			(7,057	)		—		—			(7,035	)
Stock-based compensation expense		—		—		—			19,492			—		—			19,492
Distributions to noncontrolling shareholders		—		—		—			—			—		(23,598	)		(23,598	)
Purchases of subsidiary shares from noncontrolling shareholders		—		—		—			(274	)		—		(154	)		(428	)
Noncontrolling shareholder interests in an acquired business		—		—		—			—			—		1,917			1,917
Balances at September 30, 2012		256,368	$	2,564	$	(53,255	)	$	169,020		$	821,168	$	15,897		$	955,394

	Health Management Associates, Inc.
	Common Stock				Accumulated Other Comprehensive			Additional Paid-in			Retained		Noncontrolling			Total Stockholders’
	Shares		Par Value		Income (Loss), Net			Capital			Earnings		Interests			Equity
Balances at January 1, 2011		250,880	$	2,509	$	(131,124	)	$	123,040		$	526,470	$	12,591		$	533,486
Net income		—		—		—			—			147,863		19,541			167,404
Unrealized gains (losses) on available-for-sale securities and reclassifications into net income, net		—		—		(3,468	)		—			—		—			(3,468	)
Change in fair value of interest rate swap contract and amortization of expense into net income, net		—		—		17,725			—			—		—			17,725
Exercises of stock options and related tax matters		1,563		16		—			16,047			—		—			16,063
Issuances of deferred stock and restricted stock and related tax matters, net of forfeitures		1,660		16		—			(7,429	)		—		—			(7,413	)
Stock-based compensation expense		—		—		—			19,301			—		—			19,301
Distributions to noncontrolling shareholders		—		—		—			—			—		(20,539	)		(20,539	)
Noncontrolling shareholder interests in an acquired business		—		—		—			—			—		2,036			2,036
Balances at September 30, 2011		254,103	$	2,541	$	(116,867	)	$	150,959		$	674,333	$	13,629		$	724,595

See accompanying notes.

6

HEALTH MANAGEMENT ASSOCIATES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Nine Months Ended September 30,
	2012			2011
Cash flows from operating activities:
Consolidated net income	$	137,745		$	167,404
Adjustments to reconcile consolidated net income to net cash provided by continuing operating activities:
Depreciation and amortization		263,960			199,428
Amortization related to interest rate swap contract		59,937			—
Fair value adjustment related to interest rate swap contract		22,965			—
Provision for doubtful accounts		639,902			521,729
Stock-based compensation expense		19,492			19,301
Losses on sales of assets, net		2,114			1,096
Gains on sales of available-for-sale securities, net		(2,350	)		(706	)
Deferred income tax expense (benefit)		(20,156	)		48,375
Changes in assets and liabilities of continuing operations, net of the effects of acquisitions:
Accounts receivable		(719,495	)		(573,902	)
Supplies, prepaid expenses and other current assets		(1,962	)		(12,251	)
Prepaid and recoverable income taxes		52,641			(8	)
Deferred charges and other long-term assets		(1,839	)		(1,584	)
Accounts payable		(10,524	)		(5,843	)
Accrued expenses and other liabilities		11,355			85,649
Equity compensation excess income tax benefits		(1,444	)		(2,919	)
Loss from discontinued operations, net		5,805			1,182
Net cash provided by continuing operating activities		458,146			446,951
Cash flows from investing activities:
Acquisitions of hospitals and other ancillary health care businesses		(71,475	)		(573,439	)
Additions to property, plant and equipment		(282,424	)		(202,819	)
Proceeds from sales of assets and insurance recoveries		1,932			1,792
Proceeds from sales of discontinued operations		1,392			4,851
Purchases of available-for-sale securities		(1,431,548	)		(1,153,492	)
Proceeds from sales of available-for-sale securities		1,412,580			1,173,348
Increase in restricted funds, net		(18,723	)		(28,260	)
Net cash used in continuing investing activities		(388,266	)		(778,019	)
Cash flows from financing activities:
Proceeds from long-term debt borrowings		17,000			370,700
Principal payments on debt and capital lease obligations		(87,927	)		(34,047	)
Payments for debt issuance costs		(636	)		(10,625	)
Proceeds from exercises of stock options		—			14,067
Cash received from noncontrolling shareholders		3,591			—
Cash payments to noncontrolling shareholders		(30,815	)		(21,828	)
Equity compensation excess income tax benefits		1,444			2,919
Net cash provided by (used in) continuing financing activities		(97,343	)		321,186
Net decrease in cash and cash equivalents before discontinued operations		(27,463	)		(9,882	)
Net increases (decreases) in cash and cash equivalents from discontinued operations:
Operating activities		(1,327	)		8,004
Investing activities (see Note 7)		(135	)		(11,583	)
Net decrease in cash and cash equivalents		(28,925	)		(13,461	)
Cash and cash equivalents at the beginning of the period		64,143			101,812
Cash and cash equivalents at the end of the period	$	35,218		$	88,351

See accompanying notes.

7

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

1. Business and Basis of Presentation

Health Management Associates, Inc. by and through its subsidiaries (collectively, “we,” “our” or “us”) provides health care services to patients in hospitals and other health care facilities in non-urban communities located primarily in the southeastern United States. As of September 30, 2012, we operated 70 hospitals in fifteen states with a total of 10,527 licensed beds, including twenty-two hospitals located in Florida, ten hospitals in Mississippi and nine hospitals in Tennessee.

Unless specifically indicated otherwise, all amounts and percentages presented in the notes below are exclusive of our discontinued operations, which are identified at Note 7.

The condensed consolidated balance sheet as of December 31, 2011 is unaudited; however, it was derived from the audited consolidated financial statements included in our Current Report on Form 8-K that was filed with the Securities and Exchange Commission (the “SEC”) on August 10, 2012 (referred to herein as the “August 2012 Form 8-K”). The interim condensed consolidated financial statements as of September 30, 2012 and for the three and nine months ended September 30, 2012 and 2011 are unaudited; however, such interim financial statements reflect all adjustments (consisting only of those of a normal recurring nature) that are, in our opinion, necessary for a fair presentation of our financial position, results of operations and cash flows. Our results of operations and cash flows for the interim periods presented herein are not necessarily indicative of the results to be expected for the full year due to, among other things, the seasonal nature of our business and changes in the economy and the health care regulatory environment, including the possible effects of the Patient Protection and Affordable Care Act, the Health Care and Education Reconciliation Act of 2010 and the Budget Control Act of 2011.

The interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC. Based on the SEC’s guidance, certain information and disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted. The interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the August 2012 Form 8-K. Additionally, see Note 2 for information regarding new accounting guidance that we adopted during the nine months ended September 30, 2012.

Our preparation of interim condensed consolidated financial statements requires us to make estimates and assumptions that affect the amounts reported in those financial statements and the accompanying notes. Actual results could differ from those estimates.

The presentation of our consolidated statements of income in the prior year has been modified to conform to (i) the current year presentation for, among other things, Medicare and Medicaid HCIT incentive payments and (ii) new accounting guidance that we adopted during the nine months ended September 30, 2012, which is discussed at Note 2.

2. Net Revenue, Provision for Doubtful Accounts, Cost of Revenue and Other

New Accounting Guidance. During July 2011, the Financial Accounting Standards Board amended and updated the accounting standards in GAAP regarding the income statement presentation and related disclosures of net revenue for health care entities (the “Net Revenue Update”). Among other things, the Net Revenue Update requires health care entities to (i) present the provision for doubtful accounts as a reduction of net patient service revenue in the income statement if the entity does not assess a patient’s ability to pay prior to rendering services or determine that collection of the related revenue is reasonably assured and (ii) provide enhanced disclosures about major sources of revenue by payor and certain activity in the allowance for doubtful accounts. The Net Revenue Update does not otherwise change the revenue recognition criteria for health care entities. The Net Revenue Update, which permitted early adoption, was required to be adopted by public companies during interim and annual periods beginning after December 15, 2011. The income statement presentation change was required to be adopted on a retrospective basis but the enhanced disclosures were permitted to be adopted either retrospectively or prospectively. Effective January 1, 2012, we adopted the Net Revenue Update, including the enhanced disclosures on a prospective basis.

Net Revenue. We record gross patient service charges on the accrual basis in the period that the services are rendered. Net revenue before the provision for doubtful accounts represents gross patient service charges less provisions for contractual adjustments. Payments for services rendered to patients covered by Medicare, Medicaid and other government programs are generally less than billed charges and, therefore, provisions for contractual adjustments are made to reduce gross patient service charges to the estimated cash receipts based on each program’s principles of payment/reimbursement (i.e., either prospectively determined or retrospectively determined costs). Estimates of contractual allowances for services rendered to patients covered by commercial insurance, including managed care health plans, are primarily based on the payment terms of contractual arrangements, such as predetermined rates per diagnosis, per diem rates or discounted fee for service rates. Revenue and receivables from government programs are significant to our operations; however, we do not believe that there are substantive credit risks associated with such programs. There are no other concentrations of revenue or accounts receivable with any individual payor that subject us to significant credit or other risks. Historically, government payors, managed care health plans and other commercial payors have not significantly affected our provision for doubtful accounts.

8

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

2. Net Revenue, Provision for Doubtful Accounts, Cost of Revenue and Other (continued)

In the ordinary course of business, we provide services to patients who are financially unable to pay for their care. Accounts identified as charity and indigent care are not recognized in net revenue before the provision for doubtful accounts. We maintain a company-wide policy whereby patient account balances are characterized as charity and indigent care only if the patient meets certain percentages of the federal poverty level guidelines. Local hospital personnel and our collection agencies pursue payments on accounts receivable from patients who do not meet such criteria. For uninsured self-pay patients who do not qualify for charity and indigent care treatment, we recognize net revenue before the provision for doubtful accounts using our standard gross patient service charges, less discounts of 60% or more for non-elective procedures. Because a significant portion of uninsured self-pay patients will be unable or unwilling to pay for their care, we record a significant provision for doubtful accounts in the period that the services are provided to those patients.

Net revenue before the provision for doubtful accounts, by major payor source, is summarized in the table below (dollars in thousands).

	Three Months Ended September 30, 2012				Nine Months Ended September 30, 2012
Medicare	$	454,076	27.3	%	$	1,419,994	28.2	%
Medicaid		146,850	8.8			423,235	8.4
Commercial insurance		842,236	50.6			2,487,718	49.4
Self-pay		198,223	11.9			549,834	10.9
Other		22,802	1.4			156,465	3.1
	$	1,664,187	100.0	%	$	5,037,246	100.0	%

Provision for Doubtful Accounts and Related Other. We grant credit without requiring collateral from our patients, most of whom live near our hospitals and are insured under third party payor agreements. The credit risk for non-governmental accounts receivable, excluding uninsured self-pay patients, is limited due to the large number of insurance companies and other payors that provide payment and reimbursement for patient services. Accounts receivable are reported net of estimated allowances for doubtful accounts.

Collection of accounts receivable from third party payors and patients is our primary source of cash and is therefore critical to our successful operating performance. Accordingly, we regularly monitor our cash collection trends and the aging of our accounts receivable by major payor source. Our collection risks principally relate to uninsured self-pay patient accounts and patient accounts for which the primary insurance payor has paid but patient responsibility amounts (generally deductibles and co-payments) remain outstanding. Provisions for doubtful accounts are primarily estimated based on cash collection analyses by major payor classification and accounts receivable aging reports. For accounts receivable associated with services provided to patients who have governmental and/or commercial insurance coverage, we analyze contractually due amounts and provide an allowance for doubtful accounts as necessary (e.g., expected uncollectible deductibles and co-payments on accounts for which the third party payor has not yet paid, payors known to be having financial difficulties, etc.). For accounts receivable associated with self-pay patients, which includes both patients without insurance and patients with deductible and co-payment balances due for which third party coverage exists for part of the bill, we record a significant provision for doubtful accounts in the period of service because many patients will not pay the portion of their bill for which they are financially responsible. We monitor the aging of accounts receivable from self-pay patients and record supplemental provisions for doubtful accounts when our likelihood of collection deteriorates.

When considering the adequacy of the allowance for doubtful accounts, our accounts receivable balances are reviewed in conjunction with historical collection rates, health care industry trends/indicators and other business and economic conditions that might reasonably be expected to affect the collectability of patient accounts. Accounts receivable are written off after collection efforts have been pursued in accordance with our policies and procedures. Accounts written off as uncollectible are deducted from the allowance for doubtful accounts and subsequent recoveries are netted against the provision for doubtful accounts. Changes in payor mix, general economic conditions or federal and state government health care coverage could each have a material adverse effect on our accounts receivable collections, cash flows and results of operations.

Cost of Revenue. The presentation of costs and expenses in our consolidated statements of income does not differentiate between costs of revenue and other costs because substantially all such costs and expenses relate to providing health care services. Furthermore, we believe that the natural classification of expenses is the most meaningful presentation of our operations. Amounts that could be classified as general and administrative expenses include the costs of our home office, which were approximately $54.2 million and $45.0 million during the three months ended September 30, 2012 and 2011, respectively. The corresponding amounts for the nine months ended September 30, 2012 and 2011 were $165.6 million and $121.5 million, respectively.

9

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

3.Long-Term Debt and Capital Lease Obligations

The following discussion of our long-term debt and capital lease obligations should be read in conjunction with Notes 2 and 3 to the audited consolidated financial statements included in the August 2012 Form 8-K. The table below summarizes our long-term debt and capital lease obligations by major component (in thousands).

	September 30, 2012			December 31, 2011
Bank borrowings:
Revolving credit facilities	$	—		$	—
Term Loan A (as defined below)		684,219			725,000
Term Loan B (as defined below), net of discounts		1,377,305			1,386,258
7.375% Senior Notes due 2020		875,000			875,000
6.125% Senior Notes due 2016, net of discounts		398,693			398,416
3.75% Convertible Senior Subordinated Notes due 2028, net of discounts		84,522			81,648
Capital lease obligations and other long-term debt		149,350			108,676
Long-term debt and capital lease obligations		3,569,089			3,574,998
Less current maturities		(92,721	)		(85,509	)
Long-term debt and capital lease obligations, less current maturities	$	3,476,368		$	3,489,489

Bank Borrowings. On November 18, 2011, we completed a restructuring of our long-term debt (the “2011 Debt Restructuring”), which included, among other things, new variable rate senior secured credit facilities with a syndicate of banks (collectively, the “Credit Facilities”). The Credit Facilities consist of: (i) a $500.0 million five-year revolving credit facility (the “Revolving Credit Agreement”); (ii) a $725.0 million five-year term loan (the “Term Loan A”); and (iii) a $1.4 billion seven-year term loan (the “Term Loan B”). We used the net proceeds from the term loans under the Credit Facilities, together with the net proceeds from the sale of our 7.375% Senior Notes due 2020 (the “2020 Senior Notes”), to repay all amounts outstanding under certain predecessor credit facilities.

We can elect whether interest on borrowings under the Credit Facilities is determined using LIBOR or the Base Rate (as defined in the loan agreement). The effective interest rate on such borrowings, which fluctuates with market changes, includes a spread above the rate that we select. The effective interest rate for the Term Loan B is subject to a floor of 1.0% and 2.0% (before consideration of the interest rate spread) when using LIBOR and the Base Rate, respectively. The amount of the interest rate spread is predicated on, among other things, our Consolidated Leverage Ratio (as defined in the loan agreement). We can elect differing interest rates for each of the debt instruments under the Credit Facilities. Interest is payable in arrears at the end of a calendar quarter or on the date that the selected interest duration period ends. At September 30, 2012, the effective interest rates on the Term Loan A and the Term Loan B were 2.9% and 4.5%, respectively. Those rates remained unchanged as of October 26, 2012.

The Revolving Credit Agreement provides that we can borrow, on a revolving basis, up to an aggregate of $500.0 million, as adjusted for outstanding standby letters of credit of up to $75.0 million. During the nine months ended September 30, 2012, we borrowed and repaid $17.0 million under the Revolving Credit Agreement. The proceeds from such borrowing were used for acquisition working capital. There were no borrowings under our predecessor revolving credit facility during the nine months ended September 30, 2011; however, as discussed below, one of our subsidiaries borrowed against its then existing revolving credit facility during such period. As of October 26, 2012, standby letters of credit in favor of third parties of approximately $50.1 million reduced the amount available for borrowing under the Revolving Credit Agreement to $449.9 million on such date. Although there were no amounts outstanding on either date, the effective interest rate on the variable rate Revolving Credit Agreement was approximately 2.9% and 2.8% on September 30, 2012 and October 26, 2012, respectively.

On September 30, 2011, one of our wholly owned subsidiaries, Knoxville HMA Holdings, LLC (“HMA Knoxville”), and certain subsidiaries of HMA Knoxville entered into a credit agreement with a syndicate of banks (the “Knoxville Credit Agreement”). HMA Knoxville entered into the Knoxville Credit Agreement to facilitate its September 30, 2011 acquisition of substantially all of the assets of seven general acute care hospitals and certain related ancillary health care operations in east Tennessee. See Note 6 for information regarding this acquisition. In connection with the 2011 Debt Restructuring, the Knoxville Credit Agreement was terminated on November 18, 2011 and all of the then existing principal and accrued interest outstanding thereunder was repaid. The Knoxville Credit Agreement consisted of a $360.0 million term loan and a $150.0 million revolving credit facility. The full amount of the term loan and $10.7 million under the revolving credit facility were borrowed by HMA Knoxville during the nine months ended September 30, 2011 and those borrowings were outstanding on such date. The borrowings were primarily used to (i) fund a portion of the total cash consideration paid to complete the abovementioned acquisition and (ii) pay closing costs associated with the Knoxville Credit Agreement.

Senior Debt Securities.As part of the 2011 Debt Restructuring, we completed a private placement of $875.0 million in aggregate principal amount 2020 Senior Notes. We also entered into an agreement that, among other things, required us to file a registration statement with the SEC with respect to a registered offer to exchange the 2020 Senior Notes

10

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

3.Long-Term Debt and Capital Lease Obligations (continued)

for publicly registered notes with terms substantially identical, in all material respects, to the 2020 Senior Notes. In connection therewith, we filed a registration statement during August 2012 and incurred approximately $0.5 million of debt issuance costs. Upon such registration statement being declared effective by the SEC on August 30, 2012, we offered the publicly registered notes to holders of the 2020 Senior Notes in exchange for the surrender of their existing notes. During the exchange period, which concluded on September 28, 2012, all of the 2020 Senior Notes were surrendered for the publicly registered notes.

Other. Cash paid for interest on our long-term debt and capital lease obligations during the nine months ended September 30, 2012 and 2011, including amounts that have been capitalized, was approximately $206.6 million and $140.6 million, respectively. Including acquisition transactions, we entered into capital leases and other similar arrangements for real property and equipment aggregating $58.3 million and $49.4 million during the nine months ended September 30, 2012 and 2011, respectively.

See Note 5 for information regarding the estimated fair values of our long-term debt instruments. Additionally, see Note 11 for summarized financial information in respect of our subsidiaries that provide joint and severable guarantees of payment for certain of our long-term debt obligations.

At September 30, 2012, we were in compliance with all of the covenants contained in our debt agreements.

4. Earnings Per Share

Basic earnings per share is computed based on the weighted average number of outstanding common shares. Diluted earnings per share is computed based on the weighted average number of outstanding common shares plus the dilutive effect of common stock equivalents, primarily computed using the treasury stock method. The table below sets forth the computations of basic and diluted earnings (loss) per share for the common stockholders of Health Management Associates, Inc. (in thousands, except per share amounts).

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Numerators:
Income from continuing operations	$	49,418		$	49,704		$	143,550		$	168,586
Income attributable to noncontrolling interests		(6,685	)		(6,231	)		(21,757	)		(19,541	)
Income from continuing operations attributable to Health Management Associates, Inc. common stockholders		42,733			43,473			121,793			149,045
Income (loss) from discontinued operations attributable to Health Management Associates, Inc. common stockholders		(1,389	)		255			(5,805	)		(1,182	)
Net income attributable to Health Management Associates, Inc. common stockholders	$	41,344		$	43,728		$	115,988		$	147,863
Denominators:
Denominator for basic earnings (loss) per share-weighted average number of outstanding common shares		254,516			252,157			254,111			251,327
Dilutive securities: stock-based compensation arrangements		2,268			2,967			2,061			3,376
Denominator for diluted earnings (loss) per share		256,784			255,124			256,172			254,703
Earnings (loss) per share:
Basic
Continuing operations	$	0.17		$	0.17		$	0.48		$	0.59
Discontinued operations		(0.01	)		—			(0.03	)		(0.01	)
Net income	$	0.16		$	0.17		$	0.45		$	0.58
Diluted
Continuing operations	$	0.17		$	0.17		$	0.48		$	0.59
Discontinued operations		(0.01	)		—			(0.03	)		(0.01	)
Net income	$	0.16		$	0.17		$	0.45		$	0.58
Securities excluded from diluted earnings (loss) per share because they were antidilutive or performance conditions were not met:
Stock options		3,417			4,803			3,977			3,849
Deferred stock and restricted stock		1,624			916			2,091			783

11

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

5. Fair Value Measurements, Available-For-Sale Securities and Restricted Funds

General. GAAP defines fair value as the amount that would be received for an asset or paid to transfer a liability (i.e., an exit price) in the principal market for the asset or liability in an orderly transaction between market participants on the measurement date. GAAP also establishes a hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. GAAP describes the following three levels of inputs that may be used:

Level 1:	Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets and liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
Level 2:	Observable prices that are based on inputs not quoted on active markets but corroborated by market data.
Level 3:	Unobservable inputs when there is little or no market data available, thereby requiring an entity to develop its own assumptions. The fair value hierarchy gives the lowest priority to Level 3 inputs.

We recognize transfers between levels within the fair value hierarchy on the date of the change in circumstances that requires such transfer. The table below summarizes the estimated fair values of certain of our financial assets (liabilities) as of September 30, 2012 (in thousands).

	Level 1		Level 2			Level 3		Totals
Available-for-sale securities, including those in restricted funds	$	258,559	$	36,780		$	—	$	295,339
Interest rate swap contract	$	—	$	(114,798	)	$	—	$	(114,798	)

The estimated fair values of our Level 1 available-for-sale securities were primarily determined by reference to quoted market prices. Our Level 2 available-for-sale securities primarily consisted of: (i) bonds and notes issued by (a) the United States government and its agencies, (b) domestic and foreign corporations and (c) foreign governments; and (ii) preferred securities issued by domestic and foreign corporations. The estimated fair values of these securities are determined using various valuation techniques, including a multi-dimensional relational model that incorporates standard observable inputs and assumptions such as benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids/offers and other pertinent reference data.

The estimated fair value of our interest rate swap contract, which is discussed at Note 2(a) to the audited consolidated financial statements included in the August 2012 Form 8-K, was determined using a model that considers various inputs and assumptions, including LIBOR swap rates, cash flow activity, forward yield curves and other relevant economic measures, all of which are observable market inputs that are classified under Level 2 of the fair value hierarchy. The model also incorporates valuation adjustments for credit risk. The table below summarizes our balance sheet classification of the estimated fair values of our interest rate swap contract liabilities (in thousands).

	September 30, 2012		December 31, 2011
Accrued expenses and other liabilities	$	87,200	$	86,975
Other long-term liabilities		27,598		75,332
Totals	$	114,798	$	162,307

Cash and cash equivalents, net accounts receivable, accounts payable and accrued expenses and other liabilities are reflected in the condensed consolidated balance sheets at their estimated fair values primarily due to their short-term nature.

The estimated fair values of our long-term debt instruments, which are discussed at Note 3, are determined by reference to quoted market prices and/or bid and ask prices in the relevant market. The table below summarizes the estimated fair values of our debt securities (in thousands) and indicates their corresponding level within the fair value hierarchy.

	September 30, 2012		December 31, 2011
Level 1:
6.125% Senior Notes due 2016	$	438,000	$	416,000
7.375% Senior Notes due 2020		955,938		910,000
3.75% Convertible Senior Subordinated Notes due 2028		97,623		94,391
Level 2:
Term Loan A		684,219		708,688
Term Loan B		1,403,395		1,393,000

The estimated fair values of our other long-term debt instruments reasonably approximate their carrying amounts in the condensed consolidated balance sheets.

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HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

5. Fair Value Measurements, Available-For-Sale Securities and Restricted Funds (continued)

Available-For-Sale Securities (including those in restricted funds). Supplemental information regarding our available-for-sale securities (all of which had no withdrawal restrictions) is set forth in the table below (in thousands).

			Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated
	Cost		Gains		Losses			Fair Values
As of September 30, 2012:
Debt securities and debt-based mutual funds
Government	$	150,287	$	1,510	$	(3	)	$	151,794
Corporate		80,160		3,940		(109	)		83,991
Equity securities and equity-based mutual funds
Domestic		34,082		4,704		(313	)		38,473
International		18,773		1,169		(801	)		19,141
Commodity-based fund		2,271		—		(331	)		1,940
Totals	$	285,573	$	11,323	$	(1,557	)	$	295,339
As of December 31, 2011:
Debt securities and debt-based mutual funds
Government	$	125,338	$	1,164	$	(25	)	$	126,477
Corporate		76,995		356		(708	)		76,643
Equity securities and equity-based mutual funds
Domestic		26,220		2,354		(431	)		28,143
International		15,446		304		(1,288	)		14,462
Commodity-based fund		1,533		—		(448	)		1,085
Totals	$	245,532	$	4,178	$	(2,900	)	$	246,810

As of September 30, 2012 and December 31, 2011, investments with aggregate estimated fair values of approximately $14.7 million (204 investments) and $67.0 million (294 investments), respectively, generated the gross unrealized losses disclosed in the above table. We concluded that other-than-temporary impairment charges were not necessary at either of the balance sheet dates because of, among other things, recent declines in the value of the affected securities and/or our brief holding period (i.e., most of such securities have been held for less than one year), as well as our ability to hold the securities for a reasonable period of time sufficient for a projected recovery of fair value. We will continue to monitor and evaluate the recoverability of our available-for-sale securities.

The contractual maturities of debt-based securities held by us as of September 30, 2012, excluding mutual fund holdings, are set forth in the table below (in thousands). Expected maturities will differ from contractual maturities because the issuers of the debt securities may have the right to prepay their obligations without prepayment penalties.

	Amortized		Estimated
	Cost		Fair Values
Within 1 year	$	309	$	325
After 1 year and through year 5		9,437		9,710
After 5 years and through year 10		8,876		9,312
After 10 years		12,419		12,964

The weighted average cost method is used to calculate the historical cost basis of securities that are sold. Gross realized gains and losses on sales of available-for-sale securities and other investment income, which includes interest and dividends, are summarized in the table below (in thousands).

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Realized gains	$	2,043		$	1,291		$	3,508		$	1,616
Realized losses		(276	)		(592	)		(1,158	)		(910	)
Investment income		1,640			1,548			4,760			4,225

13

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

5. Fair Value Measurements, Available-For-Sale Securities and Restricted Funds (continued)

Restricted Funds. Our restricted funds, which consisted solely of available-for-sale securities at both September 30, 2012 and December 31, 2011, are held by a wholly owned captive insurance subsidiary that is domiciled in the Cayman Islands. The assets of such subsidiary are effectively limited to use in its proprietary operations. Supplemental information regarding the available-for-sale securities that are included in restricted funds is set forth in the table below (in thousands).

	Nine Months Ended September 30,
	2012		2011
Proceeds from sales	$	52,583	$	115,456
Purchases		70,610		136,981

6. Acquisitions, Joint Ventures and Other Activity

Acquisition Activity.The acquisitions described below were in furtherance of the part of our business strategy that calls for the acquisition of hospitals and other ancillary health care businesses in non-urban communities. Our acquisitions are typically financed using a combination of available cash balances, proceeds from sales of available-for-sale securities, borrowings under revolving credit agreements and other long-term financing arrangements.

2012 Acquisitions. Effective April 1, 2012, one of our subsidiaries acquired from a subsidiary of INTEGRIS Health, Inc. (“Integris”) an 80% interest in each of the following Oklahoma-based general acute care hospitals and certain related health care operations: (i) 53-bed Blackwell Regional Hospital in Blackwell; (ii) 56-bed Clinton Regional Hospital in Clinton; (iii) 25-bed Marshall County Medical Center in Madill; (iv) 52-bed Mayes County Medical Center in Pryor; and (v) 32-bed Seminole Medical Center in Seminole. A subsidiary of Integris retained a 20% interest in each of these entities. The total purchase price for our 80% interest in these five Oklahoma-based hospitals was approximately $61.9 million in cash. During the nine months ended September 30, 2012, certain of our subsidiaries also acquired six ancillary health care businesses for aggregate cash consideration of $9.6 million.

2011 Acquisitions. On September 30, 2011, one of our subsidiaries, Knoxville HMA Holdings, LLC (“HMA Knoxville”), acquired from Catholic Health Partners and its subsidiary Mercy Health Partners, Inc. (“Mercy”) substantially all of the assets of Mercy’s seven general acute care hospitals in east Tennessee. Those hospitals were formerly known as:

• Mercy Medical Center St. Mary’s in Knoxville (401 licensed beds);

• Mercy Medical Center North in Powell (108 licensed beds);

• Mercy Medical Center West in Knoxville (101 licensed beds);

• St. Mary’s Jefferson Memorial Hospital in Jefferson City (58 licensed beds);

• St. Mary’s Medical Center of Campbell County in LaFollette (66 licensed beds);

• St. Mary’s Medical Center of Scott County in Oneida (25 licensed beds); and

• Baptist Hospital of Cocke County in Newport (74 licensed beds).

HMA Knoxville also acquired (i) substantially all of Mercy’s ancillary health care operations that were affiliated with the aforementioned Tennessee-based hospitals (collectively those ancillary facilities are licensed to operate 74 beds) and (ii) Mercy’s Riverside hospital campus (which is licensed to operate 293 beds but is currently idle). Our east Tennessee hospital and health care network is now collectively referred to as Tennova Healthcare. St. Mary’s Medical Center of Scott County and the former Riverside hospital campus were treated as discontinued operations on the date of acquisition (see Note 7). The total purchase price for this acquisition was approximately $532.4 million in cash. Additionally, HMA Knoxville assumed certain long-term lease obligations and will make certain maintenance and capital expenditures at the acquired hospitals. This acquisition was financed with available cash balances, which included the proceeds from sales of available-for-sale securities, and bank financing, which is described at Note 3.

Effective May 1, 2011, one of our subsidiaries acquired a 95% equity interest in a company that owns and operates Tri-Lakes Medical Center, a 112-bed general acute care hospital in Batesville, Mississippi, and certain related health care operations. The total purchase price for our 95% equity interest was approximately $38.8 million in cash. During the nine months ended September 30, 2011, certain of our subsidiaries also acquired six ancillary health care businesses for aggregate cash consideration of $11.3 million.

Other.Our acquisitions are accounted for using the purchase method of accounting. We use estimated exit price fair values as of the date of acquisition to (i) allocate the related purchase price to the assets acquired and liabilities assumed and (ii) record noncontrolling interests. We use a variety of techniques to estimate exit price fair values, including, but not limited to, valuation methodologies that derive fair values using a market approach based on comparable transactions and an approach based on depreciated replacement cost. We recorded incremental goodwill during each of the nine months ended September 30, 2012 and 2011 because the final negotiated purchase price in certain of our completed acquisitions exceeded the fair value of the net tangible and intangible assets acquired. Most of the goodwill that was added during those periods is expected to be tax deductible.

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HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

6. Acquisitions, Joint Ventures and Other Activity (continued)

The table below summarizes the purchase price allocations for the acquisitions that we completed during the nine months ended September 30, 2012 and 2011; however, in some cases, such purchase price allocations are preliminary and remain subject to future refinement as we gather supplemental information.

	Nine Months Ended September 30,
	2012			2011
	(in thousands)
Assets acquired:
Current and other assets	$	1,811		$	24,740
Property, plant and equipment		14,311			496,936
Intangible assets (primarily contractual rights to operate hospitals) and other long-term assets		48,775			55,967
Goodwill		25,176			82,048
Total assets acquired		90,073			659,691
Liabilities assumed:
Current liabilities		(501	)		(10,285	)
Capital lease obligations and related other		(961	)		(61,339	)
Total liabilities assumed		(1,462	)		(71,624	)
Net assets acquired	$	88,611		$	588,067

We incurred approximately $5.0 million of acquisition-related costs during the nine months ended September 30, 2011. Such costs have been included in other operating expenses in the consolidated statements of income. Our acquisition-related costs for the nine months ended September 30, 2012 were not material. Amounts paid for acquisition-related costs are included in net cash provided by continuing operating activities in the condensed consolidated statements of cash flows.

The operating results of entities that are acquired by our subsidiaries are included in our consolidated financial statements from the date of acquisition. If an acquired entity was subsequently sold, closed or is being held for sale, its operations are included in discontinued operations, which are discussed at Note 7.

The table below sets forth certain combined pro forma financial information as if the Mercy acquisition, which we deem to be material, had closed on January 1, 2010 (in thousands, except per share data).

	Three Months Ended		Nine Months Ended
	September 30, 2011		September 30, 2011
Net revenue before the provision for doubtful accounts	$	1,561,817	$	4,710,645
Consolidated net income		53,142		170,997
Net income attributable to Health Management Associates, Inc.		46,911		151,456
Earnings per share attributable to Health Management Associates, Inc. common stockholders:
Basic	$	0.19	$	0.60
Diluted		0.18		0.59

There were no pro forma adjustments included in the above table to reflect potential cost reductions or operating efficiencies. Accordingly, the combined pro forma financial information is for comparative purposes only and is not necessarily indicative of the results that we would have experienced if the Mercy acquisition had actually occurred on January 1, 2010 or that may occur in the future. The table below provides certain summarized financial information in respect of Tennova Healthcare’s operations (in thousands).

	Three Months Ended			Nine Months Ended
	September 30, 2012			September 30, 2012
Net revenue before the provision for doubtful accounts:
Continuing operations	$	165,024		$	492,774
Discontinued operations		—			7,346
Income (loss) from operations before income taxes:
Continuing operations		10,879			45,327
Discontinued operations		(2,268	)		(8,025	)

15

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

6. Acquisitions, Joint Ventures and Other Activity (continued)

Joint Ventures and Redeemable Equity Securities. As of September 30, 2012, we had established joint ventures to own/lease and operate 29 of our hospitals. Local physicians and/or other health care entities own minority equity interests in each of the joint ventures and participate in the related hospital’s governance. We own a majority of the equity interests in each joint venture and manage the related hospital’s day-to-day operations.

When completing a joint venture transaction, our subsidiary that is a party to the joint venture customarily issues equity securities that provide the noncontrolling shareholders with certain rights to require our subsidiary to redeem such securities. Redeemable equity securities with redemption features that are not solely within our control are classified outside of permanent equity. Those securities are initially recorded at their estimated fair value on the date of issuance. Securities that are currently redeemable or redeemable after the passage of time are adjusted to their redemption value as changes occur. If it is unlikely that a redeemable equity security will ever require redemption (e.g., we do not expect that a triggering contingency will occur, etc.), then subsequent adjustments to the initially recorded amount will only be recognized in the period that a redemption becomes probable.

As recorded in the condensed consolidated balance sheets, redeemable equity securities represent the minimum amounts that can be unilaterally redeemed for cash by noncontrolling shareholders in respect of their subsidiary equity holdings or the initial unadjusted estimated fair values of contingent rights held by certain noncontrolling shareholders. As of September 30, 2012 and through October 26, 2012, the mandatory redemptions requested by noncontrolling shareholders in respect of their subsidiary equity holdings have been nominal. A rollforward of our redeemable equity securities is summarized in the table below (in thousands).

	Nine Months Ended September 30,
	2012			2011
Balances at the beginning of the period	$	200,643		$	201,487
Noncontrolling shareholder interests in acquired businesses		15,218			2,046
Investments by noncontrolling shareholders		3,591			—
Purchases of subsidiary shares from noncontrolling shareholders		(6,789	)		(1,289	)
Balances at the end of the period	$	212,663		$	202,244

7. Discontinued Operations

Our discontinued operations during the periods presented herein included: (i) 189-bed Gulf Coast Medical Center in Biloxi, Mississippi; (ii) 25-bed Fishermen’s Hospital in Marathon, Florida; (iii) the 172-bed Woman’s Center at Dallas Regional Medical Center in Mesquite, Texas; (iv) 25-bed St. Mary’s Medical Center of Scott County in Oneida, Tennessee; (v) the 293-bed idle Riverside hospital campus in Knoxville, Tennessee; and (vi) certain other health care operations affiliated with those hospitals. The operating results and cash flows of discontinued operations are included in our consolidated financial statements up to the date of disposition. Additionally, as required by GAAP, the operating results and cash flows of the abovmentioned entities have been separately presented as discontinued operations in the interim condensed consolidated financial statements. Long-lived assets to be disposed of are reported at the lower of their carrying amount or estimated fair value, less costs to sell. The estimates of fair value are based on recent sales of similar assets, market analyses, pending disposition transactions and market responses based on discussions with, and offers received from, potential buyers (i.e., Level 2 inputs under the GAAP fair value hierarchy described at Note 5).

The Woman’s Center at Dallas Regional Medical Center (the “Woman’s Center”) was closed on June 1, 2008. On May 21, 2012, the remaining real property at the Woman’s Center was sold for cash consideration of approximately $1.4 million, less selling and other related costs. The resulting loss of $1.1 million has been included in our discontinued operations during the nine months ended September 30, 2012. We closed Gulf Coast Medical Center (“GCMC”) on January 1, 2008. On July 18, 2011, the remaining real property at GCMC was sold for cash consideration of $3.4 million, less selling and other related costs. The resulting gain of $0.6 million has been included in our discontinued operations during the three and nine months ended September 30, 2011. During May 2011, one of our subsidiaries entered into a lease termination agreement for Fishermen’s Hospital that became effective on July 1, 2011. As part of the agreement, the hospital’s remaining equipment, as well as certain working capital items, were sold to our former lessor for $1.5 million in cash. The Fishermen’s Hospital lease termination resulted in a goodwill impairment charge of $3.6 million during the nine months ended September 30, 2011.

16

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

7. Discontinued Operations (continued)

One of our subsidiaries acquired St. Mary’s Medical Center of Scott County (“SMMC”) and the idle Riverside hospital campus (“Riverside”) from Mercy on September 30, 2011 (see Note 6 for a discussion of the Mercy acquisition). A portion of the total Mercy acquisition purchase price was allocated to SMMC and Riverside and included as an investing activity of our discontinued operations in the condensed consolidated statements of cash flows. SMMC was a leased facility with a lease agreement that expired on May 24, 2012. On such date, the SMMC facility was returned to the lessor. Mercy had closed the hospital at the Riverside location prior to our acquisition. Although we are currently evaluating various disposal alternatives, the timing of a divestiture of the Riverside hospital facility has not yet been determined. We recently concluded that the estimated fair value of the long-lived assets at the Riverside hospital facility, less costs to sell, was lower than the corresponding net book value of such assets. Accordingly, we recorded a long-lived asset impairment charge of approximately $1.2 million during the three and nine months ended September 30, 2012 to reduce the affected long-lived assets to their estimated net realizable value.

The table below sets forth the underlying details of our discontinued operations (in thousands).

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
Net revenue before the provision for doubtful accounts	$	—		$	—		$	7,316		$	13,603
Provision for doubtful accounts		—			—			(2,139	)		(2,741	)
Net revenue		—			—			5,177			10,862
Salaries and benefits		192			—			4,587			4,535
Depreciation and amortization		—			—			1,988			1,182
Other operating expenses		889			203			5,791			3,766
(Gains) losses on sales of assets, net		—			(619	)		1,102			(304	)
Long-lived asset and goodwill impairment charges		1,187			—			1,187			3,614
		2,268			(416	)		14,655			12,793
Income (loss) before income taxes		(2,268	)		416			(9,478	)		(1,931	)
Income tax (expense) benefit		879			(161	)		3,673			749
Income (loss) from discontinued operations	$	(1,389	)	$	255		$	(5,805	)	$	(1,182	)

The table below summarizes the principal components of our assets of discontinued operations (in thousands).

	September 30, 2012		December 31, 2011
Supplies, prepaid expenses and other assets	$	—	$	569
Property, plant and equipment, net, and other		8,100		13,992
Total assets of discontinued operations	$	8,100	$	14,561

8. Income Taxes

Our effective income tax rates were approximately 33.1% and 34.6% during the nine months ended September 30, 2012 and 2011, respectively, and 29.7% and 31.1% during the three months ended September 30, 2012 and 2011, respectively. Net income attributable to noncontrolling interests, which is not tax-effected in our consolidated financial statements, reduced our effective income tax rates by approximately 370 basis points and 280 basis points during the nine months ended September 30, 2012 and 2011, respectively. The corresponding impact was 310 basis points and 290 basis points during the three months ended September 30, 2012 and 2011, respectively.

Both our 2012 and 2011 provisions for income taxes were favorably impacted by the finalization of certain federal and state income tax returns. Our 2011 provision for income taxes also benefited from the satisfactory conclusion of certain state tax audits and examinations.

Our net federal and state income tax payments during the nine months ended September 30, 2012 and 2011 approximated $38.3 million and $40.2 million, respectively.

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NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

9. Accumulated Other Comprehensive Income (Loss)

GAAP defines comprehensive income as the change in equity of a business enterprise from transactions and other events and circumstances that relate to non-owner sources. Rollforwards of our accumulated other comprehensive income (loss) are presented in the tables below (in thousands).

	Unrealized Gains (Losses) on Available-for-Sale Securities			Interest Rate Swap Contract			Totals
Balances at January 1, 2012, net of income taxes of $60,635	$	831		$	(96,271	)	$	(95,440	)
Unrealized gains (losses) on available-for-sale securities, net of income taxes of $3,092		5,736			—			5,736
Adjustments for net (gains) losses reclassified into net income, net of income taxes of $119		(221	)		—			(221	)
Reclassification adjustments for amortization of expense into net income, net of income taxes of $23,267		—			36,670			36,670
Balances at September 30, 2012, net of income taxes of $34,395	$	6,346		$	(59,601	)	$	(53,255	)
Balances at January 1, 2011, net of income taxes of $81,933	$	1,572		$	(132,696	)	$	(131,124	)
Unrealized gains (losses) on available-for-sale securities, net of income taxes of $1,508		(2,805	)		—			(2,805	)
Adjustments for net (gains) losses reclassified into net income, net of income taxes of $357		(663	)		—			(663	)
Change in fair value of interest rate swap contract, net of income taxes of $9,828		—			17,725			17,725
Balances at September 30, 2011, net of income taxes of $73,970	$	(1,896	)	$	(114,971	)	$	(116,867	)

Prior to our debt restructuring on November 18, 2011, which is discussed at Note 2(a) to the audited consolidated financial statements included in the August 2012 Form 8-K, our interest rate swap contract had been a perfectly effective cash flow hedge instrument that was used to manage the risk of variable interest rate fluctuation on certain long-term debt. Changes in the estimated fair value of our interest rate swap contract were previously recognized as a component of other comprehensive income (loss). Because of our debt restructuring, the interest rate swap contract, which expires in February 2014, is no longer an effective cash flow hedge instrument. Therefore, changes in its estimated fair value subsequent to our debt restructuring are no longer included in other comprehensive income (loss) but are recognized in our consolidated statements of income as interest expense. Future amortization of the accumulated other comprehensive loss attributable to our interest rate swap contract is expected to approximate $72.5 million during the twelve months ending September 30, 2013.

10. Commitments and Contingencies

Physician and Physician Group Guarantees.We are committed to providing financial assistance to physicians and physician groups practicing in the communities that our hospitals serve through certain recruiting arrangements and professional services agreements. At September 30, 2012, we were committed to guarantees of approximately $214.0 million under such arrangements. The actual amounts advanced will depend on the financial results of each physician’s and physician group’s private practice during the related contractual measurement period, which generally approximates one to two years. We believe that the recorded liabilities for physician and physician group guarantees of $92.6 million and $30.2 million at September 30, 2012 and December 31, 2011, respectively, are adequate and reasonable; however, there can be no assurances that the ultimate liability will not exceed our estimates.

Ascension Health Lawsuit. On February 14, 2006, Health Management Associates, Inc. (referred to as “Health Management” for the remainder of this Note 10) announced the termination of non-binding negotiations with Ascension Health (“Ascension”) and the withdrawal of a non-binding offer to acquire Ascension’s St. Joseph Hospital, a general acute care hospital in Augusta, Georgia. On June 8, 2007, certain Ascension subsidiaries filed a lawsuit against Health Management, entitledSt. Joseph Hospital, Augusta, Georgia, Inc. et al. v. Health Management Associates, Inc., in Georgia Superior/State Court of Richmond County claiming that Health Management (i) breached an agreement to purchase St. Joseph Hospital and (ii) violated a confidentiality agreement. The plaintiffs claim at least $40 million in damages. Health

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NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

10. Commitments and Contingencies (continued)

Management removed the case to the U.S. District Court for the Southern District of Georgia, Augusta Division (Case No. 1:07-CV-00104). On July 13, 2010, the plaintiffs filed a motion for partial summary judgment and Health Management filed a motion for summary judgment. On March 30, 2011, Health Management’s motion for summary judgment was granted as to all of plaintiffs’ claims, except for the breach of confidentiality claim, and plaintiffs’ motion for partial summary judgment was denied. On June 15, 2011, the case was stayed pending resolution of the appellate process. On July 8, 2011, the plaintiffs filed a notice of appeal to the United States Court of Appeals for the Eleventh Circuit (Case No. 11-13069). Oral argument was held on May 22, 2012; however, the appellate court has not yet ruled on the plaintiffs’ appeal.

We do not believe there was a binding acquisition contract with Ascension or any of its subsidiaries and we do not believe Health Management breached a confidentiality agreement. Accordingly, we intend to vigorously defend Health Management against the allegations in this matter. We do not believe that the final outcome of this matter will be material.

Medicare/Medicaid Billing Lawsuit. On January 11, 2010, Health Management and one of its subsidiaries were named in a qui tam lawsuit entitledUnited States of America ex rel. J. Michael Mastej v. Health Management Associates, Inc. et al. in the U.S. District Court for the Middle District of Florida, Tampa Division. The plaintiff’s complaint alleged that, among other things, the defendants erroneously submitted claims to Medicare and that those claims were falsely certified to be in compliance with Section 1877 of the Social Security Act of 1935 (commonly known as the “Stark law”) and the Anti-Kickback Statute. The plaintiff’s complaint further alleged that the defendants’ conduct violated the federal False Claims Act of 1863 (the “False Claims Act”). The plaintiff seeks recovery of all Medicare and Medicaid reimbursement that the defendants received as a result of the alleged false certifications and treble damages under the False Claims Act, as well as a civil penalty for each Medicare and Medicaid claim supported by such alleged false certifications. On August 18, 2010, the plaintiff filed a first amended complaint that was similar to the original complaint. On September 27, 2010, the defendants moved to dismiss the first amended complaint for failure to state a claim with the particularity required and failure to state a claim upon which relief can be granted. On February 23, 2011, the case was transferred to the U.S. District Court for the Middle District of Florida, Fort Myers Division (Case No. 2:11-cv-00089-JES-DNF). On May 5, 2011, the plaintiff filed a second amended complaint, which was similar to the first amended complaint. On May 17, 2011, the defendants moved to dismiss the second amended complaint on the same bases set forth in their earlier motion to dismiss. On January 26, 2012, the United States gave notice of its decision not to intervene in this lawsuit. On February 16, 2012, the court granted the defendants’ motion to dismiss, without prejudice. The court’s order permitted the plaintiff to file an amended complaint. On March 8, 2012, the plaintiff filed a third amended complaint, which is similar to the first amended complaint and the second amended complaint. On March 26, 2012, the defendants moved to dismiss the third amended complaint on the same bases set forth in earlier motions to dismiss. We intend to vigorously defend Health Management and its subsidiary against the allegations in this matter. We do not believe that the final outcome of this matter will be material.

Governmental Matters. Several Health Management hospitals received letters during the second half of 2009 requesting information in connection with a U.S. Department of Justice (“DOJ”) investigation relating to kyphoplasty procedures. Kyphoplasty is a minimally invasive spinal procedure used to treat vertebral compression fractures. The DOJ is currently investigating hospitals and hospital operators in multiple states to determine whether certain Medicare claims for kyphoplasty were incorrect when billed as an inpatient service rather than as an outpatient service. We believe that the DOJ’s investigation originated with a False Claims Act lawsuit against Kyphon, Inc., the company that developed the kyphoplasty procedure. The requested information has been provided to the DOJ and we are cooperating with the investigation. To date, the DOJ has not asserted any monetary or other claims against the Health Management hospitals in this matter. Based on the aggregate billings for inpatient kyphoplasty procedures during the period under review that were performed at the Health Management hospitals subject to the DOJ’s inquiry, we do not believe that the final outcome of this matter will be material.

During September 2010, Health Management received a letter from the DOJ indicating that an investigation was being conducted to determine whether certain Health Management hospitals improperly submitted claims for the implantation of implantable cardioverter defibrillators (“ICDs”). The DOJ’s investigation covers the period commencing with Medicare’s expansion of coverage for ICDs in 2003 to the present. The letter from the DOJ further indicates that the claims submitted by Health Management’s hospitals for ICDs and related services need to be reviewed to determine if Medicare coverage and payment was appropriate. During 2010, the DOJ sent similar letters and other requests to a large number of unrelated hospitals and hospital operators across the country as part of a nation-wide review of ICD billing under the Medicare program. We are cooperating with the DOJ in its ongoing investigation, which could potentially give rise to claims against Health Management and/or certain of its subsidiary hospitals under the False Claims Act or other statutes, regulations or laws. Additionally, we are conducting an internal review of hospital medical records related to ICDs that are the subject of the DOJ investigation. To date, the DOJ has not asserted any monetary or other claims against Health Management or its hospitals in this matter and, at this time, we are unable to determine the potential impact, if any, that will result from the final resolution of the investigation.

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NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

10. Commitments and Contingencies (continued)

The U.S. Department of Health and Human Services, Office of Inspector General (“HHS-OIG”) and the DOJ, including the Civil Division and U.S. Attorney’s Offices in the Eastern District of Pennsylvania, the Middle District of Florida, the Eastern District of Oklahoma, the Middle District of Tennessee, the Western District of North Carolina, the District of South Carolina and the Middle District of Georgia, are currently investigating Health Management and certain of its subsidiaries (HHS-OIG and the DOJ are collectively referred to as “Government Representatives”). We believe that such investigations relate to the Anti-Kickback Statute, the Stark law and the False Claims Act and are focused on: (i) physician referrals, including financial arrangements with our whole-hospital physician joint ventures; (ii) the medical necessity of emergency room tests and patient admissions, including whether Pro-Med software has led to any medically unnecessary tests or admissions; and (iii) the medical necessity of certain surgical procedures. We further believe that the investigations may have originated as a result of qui tam lawsuits filed on behalf of the United States. In connection with the investigations, HHS-OIG has requested certain records through subpoenas, which apply system-wide, that were served on Health Management on May 16, 2011 and July 21, 2011. Additionally, Government Representatives have interviewed both our current and former employees. We are conducting internal investigations and have met with Government Representatives on numerous occasions to respond to their inquiries. We intend to cooperate with the Government Representatives during their investigations. At this time, we are unable to determine the potential impact, if any, that will result from the final resolution of these investigations.

On February 22, 2012 and February 24, 2012, HHS-OIG served subpoenas on certain Health Management hospitals relating to those hospitals’ relationships with Allegiance Health Management, Inc. (“Allegiance”). Allegiance, which is unrelated to Health Management, is a post acute health care management company that provides intensive outpatient psychiatric (“IOP”) services to patients. The Health Management hospitals that were served subpoenas were: (i) Central Mississippi Medical Center in Jackson, Mississippi; (ii) Crossgates River Oaks Hospital in Brandon, Mississippi; (iii) Davis Regional Medical Center in Statesville, North Carolina; (iv) Lake Norman Regional Medical Center in Mooresville, North Carolina; (v) the Medical Center of Southeastern Oklahoma in Durant, Oklahoma; and (vi) Natchez Community Hospital in Natchez, Mississippi. Each of those hospitals has or had a contract with Allegiance. Among other things, the subpoenas seek: (i) documents related to the hospitals’ financial relationships with Allegiance; (ii) documents related to patients who received IOP services from Allegiance at the Health Management hospitals, including their patient medical records; (iii) documents relating to complaints or concerns regarding Allegiance’s IOP services at the Health Management hospitals; (iv) documents relating to employees, physicians and therapists who were involved in the provision of IOP services provided by Allegiance at the Health Management hospitals; and (v) other documents related to Allegiance, including leases, contracts, policies and procedures, training documents, budgets and financial analyses. The period of time covered by the subpoenas is January 1, 2008 through the date of subpoena compliance. We believe that HHS-OIG has served similar subpoenas on other non-Health Management hospitals that had contracts with Allegiance. We intend to cooperate with the investigations. At this time, we are unable to determine the potential impact, if any, that will result from the final resolution of these investigations.

In addition to the abovementioned subpoenas and investigations, certain of our hospitals have received other requests for information from state and federal agencies. We are cooperating with all of the ongoing investigations by collecting and producing the requested materials. Because a large portion of our government investigations are in their early stages, we are unable to evaluate the outcome of such matters or determine the potential impact, if any, that could result from their final resolution.

Class Action Lawsuits. On or about January 25, 2012, Health Management and certain of its executive officers, one of whom is a director, were named as defendants in an action entitledMilen Sapssov v. Health Management Associates, Inc. et al., which was filed in the U.S. District Court for the Middle District of Florida. This action purported to have been brought on behalf of stockholders who purchased our common stock during the period from July 27, 2009 through January 9, 2012 and alleged that Health Management made false and misleading statements in certain public disclosures regarding its business and financial results. A substantially similar purported class action lawsuit, entitledNorfolk County Retirement System v. Health Management Associates, Inc. et al., was filed against the same defendants on or about February 2, 2012 in the U.S. District Court for the Middle District of Florida. On April 30, 2012, the two class action lawsuits were consolidated in the same court under the captionIn Re: Health Management Associates, Inc. et al.(Case No. 2:12-cv-00046-JES-DNF) and three pension fund plaintiffs were appointed as lead plaintiffs. On July 30, 2012, the plaintiffs filed an amended consolidated complaint purportedly on behalf of the same class of stockholders as alleged in the prior complaints and asserting claims for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. Among other things, the plaintiffs claim that Health Management inflated its earnings by engaging in fraudulent Medicare billing practices that entailed admitting patients to observation status when they should not have been admitted at all and to inpatient status when they should have been admitted to observation status. The plaintiffs seek unspecified monetary damages. On October 22, 2012, the defendants moved to dismiss the plaintiffs’ amended consolidated complaint for failure to state a claim or plead facts required by the Private Securities Litigation Reform Act. We intend to vigorously defend against the allegations in this lawsuit. Because this lawsuit is in its early stages, we are unable to predict the outcome or determine the potential impact, if any, that could result from its final resolution.

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NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

10. Commitments and Contingencies (continued)

Other. We are also a party to various other legal actions arising out of the normal course of our business. Due to the inherent uncertainties of litigation and dispute resolution, we are unable to estimate the ultimate losses, if any, relating to each of our outstanding legal actions and other loss contingencies. Should an unfavorable outcome occur in some or all of our legal and other related matters, there could be a material adverse effect on our financial position, results of operations and liquidity.

11. Supplemental Condensed Consolidating Financial Statements

Health Management Associates, Inc. (referred to as the “Parent Issuer” for the remainder of this Note 11) is the primary obligor under the Credit Facilities, as well as our 2020 Senior Notes and our 6.125% Senior Notes due 2016. Certain of the Parent Issuer’s material domestic subsidiaries that are 100% owned (the “Guarantor Subsidiaries”) provide joint and several unconditional guarantees as to payment for borrowings under such long-term debt arrangements; however, other Parent Issuer subsidiaries (the “Non-Guarantor Subsidiaries”) have not been required to provide any such guarantees. See Note 3 herein and Note 2 to the audited consolidated financial statements included in the August 2012 Form 8-K for information regarding our long-term debt arrangements. On the pages that follow are schedules presenting condensed consolidating financial statements as of September 30, 2012 and December 31, 2011, as well as the three and nine months ended September 30, 2012 and 2011. However, this financial information may not necessarily be indicative of the results of operations, cash flows or financial position of the Parent Issuer, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries if they had operated as independent entities.

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NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

11. Supplemental Condensed Consolidating Financial Statements (continued)

Health Management Associates, Inc.

Condensed Consolidating Statement of Income

Three Months Ended September 30, 2012

(in thousands)

	Parent Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net revenue before the provision for doubtful accounts	$	—		$	842,638		$	821,549		$	—		$	1,664,187
Provision for doubtful accounts		—			(119,816	)		(104,262	)		—			(224,078	)
Net revenue		—			722,822			717,287			—			1,440,109
Salaries and benefits		—			276,557			360,748			—			637,305
Supplies		—			119,713			97,106			—			216,819
Rent expense		—			18,935			22,947			—			41,882
Other operating expenses		—			152,110			179,825			—			331,935
Medicare and Medicaid HCIT incentive payments		—			(15,990	)		(8,234	)		—			(24,224	)
Equity in the earnings of consolidated subsidiaries		(93,292	)		—			—			93,292			—
Depreciation and amortization		4,946			44,507			42,157			—			91,610
Interest expense		72,788			1,641			2,385			—			76,814
Other		(362	)		(187	)		(1,814	)		—			(2,363	)
		(15,920	)		597,286			695,120			93,292			1,369,778
Income from continuing operations before income taxes		15,920			125,536			22,167			(93,292	)		70,331
Income tax (expense) benefit		25,424			(41,250	)		(5,087	)		—			(20,913	)
Income from continuing operations		41,344			84,286			17,080			(93,292	)		49,418
Income (loss) from discontinued operations, including gains/losses on disposals, net of income taxes		—			—			(1,389	)		—			(1,389	)
Consolidated net income		41,344			84,286			15,691			(93,292	)		48,029
Net income attributable to noncontrolling interests		—			—			(6,685	)		—			(6,685	)
Net income attributable to Health Management Associates, Inc.	$	41,344		$	84,286		$	9,006		$	(93,292	)	$	41,344

22

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NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

11. Supplemental Condensed Consolidating Financial Statements (continued)

Health Management Associates, Inc.

Condensed Consolidating Statement of Comprehensive Income

Three Months Ended September 30, 2012

(in thousands)

	Parent Issuer			Guarantor Subsidiaries		Non- Guarantor Subsidiaries			Eliminations			Consolidated
Consolidated net income	$	41,344		$	84,286	$	15,691		$	(93,292	)	$	48,029
Components of other comprehensive income (loss) before income taxes attributable to:
Interest rate swap contract
Reclassification adjustments for amortization of expense into net income		19,404			—		—			—			19,404
Available-for-sale securities
Unrealized gains (losses), net		(1	)		—		4,245			—			4,244
Adjustments for net (gains) losses reclassified into net income		—			—		(443	)		—			(443	)
Other comprehensive income (loss) before income taxes		19,403			—		3,802			—			23,205
Income tax (expense) benefit related to items of other comprehensive income (loss)		(7,531	)		—		(1,332	)		—			(8,863	)
Other comprehensive income (loss), net		11,872			—		2,470			—			14,342
Total consolidated comprehensive income		53,216			84,286		18,161			(93,292	)		62,371
Total comprehensive income attributable to noncontrolling interests		—			—		(6,685	)		—			(6,685	)
Total comprehensive income attributable to Health Management Associates, Inc. common stockholders	$	53,216		$	84,286	$	11,476		$	(93,292	)	$	55,686

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NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

11. Supplemental Condensed Consolidating Financial Statements (continued)

Health Management Associates, Inc.

Condensed Consolidating Statement of Income

Three Months Ended September 30, 2011

(in thousands)

	Parent Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net revenue before the provision for doubtful accounts	$	—		$	800,011		$	598,484		$	—		$	1,398,495
Provision for doubtful accounts		—			(103,178	)		(75,695	)		—			(178,873	)
Net revenue		—			696,833			522,789			—			1,219,622
Salaries and benefits		—			276,691			273,166			—			549,857
Supplies		—			114,368			65,625			—			179,993
Rent expense		—			19,447			18,670			—			38,117
Other operating expenses		—			142,853			124,287			—			267,140
Medicare and Medicaid HCIT incentive payments		—			—			(1,749	)		—			(1,749	)
Equity in the earnings of consolidated subsidiaries		(76,186	)		—			—			76,186			—
Depreciation and amortization		2,013			39,441			24,151			—			65,605
Interest expense		47,630			1,107			1,281			—			50,018
Other		(471	)		268			(1,247	)		—			(1,450	)
		(27,014	)		594,175			504,184			76,186			1,147,531
Income from continuing operations before income taxes		27,014			102,658			18,605			(76,186	)		72,091
Income tax (expense) benefit		16,714			(34,859	)		(4,242	)		—			(22,387	)
Income from continuing operations		43,728			67,799			14,363			(76,186	)		49,704
Income (loss) from discontinued operations, including gains/losses on disposals, net of income taxes		—			—			255			—			255
Consolidated net income		43,728			67,799			14,618			(76,186	)		49,959
Net income attributable to noncontrolling interests		—			(107	)		(6,124	)		—			(6,231	)
Net income attributable to Health Management Associates, Inc.	$	43,728		$	67,692		$	8,494		$	(76,186	)	$	43,728

24

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NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

11. Supplemental Condensed Consolidating Financial Statements (continued)

Health Management Associates, Inc.

Condensed Consolidating Statement of Comprehensive Income

Three Months Ended September 30, 2011

(in thousands)

	Parent Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Consolidated net income	$	43,728		$	67,799		$	14,618		$	(76,186	)	$	49,959
Components of other comprehensive income (loss) before income taxes attributable to:
Interest rate swap contract
Changes in fair value		7,323			—			—			—			7,323
Available-for-sale securities
Unrealized gains (losses), net		37			—			(5,522	)		—			(5,485	)
Adjustments for net (gains) losses reclassified into net income		—			—			(979	)		—			(979	)
Other comprehensive income (loss) before income taxes		7,360			—			(6,501	)		—			859
Income tax (expense) benefit related to items of other comprehensive income (loss)		(5,173	)		—			2,276			—			(2,897	)
Other comprehensive income (loss), net		2,187			—			(4,225	)		—			(2,038	)
Total consolidated comprehensive income		45,915			67,799			10,393			(76,186	)		47,921
Total comprehensive income attributable to noncontrolling interests		—			(107	)		(6,124	)		—			(6,231	)
Total comprehensive income attributable to Health Management Associates, Inc. common stockholders	$	45,915		$	67,692		$	4,269		$	(76,186	)	$	41,690

25

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NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

11. Supplemental Condensed Consolidating Financial Statements (continued)

Health Management Associates, Inc.

Condensed Consolidating Statement of Income

Nine Months Ended September 30, 2012

(in thousands)

	Parent Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net revenue before the provision for doubtful accounts	$	—		$	2,574,219		$	2,463,027		$	—		$	5,037,246
Provision for doubtful accounts		—			(345,117	)		(294,785	)		—			(639,902	)
Net revenue		—			2,229,102			2,168,242			—			4,397,344
Salaries and benefits		—			842,466			1,099,856			—			1,942,322
Supplies		—			377,681			299,735			—			677,416
Rent expense		—			59,069			71,677			—			130,746
Other operating expenses		—			458,307			511,043			—			969,350
Medicare and Medicaid HCIT incentive payments		—			(18,302	)		(13,383	)		—			(31,685	)
Equity in the earnings of consolidated subsidiaries		(267,094	)		—			—			267,094			—
Depreciation and amortization		10,623			129,026			116,067			—			255,716
Interest expense		229,237			4,597			6,909			—			240,743
Other		(768	)		(378	)		(599	)		—			(1,745	)
		(28,002	)		1,852,466			2,091,305			267,094			4,182,863
Income from continuing operations before income taxes		28,002			376,636			76,937			(267,094	)		214,481
Income tax (expense) benefit		87,986			(138,550	)		(20,367	)		—			(70,931	)
Income from continuing operations		115,988			238,086			56,570			(267,094	)		143,550
Income (loss) from discontinued operations, including gains/losses on disposals, net of income taxes		—			—			(5,805	)		—			(5,805	)
Consolidated net income		115,988			238,086			50,765			(267,094	)		137,745
Net income attributable to noncontrolling interests		—			(165	)		(21,592	)		—			(21,757	)
Net income attributable to Health Management Associates, Inc.	$	115,988		$	237,921		$	29,173		$	(267,094	)	$	115,988

26

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

11. Supplemental Condensed Consolidating Financial Statements (continued)

Health Management Associates, Inc.

Condensed Consolidating Statement of Comprehensive Income

Nine Months Ended September 30, 2012

(in thousands)

	Parent Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Consolidated net income	$	115,988		$	238,086		$	50,765		$	(267,094	)	$	137,745
Components of other comprehensive income (loss) before income taxes attributable to:
Interest rate swap contract
Reclassification adjustments for amortization of expense into net income		59,937			—			—			—			59,937
Available-for-sale securities
Unrealized gains (losses), net		66			—			8,762			—			8,828
Adjustments for net (gains) losses reclassified into net income		—			—			(340	)		—			(340	)
Other comprehensive income (loss) before income taxes		60,003			—			8,422			—			68,425
Income tax (expense) benefit related to items of other comprehensive income (loss)		(23,292	)		—			(2,948	)		—			(26,240	)
Other comprehensive income (loss), net		36,711			—			5,474			—			42,185
Total consolidated comprehensive income		152,699			238,086			56,239			(267,094	)		179,930
Total comprehensive income attributable to noncontrolling interests		—			(165	)		(21,592	)		—			(21,757	)
Total comprehensive income attributable to Health Management Associates, Inc. common stockholders	$	152,699		$	237,921		$	34,647		$	(267,094	)	$	158,173

27

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

11. Supplemental Condensed Consolidating Financial Statements (continued)

Health Management Associates, Inc.

Condensed Consolidating Statement of Income

Nine Months Ended September 30, 2011

(in thousands)

	Parent Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net revenue before the provision for doubtful accounts	$	—		$	2,433,974		$	1,786,703		$	—		$	4,220,677
Provision for doubtful accounts		—			(290,019	)		(231,710	)		—			(521,729	)
Net revenue		—			2,143,955			1,554,993			—			3,698,948
Salaries and benefits		—			846,924			818,169			—			1,665,093
Supplies		—			362,774			197,474			—			560,248
Rent expense		—			56,651			54,087			—			110,738
Other operating expenses		—			418,519			343,596			—			762,115
Medicare and Medicaid HCIT incentive payments		—			—			(1,749	)		—			(1,749	)
Equity in the earnings of consolidated subsidiaries		(241,819	)		—			—			241,819			—
Depreciation and amortization		5,632			118,073			70,729			—			194,434
Interest expense		145,514			2,920			3,654			—			152,088
Other		(985	)		1,121			(1,919	)		—			(1,783	)
		(91,658	)		1,806,982			1,484,041			241,819			3,441,184
Income from continuing operations before income taxes		91,658			336,973			70,952			(241,819	)		257,764
Income tax (expense) benefit		56,205			(126,005	)		(19,378	)		—			(89,178	)
Income from continuing operations		147,863			210,968			51,574			(241,819	)		168,586
Income (loss) from discontinued operations, including gains/losses on disposals, net of income taxes		—			—			(1,182	)		—			(1,182	)
Consolidated net income		147,863			210,968			50,392			(241,819	)		167,404
Net income attributable to noncontrolling interests		—			(359	)		(19,182	)		—			(19,541	)
Net income attributable to Health Management Associates, Inc.	$	147,863		$	210,609		$	31,210		$	(241,819	)	$	147,863

28

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

11. Supplemental Condensed Consolidating Financial Statements (continued)

Health Management Associates, Inc.

Condensed Consolidating Statement of Comprehensive Income

Nine Months Ended September 30, 2011

(in thousands)

	Parent Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Consolidated net income	$	147,863		$	210,968		$	50,392		$	(241,819	)	$	167,404
Components of other comprehensive income (loss) before income taxes attributable to:
Interest rate swap contract
Changes in fair value		27,553			—			—			—			27,553
Available-for-sale securities
Unrealized gains (losses), net		—			—			(4,313	)		—			(4,313	)
Adjustments for net (gains) losses reclassified into net income		159			—			(1,179	)		—			(1,020	)
Other comprehensive income (loss) before income taxes		27,712			—			(5,492	)		—			22,220
Income tax (expense) benefit related to items of other comprehensive income (loss)		(9,884	)		—			1,921			—			(7,963	)
Other comprehensive income (loss), net		17,828			—			(3,571	)		—			14,257
Total consolidated comprehensive income		165,691			210,968			46,821			(241,819	)		181,661
Total comprehensive income attributable to noncontrolling interests		—			(359	)		(19,182	)		—			(19,541	)
Total comprehensive income attributable to Health Management Associates, Inc. common stockholders	$	165,691		$	210,609		$	27,639		$	(241,819	)	$	162,120

29

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

11. Supplemental Condensed Consolidating Financial Statements (continued)

Health Management Associates, Inc.

Condensed Consolidating Balance Sheet

September 30, 2012

(in thousands)

	Parent Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Current assets:
Cash and cash equivalents	$	9,072		$	20,814		$	5,332		$	—		$	35,218
Available-for-sale securities		96,277			—			50,292			—			146,569
Accounts receivable, net		—			507,192			464,912			—			972,104
Supplies, prepaid expenses and other assets		3,723			114,855			100,397			—			218,975
Prepaid and recoverable income taxes		14,626			—			���			—			14,626
Restricted funds		—			—			28,609			—			28,609
Assets of discontinued operations		—			—			8,100			—			8,100
Total current assets		123,698			642,861			657,642			—			1,424,201
Property, plant and equipment, net		87,745			1,848,052			1,479,634			—			3,415,431
Investments in consolidated subsidiaries		1,836,486			—			—			(1,836,486	)		—
Restricted funds		—			—			120,161			—			120,161
Goodwill		—			568,182			454,131			—			1,022,313
Deferred charges and other assets		80,799			75,309			168,514			—			324,622
Total assets	$	2,128,728		$	3,134,404		$	2,880,082		$	(1,836,486	)	$	6,306,728
Current liabilities:
Accounts payable	$	26,961		$	85,799		$	74,948		$	—		$	187,708
Accrued expenses and other current liabilities		124,978			214,511			273,774			—			613,263
Deferred income taxes		8,986			—			—			—			8,986
Current maturities of long-term debt and capital lease obligations		68,375			17,369			6,977			—			92,721
Total current liabilities		229,300			317,679			355,699			—			902,678
Deferred income taxes		281,644			—			—			—			281,644
Long-term debt and capital lease obligations, less current maturities		3,351,364			54,963			70,041			—			3,476,368
Intercompany balances		(2,759,397	)		(612,981	)		3,372,378			—			—
Other long-term liabilities		86,320			53,740			337,921			—			477,981
Total liabilities		1,189,231			(186,599	)		4,136,039			—			5,138,671
Redeemable equity securities		—			—			212,663			—			212,663
Stockholders’ equity:
Total Health Management Associates, Inc. stockholders’ equity		939,497			3,321,003			(1,484,517	)		(1,836,486	)		939,497
Noncontrolling interests		—			—			15,897			—			15,897
Total stockholders’ equity		939,497			3,321,003			(1,468,620	)		(1,836,486	)		955,394
Total liabilities and stockholders’ equity	$	2,128,728		$	3,134,404		$	2,880,082		$	(1,836,486	)	$	6,306,728

30

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

11. Supplemental Condensed Consolidating Financial Statements (continued)

Health Management Associates, Inc.

Condensed Consolidating Balance Sheet

December 31, 2011

(in thousands)

	Parent Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Current assets:
Cash and cash equivalents	$	28,586		$	47,094		$	(11,537	)	$	—		$	64,143
Available-for-sale securities		81,654			—			40,623			—			122,277
Accounts receivable, net		—			474,847			428,670			—			903,517
Supplies, prepaid expenses and other assets		4,953			115,193			95,449			—			215,595
Prepaid and recoverable income taxes		61,756			—			—			—			61,756
Restricted funds		—			—			28,289			—			28,289
Assets of discontinued operations		—			—			14,561			—			14,561
Total current assets		176,949			637,134			596,055			—			1,410,138
Property, plant and equipment, net		89,419			1,729,632			1,444,121			—			3,263,172
Investments in consolidated subsidiaries		1,948,185			—			—			(1,948,185	)		—
Restricted funds		—			—			96,244			—			96,244
Goodwill		—			568,182			431,198			—			999,380
Deferred charges and other assets		81,265			40,962			113,028			—			235,255
Total assets	$	2,295,818		$	2,975,910		$	2,680,646		$	(1,948,185	)	$	6,004,189
Current liabilities:
Accounts payable	$	40,188		$	84,870		$	73,062		$	—		$	198,120
Accrued expenses and other current liabilities		113,262			132,540			223,927			—			469,729
Deferred income taxes		50,466			—			—			—			50,466
Current maturities of long-term debt and capital lease obligations		68,375			8,941			8,193			—			85,509
Total current liabilities		272,291			226,351			305,182			—			803,824
Deferred income taxes		234,080			—			—			—			234,080
Long-term debt and capital lease obligations, less current maturities		3,397,948			30,819			60,722			—			3,489,489
Intercompany balances		(2,503,302	)		(437,179	)		2,940,481			—			—
Other long-term liabilities		125,660			53,997			311,380			—			491,037
Total liabilities		1,526,677			(126,012	)		3,617,765			—			5,018,430
Redeemable equity securities		—			2,805			197,838			—			200,643
Stockholders’ equity:
Total Health Management Associates, Inc. stockholders’ equity		769,141			3,098,859			(1,150,674	)		(1,948,185	)		769,141
Noncontrolling interests		—			258			15,717			—			15,975
Total stockholders’ equity		769,141			3,099,117			(1,134,957	)		(1,948,185	)		785,116
Total liabilities and stockholders’ equity	$	2,295,818		$	2,975,910		$	2,680,646		$	(1,948,185	)	$	6,004,189

31

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

11. Supplemental Condensed Consolidating Financial Statements (continued)

Health Management Associates, Inc.

Condensed Consolidating Statement of Cash Flows

Nine Months Ended September 30, 2012

(in thousands)

	Parent Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidated
Net cash provided by (used in) continuing operating activities	$	(80,829	)	$	355,672		$	183,303		$	458,146
Cash flows from investing activities:
Acquisitions of hospitals and other ancillary health care businesses		—			(800	)		(70,675	)		(71,475	)
Additions to property, plant and equipment		(16,705	)		(178,183	)		(87,536	)		(282,424	)
Proceeds from sales of assets and insurance recoveries		—			—			1,932			1,932
Proceeds from sales of discontinued operations		—			—			1,392			1,392
Purchases of available-for-sale securities		(1,395,665	)		—			(35,883	)		(1,431,548	)
Proceeds from sales of available-for-sale securities		1,380,985			—			31,595			1,412,580
Increase in restricted funds, net		—			—			(18,723	)		(18,723	)
Net cash provided by (used in) continuing investing activities		(31,385	)		(178,983	)		(177,898	)		(388,266	)
Cash flows from financing activities:
Proceeds from long-term debt borrowings		17,000			—			—			17,000
Principal payments on debt and capital lease obligations		(68,890	)		(11,693	)		(7,344	)		(87,927	)
Payments for debt issuance costs		(636	)		—			—			(636	)
Cash received from noncontrolling shareholders		—			—			3,591			3,591
Cash payments to noncontrolling shareholders		—			(3,325	)		(27,490	)		(30,815	)
Changes in intercompany balances, net		143,782			(187,951	)		44,169			—
Equity compensation excess income tax benefits		1,444			—			—			1,444
Net cash provided by (used in) continuing financing activities		92,700			(202,969	)		12,926			(97,343	)
Net increase (decrease) in cash and cash equivalents before discontinued operations		(19,514	)		(26,280	)		18,331			(27,463	)
Net cash provided by (used in) discontinued operations		—			—			(1,462	)		(1,462	)
Net increase (decrease) in cash and cash equivalents		(19,514	)		(26,280	)		16,869			(28,925	)
Cash and cash equivalents at the beginning of the period		28,586			47,094			(11,537	)		64,143
Cash and cash equivalents at the end of the period	$	9,072		$	20,814		$	5,332		$	35,218

32

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

11. Supplemental Condensed Consolidating Financial Statements (continued)

Health Management Associates, Inc.

Condensed Consolidating Statement of Cash Flows

Nine Months Ended September 30, 2011

(in thousands)

	Parent Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidated
Net cash provided by (used in) continuing operating activities	$	(18,972	)	$	301,339		$	164,584		$	446,951
Cash flows from investing activities:
Acquisitions of hospitals and other ancillary health care businesses		—			(3,714	)		(569,725	)		(573,439	)
Additions to property, plant and equipment		(24,069	)		(127,433	)		(51,317	)		(202,819	)
Proceeds from sales of assets and insurance recoveries		—			1,754			38			1,792
Proceeds from sales of discontinued operations		—			—			4,851			4,851
Purchases of available-for-sale securities		(1,104,087	)		—			(49,405	)		(1,153,492	)
Proceeds from sales of available-for-sale securities		1,128,920			—			44,428			1,173,348
Increase in restricted funds, net		—			—			(28,260	)		(28,260	)
Net cash provided by (used in) continuing investing activities		764			(129,393	)		(649,390	)		(778,019	)
Cash flows from financing activities:
Proceeds from long-term debt borrowings		—			—			370,700			370,700
Principal payments on debt and capital lease obligations		(21,017	)		(6,416	)		(6,614	)		(34,047	)
Payments for debt issuance costs		—			—			(10,625	)		(10,625	)
Proceeds from exercises of stock options		14,067			—			—			14,067
Cash payments to noncontrolling shareholders		—			(382	)		(21,446	)		(21,828	)
Changes in intercompany balances, net		27,556			(186,822	)		159,266			—
Equity compensation excess income tax benefits		2,919			—			—			2,919
Net cash provided by (used in) continuing financing activities		23,525			(193,620	)		491,281			321,186
Net increase (decrease) in cash and cash equivalents before discontinued operations		5,317			(21,674	)		6,475			(9,882	)
Net cash provided by (used in) discontinued operations		—			—			(3,579	)		(3,579	)
Net increase (decrease) in cash and cash equivalents		5,317			(21,674	)		2,896			(13,461	)
Cash and cash equivalents at the beginning of the period		51,734			44,256			5,822			101,812
Cash and cash equivalents at the end of the period	$	57,051		$	22,582		$	8,718		$	88,351

33

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Results of Operations

Overview

As of September 30, 2012, Health Management Associates, Inc. by and through its subsidiaries (collectively, “we,” “our” or “us”) operated 70 hospitals with a total of 10,527 licensed beds in non-urban communities in Alabama, Arkansas, Florida, Georgia, Kentucky, Mississippi, Missouri, North Carolina, Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas, Washington and West Virginia. The operating results of hospitals and other ancillary health care businesses that we acquire are included in our consolidated financial statements subsequent to the date of acquisition.

Unless specifically indicated otherwise, the following discussion excludes our discontinued operations, which are identified at Note 7 to the Interim Condensed Consolidated Financial Statements in Item 1. Discontinued operations were not material to our consolidated results of operations during the periods presented herein.

During March 2010, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the “Health Care Reform Act”) were signed into law by President Obama. The primary goals of the Health Care Reform Act are to: (i) provide coverage by January 1, 2014 to an estimated 32 to 34 million Americans who currently do not have health insurance; (ii) reform the health care delivery system to improve quality; and (iii) lower the overall costs of providing health care. To accomplish the goal of expanding coverage, the new legislation mandates that all Americans maintain a minimum level of health care coverage. To that end, the Health Care Reform Act expands Medicaid coverage, provides federal subsidies to assist low-income individuals when they obtain health insurance and establishes insurance exchanges through which individuals and small employers can purchase health insurance. Health care cost savings under the Health Care Reform Act are expected to come from: (i) reductions in Medicare and Medicaid reimbursement payments to health care providers, including hospital operators; (ii) initiatives to reduce fraud, waste and abuse in government reimbursement programs; and (iii) other reforms to federal and state reimbursement systems. Although certain aspects of the Health Care Reform Act have already become effective, it will be several years before most of the far-reaching and innovative provisions of the legislation are fully implemented. While we continue to evaluate the provisions of the Health Care Reform Act, its overall effect on our business cannot be determined at the present time because, among other things, the legislation is very broad in scope and uncertainties exist regarding the interpretation and future implementation of many of the regulations mandated under the Health Care Reform Act. Additionally, the Health Care Reform Act remains subject to significant legislative debate, including possible amendment and/or a full or partial repeal. For further discussion of the Health Care Reform Act and its possible impact on our business and results of operations, see (i) “Risk Factors” in Item 1A of Part II of our Quarterly Report on Form 10-Q for the three months ended June 30, 2012 and (ii) “Business – Sources of Revenue” in Item 1 of Part I and “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2011.

During the three months ended September 30, 2012, which we refer to as the 2012 Three Month Period, we experienced growth in our net revenue before the provision for doubtful accounts over the three months ended September 30, 2011, which we refer to as the 2011 Three Month Period, of approximately 19.0%. Such growth principally resulted from: (i) our acquisition of six Tennessee-based general acute care hospitals and other ancillary health care operations with a total of 882 licensed beds (collectively, the “Mercy Hospitals”) on September 30, 2011; (ii) our acquisition of an 80% interest in each of five Oklahoma-based general acute care hospitals with a total of 218 licensed beds and certain related health care operations (collectively, the “Integris Hospitals”) in April 2012; (iii) increased surgical volume attributable to physician recruitment and market service development (e.g., ambulatory surgical centers, robotic surgical systems, etc.) at certain of our hospitals and other health care facilities; (iv) an increase in emergency room visits, which we believe was attributable, in part, to our dedicated focus on emergency room operations; and (v) improvements in reimbursement rates that resulted primarily from renegotiated agreements with certain commercial health insurance providers. During the 2012 Three Month Period, we recognized a benefit of approximately $24.2 million from the meaningful use measurement standard under various Medicare and Medicaid Healthcare Information Technology incentive programs (collectively, the “HCIT Programs”), as compared to a $1.7 million benefit during the 2011 Three Month Period. The timing of our recognition of benefits under these programs correlates to the availability of program funding and our achievement of the related incentive criteria. Items that adversely affected our profitability during the 2012 Three Month Period included increases in interest expense (principally non-cash charges), costs associated with government investigations and depreciation and amortization. Overall, our year-over-year income from continuing operations was effectively unchanged.

Our strategic operational objectives include increasing patient volume and operating margins, while at the same time moderating the provision for doubtful accounts. Our specific plans include, among other things, utilizing experienced local and regional management teams, modifying physician employment agreements, renegotiating payor and vendor contracts and developing action plans responsive to feedback from patient, physician and employee satisfaction surveys. Based on the needs of the communities that we serve, we also seek opportunities for market service development, including, among other things, establishing ambulatory surgical centers, urgent care centers, cardiac cath labs, angiography suites and orthopedic, cardiology and neurology/neurosurgery centers of excellence. Furthermore, we are investing significant resources in physician recruitment and retention (primary care physicians and specialists), emergency room operations, advanced robotic

34

surgical systems, replacement hospital construction and other capital projects. For example, we continue to implement ER Extra®, which is our signature patient-centered emergency room program that is designed to reduce patient wait times, enhance patient satisfaction and improve the quality and scope of patient assessments. Additionally, we have deployed new MAKOplasty® and da Vinci® robotic surgical systems at many of our hospitals and, in April 2012, we opened the newly constructed Clearview Regional Medical Center, which was built to replace Walton Regional Medical Center in Monroe, Georgia. We believe that our strategic initiatives, coupled with appropriate executive management oversight, centralized support and innovative marketing campaigns, will enhance patient, physician and employee satisfaction, improve clinical outcomes and yield increased surgical volume, emergency room visits and admissions. Additionally, as we consider potential acquisitions, joint ventures and partnerships in 2012 and beyond, we believe that continually improving our existing operations provides us with a fundamentally sound infrastructure upon which we can add hospitals and other ancillary health care businesses.

We have also taken steps that we believe are necessary to achieve industry leadership in patient safety and quality. Our goal is to be the highest rated health care provider of any hospital system in the country, as measured by Medicare. With our knowledgeable and experienced clinical affairs leadership supporting this critical quality initiative, we measure key performance objectives, maintain accountability for achieving those objectives and recognize the leaders whose quality indicators and clinical outcomes demonstrate improvement. As most recently reported by the Centers for Medicare and Medicaid Services, all four of our core measure care areas (i.e., myocardial infarction, congestive heart failure, pneumonia and surgical care improvement project) have dramatically improved since the commencement of our clinical quality initiatives and we now rank second in core measures amongst large for-profit hospital systems. Additionally, The Joint Commission, a leading independent not-for-profit organization that accredits and certifies health care organizations in the United States, recently named 64% of our hospitals as Top Performers on Key Quality Measures, which compared to a nationwide achievement rate of approximately 18%. Moreover, 77% of our hospitals that were top performers during 2010 were once again recognized by The Joint Commission this year based on 2011 quality performance statistics. To determine top performers, The Joint Commission aggregates certain evidence-based accountability data, including core measurement performance data.

Outpatient services continue to play an important role in the delivery of health care in our markets, with over half of our net revenue before the provision for doubtful accounts generated on an outpatient basis. Recognizing the importance of these services, we have improved many of our health care facilities to accommodate the outpatient needs of the communities that they serve. We have also invested substantial capital in many of our hospitals and physician practices during the past several years, resulting in improvements and enhancements to our diagnostic imaging and ambulatory surgical services.

During the past several years, various economic and other factors have resulted in a large number of uninsured and underinsured patients seeking health care in the United States. Self-pay admissions as a percent of total admissions at our hospitals were approximately 7.1% and 7.4% during the 2012 Three Month Period and the 2011 Three Month Period, respectively. We continue to take various measures to address the impact of uninsured and underinsured patients on our business. Additionally, one of the primary goals of the Health Care Reform Act is to provide health insurance coverage to more Americans. Nevertheless, there can be no assurances that our self-pay admissions will not grow in future periods, especially in light of the prolonged downturn in the economy and correspondingly higher levels of unemployment in many of the markets served by our hospitals. Therefore, we regularly evaluate our self-pay patient policies and programs and consider changes or modifications as circumstances warrant.

Critical Accounting Policies and Estimates Update

General. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. We consider a critical accounting policy to be one that requires us to make significant judgments and estimates when we prepare our consolidated financial statements. Such critical accounting policies and estimates, which are more fully described in Item 7 of Part II of Exhibit 99.1 to our Current Report on Form 8-K that was filed with the Securities and Exchange Commission on August 10, 2012, include (i) revenue; (ii) the provision for doubtful accounts; (iii) impairments of long-lived assets and goodwill; (iv) income taxes; (v) professional liability risks and other self-insured programs; and (vi) loss contingencies.

There were no material changes to our critical accounting policies and estimates during the 2012 Three Month Period. However, see Note 2 to the Interim Condensed Consolidated Financial Statements in Item 1 for information regarding certain new accounting guidance that we adopted during 2012. Such new accounting guidance did not have a material impact on our consolidated financial statements.

Goodwill. We test our goodwill for impairment on an annual basis (i.e., each October 1) and whenever circumstances indicate that a possible impairment might exist. Our judgment regarding the existence of impairment indicators is based on many qualitative and quantitative factors, including market conditions and operational performance. When performing the goodwill impairment test, among other things, we compare the estimated fair values of the net assets of

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our reporting units that are potentially impaired to the corresponding carrying amounts on our consolidated balance sheet. If the estimated fair value of one of our reporting unit’s net assets is less than the balance sheet carrying amount, we determine the implied fair value of the reporting unit’s goodwill, compare such fair value to the corresponding carrying amount and, if necessary, record a goodwill impairment charge. We do not believe that any of our reporting units are currently at risk of requiring a goodwill impairment charge; however, we have not yet completed our October 1, 2012 annual impairment testing.

2012 Three Month Period Compared to the 2011 Three Month Period

The tables below summarize our operating results for the 2012 Three Month Period and the 2011 Three Month Period. Hospitals that were owned/leased and operated by us for one year or more as of September 30, 2012 are referred to as same three month hospitals. For all year-over-year comparative discussions herein, the operating results of our same three month hospitals are only considered to the extent that there was a similar period of operation in both years.

	Three Months Ended September 30,
	2012						2011
	Amount			Percent of Net Revenue			Amount			Percent of Net Revenue
	(in thousands)						(in thousands)
Net revenue before the provision for doubtful accounts	$	1,664,187					$	1,398,495
Provision for doubtful accounts		(224,078	)					(178,873	)
Net revenue		1,440,109			100.0	%		1,219,622			100.0	%
Salaries and benefits		637,305			44.3			549,857			45.1
Supplies		216,819			15.1			179,993			14.7
Rent expense		41,882			2.9			38,117			3.1
Other operating expenses		331,935			23.0			267,140			21.9
Medicare and Medicaid HCIT incentive payments		(24,224	)		(1.7	)		(1,749	)		(0.1	)
Depreciation and amortization		91,610			6.4			65,605			5.4
Interest expense		76,814			5.3			50,018			4.1
Other		(2,363	)		(0.2	)		(1,450	)		(0.1	)
		1,369,778			95.1			1,147,531			94.1
Income from continuing operations before income taxes		70,331			4.9			72,091			5.9
Provision for income taxes		(20,913	)		(1.5	)		(22,387	)		(1.8	)
Income from continuing operations	$	49,418			3.4	%	$	49,704			4.1	%
	Three Months Ended September 30,									Percent
	2012			2011			Change			Change
Same Three Month Hospitals*
Occupancy		38.9	%		41.1	%		(220)	bps**		n/a
Patient days		318,357			335,934			(17,577	)		(5.2	)%
Admissions		76,166			81,411			(5,245	)		(6.4	)%
Adjusted admissions †		151,620			155,097			(3,477	)		(2.2	)%
Emergency room visits		392,181			376,539			15,642			4.2	%
Surgeries		82,322			81,665			657			0.8	%
Outpatient revenue percentt		55.5	%		53.1	%		240	bps		n/a
Inpatient revenue percentt		44.5	%		46.9	%		(240)	bps		n/a
Total Hospitals
Occupancy		38.9	%		41.1	%		(220)	bps		n/a
Patient days		357,613			335,934			21,679			6.5	%
Admissions		84,704			81,411			3,293			4.0	%
Adjusted admissions †		171,206			155,097			16,109			10.4	%
Emergency room visits		455,372			376,539			78,833			20.9	%
Surgeries		97,230			81,665			15,565			19.1	%
Outpatient revenue percentt		55.4	%		53.1	%		230	bps		n/a
Inpatient revenue percentt		44.6	%		46.9	%		(230)	bps		n/a

* Includes acquired hospitals to the extent we operated them for comparable periods

** basis points

† Admissions adjusted for outpatient volume

t Determined by reference to net revenue before the provision for doubtful accounts

Net revenue before the provision for doubtful accounts during the 2012 Three Month Period was approximately $1,664.2 million as compared to $1,398.5 million during the 2011 Three Month Period. This change represented an increase of $265.7 million, or 19.0%. Our same three month hospitals contributed $78.5 million, or 29.5%, of the increase in net revenue before the provision for doubtful accounts. The same three month hospital increase was primarily the result of: (i)

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increased outpatient and surgical volume from physician recruitment and market service development; (ii) an increase in emergency room visits; and (iii) improvements in reimbursement rates. These items were partially offset by a decrease in hospital admissions. The remaining 2012 increase in our net revenue before the provision for doubtful accounts (i.e., $187.2 million) was due to our acquisitions of (i) the Mercy Hospitals in September 2011 and (ii) the Integris Hospitals in April 2012.

Our provision for doubtful accounts during the 2012 Three Month Period increased 70 basis points to 13.5% of net revenue before the provision for doubtful accounts as compared to 12.8% of net revenue before the provision for doubtful accounts during the 2011 Three Month Period. This change was primarily due to an increase in revenue from uninsured self-pay patients and amounts considered to be patient responsibility (e.g., deductibles, co-payments, other amounts not covered by insurance, etc.).

Our consistently applied accounting policy is that accounts written off as charity and indigent care are not recognized in net revenue before the provision for doubtful accounts and, accordingly, such amounts have no impact on our provision for doubtful accounts. However, as a measure of our fiscal performance, we routinely aggregate amounts pertaining to our (i) provision for doubtful accounts, (ii) uninsured self-pay patient discounts and (iii) foregone/unrecognized revenue for charity and indigent care and divide the resulting total by the sum of our (i) net revenue before the provision for doubtful accounts, (ii) uninsured self-pay patient discounts and (iii) foregone/unrecognized revenue for charity and indigent care. We believe that this fiscal measure, which we refer to as our Uncompensated Patient Care Percentage, provides us with key information regarding the aggregate level of patient care for which we do not receive remuneration. During the 2012 Three Month Period and the 2011 Three Month Period, our Uncompensated Patient Care Percentage was 29.0% and 26.1%, respectively. This 290 basis point increase during the 2012 Three Month Period primarily reflects greater uninsured self-pay patient revenue discounts.

Salaries and benefits as a percent of net revenue after the provision for doubtful accounts (hereinafter referred to as “net revenue”) decreased from 45.1% during the 2011 Three Month Period to 44.3% during the 2012 Three Month Period. This decrease was primarily due to (i) adjustments in staffing corresponding to changes in inpatient and outpatient volume and (ii) the outsourcing of certain hospital support services, partially offset by increased physician employment.

Supplies as a percent of net revenue increased from 14.7% during the 2011 Three Month Period to 15.1% during the 2012 Three Month Period. This increase was primarily due to disproportionately higher costs at our recent acquisitions, partially offset by improved pricing and greater discounts from our vendors under our group purchasing agreements.

Other operating expenses as a percent of net revenue increased from 21.9% during the 2011 Three Month Period to 23.0% during the 2012 Three Month Period. This increase was primarily due to (i) certain services at our hospitals that have been recently outsourced and/or contracted to third parties and (ii) costs associated with certain government investigations. Such items were partially offset by a reduction in acquisition-related costs during the 2012 Three Month Period. See Note 10 to the Interim Condensed Consolidated Financial Statements in Item 1 for information regarding our ongoing government investigations.

During the 2012 Three Month Period, we recognized a benefit of approximately $24.2 million under the meaningful use measurement standard of the HCIT Programs as compared to a $1.7 million benefit during the 2011 Three Month Period.

Depreciation and amortization increased approximately $26.0 million during the 2012 Three Month Period over the 2011 Three Month Period. This increase resulted from: (i) our recent acquisitions; (ii)��the acceleration of depreciation of the remaining net book value of one of our hospitals that is to be replaced in 2013; and (iii) an increase in capitalized equipment.

Interest expense increased from approximately $50.0 million during the 2011 Three Month Period to $76.8 million during the 2012 Three Month Period. Such increase was primarily due to non-cash interest expense of $23.9 million attributable to our interest rate swap contract (i.e., accumulated other comprehensive loss amortization and net fair value adjustment expense) that we recognize in our consolidated statement of income subsequent to the debt restructuring we completed on November 18, 2011. See Note 9 to the Interim Condensed Consolidated Financial Statements in Item 1 for information regarding our accounting for the interest rate swap contract. Although the average outstanding principal balance on our long-term debt and capital lease obligations was higher during the 2012 Three Month Period than the 2011 Three Month Period, our overall effective interest rate on such obligations has declined subsequent to the abovementioned debt restructuring. We also recorded a greater amount of capitalized interest during the 2012 Three Month Period as compared to the 2011 Three Month Period. See “Liquidity, Capital Resources and Capital Expenditures” below and Note 3 to the Interim Condensed Consolidated Financial Statements in Item 1 for information regarding our long-term debt arrangements.

Our effective income tax rates were approximately 29.7% and 31.1% during the 2012 Three Month Period and the 2011 Three Month Period, respectively. Net income attributable to noncontrolling interests, which is not tax-effected in our consolidated financial statements, reduced our effective income tax rates by approximately 310 basis points and 290 basis points during the 2012 Three Month Period and the 2011 Three Month Period, respectively. Both our 2012 and 2011 provisions for income taxes were favorably impacted by the finalization of certain federal and state income tax returns. Our 2011 provision for income taxes also benefited from the satisfactory conclusion of certain state tax audits and examinations.

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2012 Nine Month Period Compared to the 2011 Nine Month Period

The tables below summarize our operating results for the nine months ended September 30, 2012 and 2011, which we refer to as the 2012 Nine Month Period and the 2011 Nine Month Period, respectively. Hospitals that were owned/leased and operated by us for one year or more as of September 30, 2012 are referred to as same nine month hospitals. For all year-over-year comparative discussions herein, the operating results of our same nine month hospitals are only considered to the extent that there was a similar period of operation in both years.

	Nine Months Ended September 30,
	2012						2011
	Amount			Percent of Net Revenue			Amount			Percent of Net Revenue
	(in thousands)						(in thousands)
Net revenue before the provision for doubtful accounts	$	5,037,246					$	4,220,677
Provision for doubtful accounts		(639,902	)					(521,729	)
Net revenue		4,397,344			100.0	%		3,698,948			100.0	%
Salaries and benefits		1,942,322			44.2			1,665,093			45.0
Supplies		677,416			15.4			560,248			15.1
Rent expense		130,746			3.0			110,738			3.0
Other operating expenses		969,350			22.0			762,115			20.6
Medicare and Medicaid HCIT incentive payments		(31,685	)		(0.7	)		(1,749	)		—
Depreciation and amortization		255,716			5.8			194,434			5.2
Interest expense		240,743			5.4			152,088			4.1
Other		(1,745	)		—			(1,783	)		—
		4,182,863			95.1			3,441,184			93.0
Income from continuing operations before income taxes		214,481			4.9			257,764			7.0
Provision for income taxes		(70,931	)		(1.6	)		(89,178	)		(2.4	)
Income from continuing operations	$	143,550			3.3	%	$	168,586			4.6	%
	Nine Months Ended September 30,									Percent
	2012			2011			Change			Change
Same Nine Month Hospitals*
Occupancy		41.2	%		43.6	%		(240)	bps**		n/a
Patient days		1,004,736			1,059,584			(54,848	)		(5.2	)%
Admissions		238,108			250,307			(12,199	)		(4.9	)%
Adjusted admissions †		462,422			466,547			(4,125	)		(0.9	)%
Emergency room visits		1,177,775			1,145,401			32,374			2.8	%
Surgeries		253,230			246,998			6,232			2.5	%
Outpatient revenue percentt		54.3	%		51.7	%		260	bps		n/a
Inpatient revenue percentt		45.7	%		48.3	%		(260)	bps		n/a
Total Hospitals
Occupancy		41.0	%		43.6	%		(260)	bps		n/a
Patient days		1,120,642			1,059,584			61,058			5.8	%
Admissions		264,548			250,307			14,241			5.7	%
Adjusted admissions †		521,459			466,547			54,912			11.8	%
Emergency room visits		1,352,451			1,145,401			207,050			18.1	%
Surgeries		297,609			246,998			50,611			20.5	%
Outpatient revenue percentt		54.4	%		51.7	%		270	bps		n/a
Inpatient revenue percentt		45.6	%		48.3	%		(270)	bps		n/a

* Includes acquired hospitals to the extent we operated them for comparable periods

** basis points

† Admissions adjusted for outpatient volume

t Determined by reference to net revenue before the provision for doubtful accounts

Net revenue before the provision for doubtful accounts during the 2012 Nine Month Period was approximately $5,037.2 million as compared to $4,220.7 million during the 2011 Nine Month Period. This change represented an increase of $816.6 million, or 19.3%. Our same nine month hospitals contributed $269.0 million, or 32.9%, of the increase in net revenue before the provision for doubtful accounts. The same nine month hospital increase was primarily the result of: (i) increased outpatient and surgical volume from physician recruitment and market service development; (ii) an increase in

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emergency room visits; and (iii) improvements in reimbursement rates. These items were partially offset by a decrease in hospital admissions. The remaining 2012 increase in our net revenue before the provision for doubtful accounts (i.e., $547.6 million) was due to our acquisitions of: (i) a 95% equity interest in a Mississippi-based general acute care hospital with a total of 112 licensed beds and certain related health care operations (collectively, “Tri-Lakes”) in May 2011; (ii) the Mercy Hospitals in September 2011; and (iii) the Integris Hospitals in April 2012.

Our provision for doubtful accounts during the 2012 Nine Month Period increased 30 basis points to 12.7% of net revenue before the provision for doubtful accounts as compared to 12.4% of net revenue before the provision for doubtful accounts during the 2011 Nine Month Period. This change was primarily due to an increase in revenue from uninsured self-pay patients and amounts considered to be patient responsibility (e.g., deductibles, co-payments, other amounts not covered by insurance, etc.). During the 2012 Nine Month Period and the 2011 Nine Month Period, our Uncompensated Patient Care Percentage, which is described above under the heading “2012 Three Month Period Compared to the 2011 Three Month Period,” was 27.4% and 25.6%, respectively. This 180 basis point increase during the 2012 Nine Month Period primarily reflects greater uninsured self-pay patient revenue discounts.

Salaries and benefits as a percent of net revenue after the provision for doubtful accounts (hereinafter referred to as “net revenue”) decreased from 45.0% during the 2011 Nine Month Period to 44.2% during the 2012 Nine Month Period. This decrease was primarily due to (i) adjustments in staffing corresponding to changes in inpatient and outpatient volume and (ii) the outsourcing of certain hospital support services, partially offset by increased physician employment.

Supplies as a percent of net revenue increased from 15.1% during the 2011 Nine Month Period to 15.4% during the 2012 Nine Month Period. This increase was primarily due to disproportionately higher costs at our recent acquisitions, partially offset by improved pricing and greater discounts from our vendors under our group purchasing agreements.

Other operating expenses as a percent of net revenue increased from 20.6% during the 2011 Nine Month Period to 22.0% during the 2012 Nine Month Period. This increase was primarily due to: (i) disproportionately higher costs at our recent acquisitions; (ii) certain services at our hospitals that have been recently outsourced and/or contracted to third parties; (iii) costs associated with certain government investigations; and (iv) higher state-mandated provider taxes and increased repairs and maintenance costs during the 2012 Nine Month Period. Such items were partially offset by a reduction in acquisition-related costs during the 2012 Nine Month Period. See Note 10 to the Interim Condensed Consolidated Financial Statements in Item 1 for information regarding our ongoing government investigations.

During the 2012 Nine Month Period, we recognized a benefit of approximately $31.7 million under the meaningful use measurement standard of the HCIT Programs as compared to a $1.7 million benefit during the 2011 Nine Month Period.

Depreciation and amortization increased approximately $61.3 million during the 2012 Nine Month Period over the 2011 Nine Month Period. This increase resulted from: (i) our recent acquisitions; (ii) the acceleration of depreciation of the remaining net book value of one of our hospitals that is to be replaced in 2013; and (iii) an increase in capitalized equipment.

Interest expense increased from approximately $152.1 million during the 2011 Nine Month Period to $240.7 million during the 2012 Nine Month Period. Such increase was primarily due to non-cash interest expense of $82.9 million attributable to our interest rate swap contract (i.e., accumulated other comprehensive loss amortization and net fair value adjustment expense) that we recognize in our consolidated statement of income subsequent to the debt restructuring we completed on November 18, 2011. See Note 9 to the Interim Condensed Consolidated Financial Statements in Item 1 for information regarding our accounting for the interest rate swap contract. Although the average outstanding principal balance on our long-term debt and capital lease obligations was higher during the 2012 Nine Month Period than the 2011 Nine Month Period, our overall effective interest rate on such obligations has declined subsequent to the abovementioned debt restructuring. We also recorded a greater amount of capitalized interest during the 2012 Nine Month Period as compared to the 2011 Nine Month Period. See “Liquidity, Capital Resources and Capital Expenditures” below and Note 3 to the Interim Condensed Consolidated Financial Statements in Item 1 for information regarding our long-term debt arrangements.

Our effective income tax rates were approximately 33.1% and 34.6% during the 2012 Nine Month Period and the 2011 Nine Month Period, respectively. Net income attributable to noncontrolling interests, which is not tax-effected in our consolidated financial statements, reduced our effective income tax rates by approximately 370 basis points and 280 basis points during the 2012 Nine Month Period and the 2011 Nine Month Period, respectively. Our 2012 and 2011 effective income tax rates were also impacted by the same items described above under the heading “2012 Three Month Period Compared to the 2011 Three Month Period.”

Liquidity, Capital Resources and Capital Expenditures

Liquidity

Our cash flows from continuing operating activities provide the primary source of cash for our ongoing business needs. Additionally, at September 30, 2012 approximately $96.3 million of our available-for-sale securities and $449.9 million of borrowing capacity under our $500.0 million long-term revolving credit facility were available for, among other things, general business purposes and acquisitions. We believe that our various sources of cash are adequate to meet our foreseeable operating, capital expenditure, business acquisition and debt service needs.

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The table below summarizes our recent cash flow activity (in thousands).

	Nine Months Ended September 30,
	2012			2011
Sources (uses) of cash and cash equivalents:
Operating activities	$	458,146		$	446,951
Investing activities		(388,266	)		(778,019	)
Financing activities		(97,343	)		321,186
Discontinued operations		(1,462	)		(3,579	)
Net decreases in cash and cash equivalents	$	(28,925	)	$	(13,461	)

Operating Activities

Our cash flows from continuing operating activities increased approximately $11.2 million, or 2.5%, during the 2012 Nine Month Period as compared to the 2011 Nine Month Period. During the 2012 Nine Month Period, we experienced increased cash flows from: (i) improved operating profitability (before non-cash depreciation and amortization expense and fair value adjustments); (ii) an increase of $60.8 million in our cash receipts under the meaningful use measurement standard of the HCIT Programs; and (iii) reductions in our accounts receivable balances at the Mercy Hospitals after we received the necessary approvals for our Medicare and Medicaid provider numbers. Offsetting these items were: (i) an increase in accounts receivable attributable to the Integris Hospitals that we acquired in April 2012; (ii) an increase in our interest payments during the 2012 Nine Month Period when compared to the 2011 Nine Month Period; and (iii) a net increase in our operating liabilities during the 2011 Nine Month Period that did not recur during the 2012 Nine Month Period.

We believe that our cash flows from continuing operating activities will be favorably impacted during the remainder of 2012 and into early 2013 by cash collections on accounts receivable at the Integris Hospitals (see further discussion of this matter below under “Days Sales Outstanding”). Moreover, we believe that the professional and other costs of our ongoing government investigations, while difficult to predict, will continue and will vary throughout the duration of such investigations. Those costs will be paid with our cash flows from continuing operating activities. See Note 10 to the Interim Condensed Consolidated Financial Statements in Item 1 for information regarding such government investigations. Although subject to change due to a variety of factors beyond our control, we project that (i) during the twelve months ending September 30, 2013 we will pay approximately $87.2 million to the counterparties of our interest rate swap contract, which is discussed at Note 2(a) to the audited consolidated financial statements included in our Current Report on Form 8-K that was filed with the Securities and Exchange Commission on August 10, 2012 and (ii) we will receive additional reimbursement under the meaningful use measurement standard of the HCIT Programs ranging from $30 million to $60 million during the three months ending December 31, 2012.

Investing Activities

Cash used in investing activities during the 2012 Nine Month Period included: (i) approximately $282.4 million of additions to property, plant and equipment, consisting primarily of new medical equipment, renovation and expansion projects at certain of our facilities and replacement hospital construction (including a replacement hospital for Walton Regional Medical Center in Monroe, Georgia that opened on April 22, 2012 and a new 250-bed hospital that will ultimately replace our south campus facility at Poplar Bluff Regional Medical Center in Poplar Bluff, Missouri); (ii) $61.9 million to acquire an 80% interest in each of five Oklahoma-based hospitals (the Integris Hospitals); (iii) $9.6 million to acquire six ancillary health care businesses; and (iv) an $18.7 million net increase in our restricted funds. See Note 6 to the Interim Condensed Consolidated Financial Statements in Item 1 for information regarding certain of our recent acquisitions. Excluding the available-for-sale securities in restricted funds, we had a net cash outlay of $19.0 million from buying and selling such securities during the 2012 Nine Month Period. During such period, we received (i) $1.4 million of proceeds from the sale of the remaining real property at the Woman’s Center at Dallas Regional Medical Center, our closed hospital facility in Mesquite, Texas, and (ii) $1.9 million of proceeds from sales of assets and insurance recoveries.

Cash used in investing activities during the 2011 Nine Month Period included: (i) approximately $202.8 million of additions to property, plant and equipment, consisting primarily of new medical equipment (including $20.7 million to purchase daVinci® robotic surgical systems), renovation and expansion projects at certain of our facilities and replacement hospital construction (including a hospital that opened in May 2011 to replace Madison County Medical Center in Canton, Mississippi); (ii) $523.3 million to acquire the Mercy Hospitals (such amount excludes the portion of the total acquisition purchase price that was allocated to discontinued operations); (iii) $38.8 million to acquire a 95% equity interest in a Mississippi-based hospital (Tri-Lakes); (iv) $11.3 million to acquire six ancillary health care businesses; and (v) a $28.3 million net increase in our restricted funds. Excluding the available-for-sale securities in restricted funds, we had net cash proceeds of $19.9 million from buying and selling such securities during the 2011 Nine Month Period. During such period, we also received (i) $4.9 million of proceeds from the sales of the remaining real property at Gulf Coast Medical Center, our closed hospital facility in Biloxi, Mississippi, and certain assets at Fishermen’s Hospital in Marathon, Florida and (ii) $1.8 million of proceeds from sales of assets and insurance recoveries.

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Financing Activities

During the 2012 Nine Month Period, we borrowed and repaid $17.0 million under our $500.0 million long-term revolving credit facility (the proceeds from such borrowing were used for acquisition working capital). Additionally, we made principal payments on our other long-term debt and capital lease obligations of approximately $70.9 million during such period. We also paid $30.8 million to noncontrolling shareholders for recurring distributions and purchases of their subsidiary shares. Partially offsetting these cash outlays were (i) $1.4 million of excess income tax benefits from our stock-based compensation arrangements and (ii) $3.6 million that we received from noncontrolling shareholders to acquire minority equity interests in two of our joint ventures. See Note 3 to the Interim Condensed Consolidated Financial Statements in Item 1 for information regarding our long-term debt and capital lease arrangements.

On September 30, 2011, one of our wholly owned subsidiaries, Knoxville HMA Holdings, LLC (“HMA Knoxville”), and certain subsidiaries of HMA Knoxville entered into a credit agreement with a syndicate of banks (the “Knoxville Credit Agreement”). During the 2011 Nine Month Period, we received $370.7 million of cash proceeds under the Knoxville Credit Agreement, including $10.7 million under the revolving credit facility, primarily to: (i) finance the acquisition of seven Tennessee-based general acute care hospitals and other ancillary health care operations from Catholic Health Partners and its subsidiary, Mercy Health Partners, Inc., and (ii) pay certain closing costs of the Knoxville Credit Agreement. During the 2011 Nine Month Period, we made principal payments on long-term debt and capital lease obligations of approximately $34.0 million. We also paid $10.6 million for debt issuance costs related to the Knoxville Credit Agreement and $21.8 million to noncontrolling shareholders primarily for recurring distributions. Partially offsetting these cash outlays were (i) $14.1 million of cash proceeds from exercises of stock options and (ii) $2.9 million of excess income tax benefits from our stock-based compensation arrangements.

Discontinued Operations

Cash used by our discontinued operations during the 2012 Nine Month Period and the 2011 Nine Month Period was approximately $1.5 million and $3.6 million, respectively, including a portion of the total purchase price allocated from the abovementioned Mercy Health Partners, Inc. acquisition during 2011. We do not believe that the exclusion of such amounts from our consolidated cash flows in future periods will have a material effect on our liquidity or financial position. See Note 7 to the Interim Condensed Consolidated Financial Statements in Item 1 for information regarding our discontinued operations.

Days Sales Outstanding

To calculate days sales outstanding, or DSO, we initially divide quarterly net revenue before the provision for doubtful accounts by the number of days in the quarter. The result is divided into the net patient accounts receivable balance at the end of the quarter to obtain our DSO. We believe that this statistic is an important measure of collections on our accounts receivable, as well as our liquidity. Our DSO was 53 days at September 30, 2012, which compares to 51 days at December 31, 2011 and 52 days at September 30, 2011.

During September and October 2012, we received the necessary approvals for our Medicare and Medicaid provider numbers for the Integris Hospitals that we acquired on April 1, 2012. While the necessary approvals were pending, we were unable to bill for the services that we provided at those facilities, which caused our accounts receivable to grow and correspondingly increased our DSO by approximately two days at September 30, 2012. During October 2012, we started receiving payments in respect of our Integris Medicare and Medicaid accounts receivable. See Note 6 to the Interim Condensed Consolidated Financial Statements in Item 1 for information regarding our acquisition of the Integris Hospitals.

Income Taxes

Other than certain state net operating loss carryforwards, we believe that it is more likely than not that reversals of existing taxable temporary differences, future taxable income and carrybacks will allow us to realize the deferred tax assets that are recognized in our condensed consolidated balance sheets.

Capital Resources

Senior Secured Credit Facilities. As more fully described at Note 2 to the audited consolidated financial statements included in our Current Report on Form 8-K that was filed with the Securities and Exchange Commission on August 10, 2012, we completed a restructuring of our long-term debt on November 18, 2011, which included, among other things, new variable rate senior secured credit facilities with a syndicate of banks (collectively, the “Credit Facilities”). The Credit Facilities consist of: (i) a $500.0 million five-year revolving credit facility (the “Revolving Credit Agreement”); (ii) a $725.0 million five-year term loan (the “Term Loan A”); and (iii) a $1.4 billion seven-year term loan (the “Term Loan B”). We used the net proceeds from the term loans under the Credit Facilities, together with the net proceeds from the sale of our 7.375% Senior Notes due 2020, to repay all amounts outstanding under certain predecessor credit facilities.

We can elect whether interest on borrowings under the Credit Facilities is determined using LIBOR or the Base Rate (as defined in the loan agreement). The effective interest rate on such borrowings, which fluctuates with market changes, includes a spread above the rate that we select. The effective interest rate for the Term Loan B is subject to a floor of 1.0% and 2.0% (before consideration of the interest rate spread) when using LIBOR and the Base Rate, respectively. The amount

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of the interest rate spread is predicated on, among other things, our Consolidated Leverage Ratio (as defined in the loan agreement). We can elect differing interest rates for each of the debt instruments under the Credit Facilities. Interest is payable in arrears at the end of a calendar quarter or on the date that the selected interest duration period ends.

Our mandatory principal payments under the Credit Facilities for the twelve months ending September 30, 2013 are approximately $68.4 million. We have the right to prepay amounts outstanding under the Credit Facilities at any time without penalty, other than a prepayment of the Term Loan B, which is subject to a prepayment premium during the first year of the loan agreement. At September 30, 2012, the effective interest rates on the Term Loan A and the Term Loan B were 2.9% and 4.5%, respectively. Those rates remained unchanged as of October 26, 2012.

Throughout the Revolving Credit Agreement’s five-year term, we are obligated to pay commitment fees based on the amounts available for borrowing. The Revolving Credit Agreement provides that we can borrow, on a revolving basis, up to an aggregate of $500.0 million, as adjusted for outstanding standby letters of credit of up to $75.0 million. During the 2012 Nine Month Period, we borrowed $17.0 million under the Revolving Credit Agreement. The proceeds from such borrowing, which was repaid approximately two business days after initially being borrowed, were used for acquisition working capital while the collection of certain Mercy Hospital accounts receivable was pending. Although there were no amounts outstanding under the Revolving Credit Agreement on October 26, 2012, standby letters of credit in favor of third parties of approximately $50.1 million reduced the amount available for borrowing thereunder to $449.9 million on such date. Our effective interest rate on the variable rate Revolving Credit Agreement was approximately 2.8% on October 26, 2012.

The Credit Facilities are generally subject to mandatory prepayment in amounts equal to: (i) 100% of the net cash proceeds received from certain asset sales, including insurance recoveries and condemnation events, subject to reinvestment provisions and the ratable offer requirements of other pari passu secured debt; (ii) 100% of the net cash proceeds from our issuance of certain new debt; and (iii) 50% of our Excess Cash Flow (as defined in the loan agreement) with step-downs of such percentage based on our Consolidated Leverage Ratio.

We intend to fund the required principal payments under the term loans of the Credit Facilities and the related interest with available cash balances, cash provided by operating activities, proceeds from sales of available-for-sale securities and, if necessary, borrowings under the Revolving Credit Agreement.

Demand Promissory Note. We maintain a $10.0 million secured demand promissory note in favor of a bank for use as a working capital line of credit in conjunction with our cash management program. Pursuant to the terms and conditions of the demand promissory note, we may borrow, on a revolving basis, up to the principal face amount of the note. All principal and accrued interest under the demand promissory note will be immediately due and payable upon the bank’s written demand. We did not borrow under this credit facility during the 2012 Nine Month Period. The demand promissory note’s effective interest rate on October 26, 2012 was approximately 2.3%; however, there were no amounts outstanding thereunder on such date.

Debt Covenants

The Credit Facilities and the indentures governing our 3.75% Convertible Senior Subordinated Notes due 2028, 7.375% Senior Notes due 2020 and 6.125% Senior Notes due 2016 contain covenants that, among other things, require us to maintain compliance with certain financial ratios. At September 30, 2012, we were in compliance with all of the covenants contained in those debt agreements. Although there can be no assurances, we believe that we will continue to be in compliance with all of our debt covenants. Should we fail to comply with one or more of our debt covenants in the future and are unable to remedy the matter, an event of default may result. In that circumstance, we would seek a waiver from our lenders or renegotiate the related debt agreement; however, such renegotiations could, among other things, subject us to higher interest and financing costs on our debt obligations and our credit ratings could be adversely affected.

Dividends

The Credit Facilities and the indentures for certain of our other debt agreements restrict our ability to pay cash dividends.

Standby Letters of Credit

As of October 26, 2012, we maintained approximately $50.1 million of standby letters of credit in favor of third parties with various expiration dates through October 15, 2013. Should any or all of these letters of credit be drawn upon, we intend to satisfy such obligations with available cash balances, cash provided by operating activities, proceeds from sales of available-for-sale securities and, if necessary, borrowings under the Revolving Credit Agreement.

Interest Rate Swap Contract

As required by a former credit facility, we entered into a seven-year receive variable/pay fixed interest rate swap contract during February 2007. As part of a restructuring of our long-term debt on November 18, 2011, such former credit facility was terminated but the interest rate swap contract was not. Although we are exposed to financial risk in the event of nonperformance by one or more of the counterparties to the contract, we do not anticipate nonperformance because our

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interest rate swap contract is in a liability position and would require us to make settlement payments to the counterparties in the event of a contract termination. The interest rate swap contract provides for us to pay interest on the contract’s notional amount, which was originally expected to reasonably approximate the declining principal balance of a term loan under the former credit facility. Interest payable to the counterparties is determined by reference to, among other things, LIBOR rates. At September 30, 2012, the notional amount of the interest rate swap contract was approximately $1,881.9 million. The estimated fair value of our liability for the interest rate swap contract on such date was $114.8 million and we project that $87.2 million will be payable to the counterparties during the twelve months ending September 30, 2013. However, our aggregate payments through the contract’s expiration in February 2014, as well as the specific timing thereof, are subject to change based on, among other things, future LIBOR rates. See Note 5 to the Interim Condensed Consolidated Financial Statements in Item 1 for information regarding the estimated fair value of our interest rate swap contract.

Net interest payable or receivable is settled between us and the counterparties at the end of each calendar quarter. We intend to fund any net interest payable to the counterparties with available cash balances, cash provided by operating activities, proceeds from sales of available-for-sale securities and, if necessary, borrowings under the Revolving Credit Agreement.

Capital Expenditures and Other

We believe that capital expenditures for property, plant and equipment will range from 5.0% to 6.0% of our net revenue before the provision for doubtful accounts for the year ending December 31, 2012. As of September 30, 2012, we had started: (i) construction of a 250-bed general acute care hospital to ultimately replace the south campus facility at Poplar Bluff Regional Medical Center in Poplar Bluff, Missouri; (ii) several hospital renovation and expansion projects; and (iii) various information technology hardware and software upgrades. We do not believe that any of our construction, renovation and/or expansion projects are individually significant or that they represent, in the aggregate, a material commitment of our resources.

Part of our strategic business plan calls for us to acquire hospitals and other ancillary health care businesses in non-urban communities that are aligned with our business model, available at a reasonable price and otherwise meet our strict acquisition criteria. We fund acquisitions, replacement hospital construction and other recurring capital expenditures with available cash balances, cash provided by operating activities, proceeds from sales of available-for-sale securities, amounts available under revolving credit agreements and proceeds from long-term debt issuances, or a combination thereof.

Divestiture of Idle Property

We intend to sell the former Riverside hospital campus that we acquired as part of our acquisition of the Mercy Hospitals. However, the timing of such divestiture has not yet been determined. We intend to use the proceeds therefrom for general business purposes. See Note 7 to the Interim Condensed Consolidated Financial Statements in Item 1 for information about this idle facility.

Contractual Obligations and Off-Balance Sheet Arrangements

During the 2012 Nine Month Period, there were no material changes to the contractual obligation and off-balance sheet information presented in Item 7 of Part II of Exhibit 99.1 to our Current Report on Form 8-K that was filed with the Securities and Exchange Commission on August 10, 2012.

Forward-Looking Statements

Certain statements contained in this Quarterly Report on Form 10-Q, including, without limitation, statements containing the words “believe,” “anticipate,” “intend,” “expect,” “may,” “could,” “plan,” “continue,” “should,” “project,” “estimate” and words of similar import, constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements may include projections of revenue, provisions for doubtful accounts, income or loss, capital expenditures, debt structure, principal payments on debt, capital structure, the amount and timing of funds under the meaningful use measurement standard of various Healthcare Information Technology (“HCIT”) incentive programs, other financial items and operating statistics, statements regarding our plans and objectives for future operations, acquisitions, acquisition financing, divestitures and other transactions, statements of future economic performance, statements regarding our legal proceedings and other loss contingencies, statements regarding market risk exposures, statements regarding the effects and/or interpretations of recently enacted or future health care laws and regulations, statements of the assumptions underlying or relating to any of the foregoing statements, and statements that are other than statements of historical fact.

Forward-looking statements are based on our current plans and expectations and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance, achievements or industry results to be materially different from any future results, performance or achievements expressed or implied by our forward-looking statements. Such factors include, among other things, the risks and uncertainties identified by us under the heading “Risk Factors” in Item 1A of Part II of our Quarterly Report on Form 10-Q for the three months ended June 30, 2012 and Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2011. Furthermore, we operate in a continually changing business and regulatory environment and new risk factors emerge from time to time. We cannot predict what these

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new risk factors may be, nor can we assess the impact, if any, of such new risk factors on our business or results of operations or the extent to which any factor or combination of factors may cause our actual results to differ materially from those expressed or implied by any of our forward-looking statements.

Undue reliance should not be placed on our forward-looking statements. Except as required by law, we disclaim any obligation to update our risk factors or to publicly announce updates to the forward-looking statements contained in this Quarterly Report on Form 10-Q to reflect new information, future events or other developments.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

During the 2012 Nine Month Period, there were no material changes to the quantitative and qualitative disclosures about market risks that were presented in Item 7A of Part II of our Annual Report on Form 10-K for the year ended December 31, 2011.

Item 4. Controls and Procedures.

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Our President and Chief Executive Officer (principal executive officer) and our Executive Vice President and Chief Financial Officer (principal financial officer) evaluated our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our President and Chief Executive Officer and our Executive Vice President and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of such date.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

Health Management Associates, Inc. and its subsidiaries (collectively, “we,” “our” or “us”) operate in a highly regulated and litigious industry. As a result, we have been, and expect to continue to be, subject to various claims, lawsuits, government investigations and regulatory proceedings. The ultimate resolution of these matters, individually or in the aggregate, could have a materially adverse effect on our business, financial condition, results of operations and/or cash flows. We are currently a party to a number of legal and regulatory proceedings, including those described below.

Ascension Health Lawsuit. On February 14, 2006, Health Management Associates, Inc. (referred to as “Health Management” for the remainder of this Item 1) announced the termination of non-binding negotiations with Ascension Health (“Ascension”) and the withdrawal of a non-binding offer to acquire Ascension’s St. Joseph Hospital, a general acute care hospital in Augusta, Georgia. On June 8, 2007, certain Ascension subsidiaries filed a lawsuit against Health Management, entitledSt. Joseph Hospital, Augusta, Georgia, Inc. et al. v. Health Management Associates, Inc., in Georgia Superior/State Court of Richmond County claiming that Health Management (i) breached an agreement to purchase St. Joseph Hospital and (ii) violated a confidentiality agreement. The plaintiffs claim at least $40 million in damages. Health Management removed the case to the U.S. District Court for the Southern District of Georgia, Augusta Division (Case No. 1:07-CV-00104). On July 13, 2010, the plaintiffs filed a motion for partial summary judgment and Health Management filed a motion for summary judgment. On March 30, 2011, Health Management’s motion for summary judgment was granted as to all of plaintiffs’ claims, except for the breach of confidentiality claim, and plaintiffs’ motion for partial summary judgment was denied. On June 15, 2011, the case was stayed pending resolution of the appellate process. On July 8, 2011, the plaintiffs filed a notice of appeal to the United States Court of Appeals for the Eleventh Circuit (Case No. 11-13069). Oral argument was held on May 22, 2012; however, the appellate court has not yet ruled on the plaintiffs’ appeal.

We do not believe there was a binding acquisition contract with Ascension or any of its subsidiaries and we do not believe Health Management breached a confidentiality agreement. Accordingly, we intend to vigorously defend Health Management against the allegations in this matter. We do not believe that the final outcome of this matter will be material.

Medicare/Medicaid Billing Lawsuits. On January 11, 2010, Health Management and one of its subsidiaries were named in a qui tam lawsuit entitledUnited States of America ex rel. J. Michael Mastej v. Health Management Associates, Inc. et al. in the U.S. District Court for the Middle District of Florida, Tampa Division. The plaintiff’s complaint alleged that, among other things, the defendants erroneously submitted claims to Medicare and that those claims were falsely certified to be in compliance with Section 1877 of the Social Security Act of 1935 (commonly known as the “Stark law”) and the Anti-Kickback Statute. The plaintiff’s complaint further alleged that the defendants’ conduct violated the federal False Claims Act of 1863 (the “False Claims Act”). The plaintiff seeks recovery of all Medicare and Medicaid reimbursement that the defendants received as a result of the alleged false certifications and treble damages under the False Claims Act, as well as a civil penalty for each Medicare and Medicaid claim supported by such alleged false certifications. On August 18, 2010, the plaintiff filed a first amended complaint that was similar to the original complaint. On September 27, 2010, the defendants moved to dismiss the first amended complaint for failure to state a claim with the particularity required and failure to state a claim upon which relief can be granted. On February 23, 2011, the case was transferred to the U.S. District Court for the Middle District of Florida, Fort Myers Division (Case No. 2:11-cv-00089-JES-DNF). On May 5, 2011, the plaintiff filed a second amended complaint, which was similar to the first amended complaint. On May 17, 2011, the defendants moved to dismiss the second amended complaint on the same bases set forth in their earlier motion to dismiss. On January 26, 2012, the United States gave notice of its decision not to intervene in this lawsuit. On February 16, 2012, the court granted the defendants’ motion to dismiss, without prejudice. The court’s order permitted the plaintiff to file an amended complaint. On March 8, 2012, the plaintiff filed a third amended complaint, which is similar to the first amended complaint and the second amended complaint. On March 26, 2012, the defendants moved to dismiss the third amended complaint on the same bases set forth in earlier motions to dismiss. We intend to vigorously defend Health Management and its subsidiary against the allegations in this matter. We do not believe that the final outcome of this matter will be material.

On December 13, 2011, the U.S. District Court for the Middle District of Tennessee ordered that a qui tam lawsuit entitledUnited States ex rel. Kevin Dennis et al. v. Health Management Associates, Inc. et al.(Case No. 3:09-cv-00484) be partially unsealed and served on the defendants and that certain other contents of the court’s file remain under seal. The complaint was filed under seal on or about May 27, 2009 and alleges that, among other things, the defendants erroneously submitted claims to Medicare and other health care programs funded by the federal government and the State of Tennessee and that those claims were falsely certified to be in compliance with the Stark law, the Anti-Kickback Statute and the analogous laws of the State of Tennessee. The plaintiff’s complaint further alleges that the defendants’ conduct violated the False Claims Act and the Tennessee Medicaid False Claims Act. The plaintiff seeks recovery in the amount of triple the amount of the actual damages that the United States and the State of Tennessee have purportedly sustained as a result of the

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defendants’ alleged fraudulent and illegal recruitment and billing practices, a civil penalty for each alleged false claim that the defendants presented or caused to be presented to the United States or the State of Tennessee, and a civil penalty for each of the defendants’ acts that allegedly violated the Tennessee Medicaid False Claims Act, as well as unspecified compensatory and punitive damages. On December 7, 2011, the State of Tennessee notified the court of its decision not to intervene in the action and, on December 8, 2011, the United States notified the court that it was also declining to intervene. On June 29, 2012, the plaintiff filed an amended complaint that is similar to the original complaint. On July 30, 2012, the defendants moved to dismiss the plaintiff’s amended complaint for failure to state a claim with the particularity required and failure to state a claim upon which relief can be granted. We intend to vigorously defend Health Management and its subsidiary against the allegations in this matter. We do not believe that the final outcome of this matter will be material.

On March 14, 2012, the U.S. District Court for the Southern District of Florida ordered the unsealing and amendment of a qui tam lawsuit filed on February 8, 2010, captionedUnited States of America ex rel. Bruce L. Boros, M.D. and Joseph E. O’Lear, M.D. v. Health Management Associates, Inc. and Key West HMA, LLC (Case No. 20104:10-cv-10013-KMM). Also on March 14, 2012, following the plaintiffs’ voluntary dismissal of certain claims against Health Management and its subsidiary, the court unsealed the United States’ notice, filed on March 9, 2012, of its intention not to intervene with respect to the remaining claims at that time. On or about March 27, 2012, the plaintiffs filed a second amended complaint. In the second amended complaint, the plaintiffs allege that the defendants performed unnecessary and improper cardiac catheterization procedures at our Lower Keys Medical Center in Key West, Florida and presented false or fraudulent claims for reimbursement to Medicare and other health care programs funded by the federal government for such allegedly unnecessary and improper procedures. The plaintiffs seek recovery under the False Claims Act in the amount of triple the amount of the actual damages that the United States has allegedly sustained as a result of the defendants’ actions, plus civil penalties of not less than $5,000 and not more than $11,000 for each violation, and other relief. On July 23, 2012, the defendants moved to dismiss the plaintiffs’ second amended complaint for failure to state a claim with the particularity required and failure to state a claim upon which relief can be granted. On August 14, 2012, the plaintiffs filed a third amended complaint, which is similar to the second amended complaint. On August 31, 2012, the defendants moved to dismiss the third amended complaint on the same bases set forth in their earlier motion to dismiss. On October 24, 2012, the defendants’ motion to dismiss was granted. On November 1, 2012, the plaintiffs filed a motion for reconsideration of the order dismissing the third amended complaint. We intend to vigorously defend Health Management and its subsidiary against the allegations in this matter. We do not believe that the final outcome of this matter will be material.

Governmental Matters. Several Health Management hospitals received letters during the second half of 2009 requesting information in connection with a U.S. Department of Justice (“DOJ”) investigation relating to kyphoplasty procedures. Kyphoplasty is a minimally invasive spinal procedure used to treat vertebral compression fractures. The DOJ is currently investigating hospitals and hospital operators in multiple states to determine whether certain Medicare claims for kyphoplasty were incorrect when billed as an inpatient service rather than as an outpatient service. We believe that the DOJ’s investigation originated with a False Claims Act lawsuit against Kyphon, Inc., the company that developed the kyphoplasty procedure. The requested information has been provided to the DOJ and we are cooperating with the investigation. To date, the DOJ has not asserted any monetary or other claims against the Health Management hospitals in this matter. Based on the aggregate billings for inpatient kyphoplasty procedures during the period under review that were performed at the Health Management hospitals subject to the DOJ’s inquiry, we do not believe that the final outcome of this matter will be material.

During September 2010, Health Management received a letter from the DOJ indicating that an investigation was being conducted to determine whether certain Health Management hospitals improperly submitted claims for the implantation of implantable cardioverter defibrillators (“ICDs”). The DOJ’s investigation covers the period commencing with Medicare’s expansion of coverage for ICDs in 2003 to the present. The letter from the DOJ further indicates that the claims submitted by Health Management’s hospitals for ICDs and related services need to be reviewed to determine if Medicare coverage and payment was appropriate. During 2010, the DOJ sent similar letters and other requests to a large number of unrelated hospitals and hospital operators across the country as part of a nation-wide review of ICD billing under the Medicare program. We are cooperating with the DOJ in its ongoing investigation, which could potentially give rise to claims against Health Management and/or certain of its subsidiary hospitals under the False Claims Act or other statutes, regulations or laws. Additionally, we are conducting an internal review of hospital medical records related to ICDs that are the subject of the DOJ investigation. To date, the DOJ has not asserted any monetary or other claims against Health Management or its hospitals in this matter and, at this time, we are unable to determine the potential impact, if any, that will result from the final resolution of the investigation.

The U.S. Department of Health and Human Services, Office of Inspector General (“HHS-OIG”) and the DOJ, including the Civil Division and U.S. Attorney’s Offices in the Eastern District of Pennsylvania, the Middle District of Florida, the Eastern District of Oklahoma, the Middle District of Tennessee, the Western District of North Carolina, the District of South Carolina and the Middle District of Georgia, are currently investigating Health Management and certain of its subsidiaries (HHS-OIG and the DOJ are collectively referred to as “Government Representatives”). We believe that such investigations relate to the Anti-Kickback Statute, the Stark law and the False Claims Act and are focused on: (i) physician referrals, including financial arrangements with our whole-hospital physician joint ventures; (ii) the medical necessity of emergency room tests and

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patient admissions, including whether Pro-Med software has led to any medically unnecessary tests or admissions; and (iii) the medical necessity of certain surgical procedures. We further believe that the investigations may have originated as a result of qui tam lawsuits filed on behalf of the United States. In connection with the investigations, HHS-OIG has requested certain records through subpoenas, which apply system-wide, that were served on Health Management on May 16, 2011 and July 21, 2011. Additionally, Government Representatives have interviewed both our current and former employees. We are conducting internal investigations and have met with Government Representatives on numerous occasions to respond to their inquiries. We intend to cooperate with the Government Representatives during their investigations. At this time, we are unable to determine the potential impact, if any, that will result from the final resolution of these investigations.

On February 22, 2012 and February 24, 2012, HHS-OIG served subpoenas on certain Health Management hospitals relating to those hospitals’ relationships with Allegiance Health Management, Inc. (“Allegiance”). Allegiance, which is unrelated to Health Management, is a post acute health care management company that provides intensive outpatient psychiatric (“IOP”) services to patients. The Health Management hospitals that were served subpoenas were: (i) Central Mississippi Medical Center in Jackson, Mississippi; (ii) Crossgates River Oaks Hospital in Brandon, Mississippi; (iii) Davis Regional Medical Center in Statesville, North Carolina; (iv) Lake Norman Regional Medical Center in Mooresville, North Carolina; (v) the Medical Center of Southeastern Oklahoma in Durant, Oklahoma; and (vi) Natchez Community Hospital in Natchez, Mississippi. Each of those hospitals has or had a contract with Allegiance. Among other things, the subpoenas seek: (i) documents related to the hospitals’ financial relationships with Allegiance; (ii) documents related to patients who received IOP services from Allegiance at the Health Management hospitals, including their patient medical records; (iii) documents relating to complaints or concerns regarding Allegiance’s IOP services at the Health Management hospitals; (iv) documents relating to employees, physicians and therapists who were involved in the provision of IOP services provided by Allegiance at the Health Management hospitals; and (v) other documents related to Allegiance, including leases, contracts, policies and procedures, training documents, budgets and financial analyses. The period of time covered by the subpoenas is January 1, 2008 through the date of subpoena compliance. We believe that HHS-OIG has served similar subpoenas on other non-Health Management hospitals that had contracts with Allegiance. We intend to cooperate with the investigations. At this time, we are unable to determine the potential impact, if any, that will result from the final resolution of these investigations.

In addition to the abovementioned subpoenas and investigations, certain of our hospitals have received other requests for information from state and federal agencies. We are cooperating with all of the ongoing investigations by collecting and producing the requested materials. Because a large portion of our government investigations are in their early stages, we are unable to evaluate the outcome of such matters or determine the potential impact, if any, that could result from their final resolution.

Class Action Lawsuits. On or about January 25, 2012, Health Management and certain of its executive officers, one of whom is a director, were named as defendants in an action entitledMilen Sapssov v. Health Management Associates, Inc. et al., which was filed in the U.S. District Court for the Middle District of Florida. This action purported to have been brought on behalf of stockholders who purchased our common stock during the period from July 27, 2009 through January 9, 2012 and alleged that Health Management made false and misleading statements in certain public disclosures regarding its business and financial results. A substantially similar purported class action lawsuit, entitledNorfolk County Retirement System v. Health Management Associates, Inc. et al., was filed against the same defendants on or about February 2, 2012 in the U.S. District Court for the Middle District of Florida. On April 30, 2012, the two class action lawsuits were consolidated in the same court under the captionIn Re: Health Management Associates, Inc. et al.(Case No. 2:12-cv-00046-JES-DNF) and three pension fund plaintiffs were appointed as lead plaintiffs. On July 30, 2012, the plaintiffs filed an amended consolidated complaint purportedly on behalf of the same class of stockholders as alleged in the prior complaints and asserting claims for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. Among other things, the plaintiffs claim that Health Management inflated its earnings by engaging in fraudulent Medicare billing practices that entailed admitting patients to observation status when they should not have been admitted at all and to inpatient status when they should have been admitted to observation status. The plaintiffs seek unspecified monetary damages. On October 22, 2012, the defendants moved to dismiss the plaintiffs’ amended consolidated complaint for failure to state a claim or plead facts required by the Private Securities Litigation Reform Act. We intend to vigorously defend against the allegations in this lawsuit. Because this lawsuit is in its early stages, we are unable to predict the outcome or determine the potential impact, if any, that could result from its final resolution.

Wrongful Termination Lawsuit. On or about October 19, 2011, a wrongful termination action was commenced against us by Paul Meyer, our former Director of Compliance. That litigation, entitledMeyer v. Health Management Associates, Inc., was commenced in the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County, Florida (Case No. 11-25334(09)). The plaintiff seeks unspecified compensatory and punitive damages. Mr. Meyer was terminated after insubordinately refusing to cooperate with our efforts to comply with our obligations under a government subpoena by refusing to return documents belonging to us that were in his possession. Moreover, Mr. Meyer’s failure to cooperate with us in response to a subpoena was contrary to both the intent and purpose of our compliance department and our company-wide compliance program. We have filed a counterclaim against Mr. Meyer for breach of contract, conversion and breach of duty of loyalty. We intend to vigorously defend against the wrongful termination allegations made by Mr. Meyer and we do not believe that the final outcome of this matter will be material.

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Other. We are also a party to various other legal actions arising out of the normal course of our business. Due to the inherent uncertainties of litigation and dispute resolution, we are unable to estimate the ultimate losses, if any, relating to each of our outstanding legal actions and other loss contingencies.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

The table below summarizes the number of shares of our common stock that were withheld to satisfy the tax withholding obligations for our stock-based compensation awards that vested during the three months ended September 30, 2012.

Month Ended	Total Number of Shares Purchased		Average Price Per Share
July 31, 2012		7,290	$	7.85
August 31, 2012		—		—
September 30, 2012		5,334		8.14
Total		12,624

Item 6. Exhibits.

See Index to Exhibits on page 50 of this Quarterly Report on Form 10-Q.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	HEALTH MANAGEMENT ASSOCIATES, INC.
Date: November 2, 2012	By:	/s/ Gary S. Bryant
		Gary S. Bryant
		Vice President and Controller
		(Principal Accounting Officer)

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INDEX TO EXHIBITS

31.1	Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer.
31.2	Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer.
32.1	Section 1350 Certifications.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

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