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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
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 1-11239
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HCA - THE HEALTHCARE COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 75-2497104
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
ONE PARK PLAZA 37203
NASHVILLE, TENNESSEE (Zip Code)
(Address of principal executive offices)
(615) 344-9551
(Registrant's telephone number, including area code)
NOT APPLICABLE
(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, and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock of the latest practical date.
CLASS OF COMMON STOCK OUTSTANDING AT APRIL 30, 2001
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Voting common stock, $.01 par value 516,521,300 shares
Nonvoting common stock, $.01 par value 21,000,000 shares
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HCA -- THE HEALTHCARE COMPANY
FORM 10-Q
MARCH 31, 2001
PAGE OF
FORM 10-Q
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Condensed Consolidated Income Statements -- for the quarters
ended March 31, 2001 and 2000............................. 3
Condensed Consolidated Balance Sheets -- March 31, 2001 and
December 31, 2000......................................... 4
Condensed Consolidated Statements of Cash Flows -- for the
quarters ended March 31, 2001 and 2000.................... 5
Notes to Condensed Consolidated Financial Statements........ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 13
Item 3. Quantitative and Qualitative Disclosure of Market Risk...... 25
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 26
Item 6. Exhibits and Reports on Form 8-K............................ 39
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HCA -- THE HEALTHCARE COMPANY
CONDENSED CONSOLIDATED INCOME STATEMENTS
FOR THE QUARTERS ENDED MARCH 31, 2001 AND 2000
UNAUDITED
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
2001 2000
-------- --------
Revenues.................................................... $ 4,501 $ 4,271
Salaries and benefits....................................... 1,782 1,661
Supplies.................................................... 711 670
Other operating expenses.................................... 757 764
Provision for doubtful accounts............................. 325 302
Depreciation and amortization............................... 257 256
Interest expense............................................ 142 119
Equity in earnings of affiliates............................ (46) (32)
Gains on sales of facilities................................ (13) --
Restructuring of operations and investigation related
costs..................................................... 14 13
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3,929 3,753
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Income before minority interests and income taxes........... 572 518
Minority interests in earnings of consolidated entities..... 30 26
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Income before income taxes.................................. 542 492
Provision for income taxes.................................. 216 196
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Net income........................................ $ 326 $ 296
======== ========
Per share data:
Basic earnings............................................ $ 0.60 $ 0.53
Diluted earnings.......................................... $ 0.59 $ 0.52
Cash dividends............................................ $ 0.02 $ 0.02
Shares used in earnings per share calculations (in
thousands):
Basic..................................................... 541,381 563,239
Diluted................................................... 554,818 573,054
See accompanying notes.
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HCA -- THE HEALTHCARE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
UNAUDITED
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
MARCH 31, DECEMBER 31,
2001 2000
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ASSETS
Current assets:
Cash and cash equivalents................................. $ 188 $ 314
Accounts receivable, less allowance for doubtful accounts
of $1,629 and $1,583................................... 2,412 2,211
Inventories............................................... 397 396
Income taxes receivable................................... -- 197
Other..................................................... 1,428 1,335
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4,425 4,453
Property and equipment, at cost............................. 14,388 14,290
Accumulated depreciation.................................... (5,943) (5,810)
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8,445 8,480
Investments of insurance subsidiary......................... 1,301 1,371
Investments in and advances to affiliates................... 822 779
Intangible assets, net...................................... 2,117 2,155
Other....................................................... 433 330
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$17,543 $17,568
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 691 $ 693
Accrued salaries.......................................... 339 352
Government settlement accrual............................. 745 840
Other accrued expenses.................................... 1,084 1,135
Long-term debt due within one year........................ 230 1,121
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3,089 4,141
Long-term debt.............................................. 6,426 5,631
Professional liability risks, deferred taxes and other
liabilities............................................... 2,199 2,050
Minority interests in equity of consolidated entities....... 583 572
Forward purchase contracts and put options.................. 747 769
Stockholders' equity:
Common stock $.01 par; authorized 1,650,000,000 shares;
outstanding 537,221,700 shares in 2001 and 542,991,700
shares in 2000......................................... 5 5
Other..................................................... 8 9
Accumulated other comprehensive income.................... 8 52
Retained earnings......................................... 4,478 4,339
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4,499 4,405
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$17,543 $17,568
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See accompanying notes.
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HCA -- THE HEALTHCARE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE QUARTERS ENDED MARCH 31, 2001 AND 2000
UNAUDITED
(DOLLARS IN MILLIONS)
2001 2000
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Cash flows from operating activities:
Net income................................................ $ 326 $ 296
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for doubtful accounts........................ 325 302
Depreciation and amortization.......................... 257 256
Income taxes........................................... 356 163
Gains on sales of facilities........................... (13) --
Changes in operating assets and liabilities............ (694) (601)
Payment to Federal government.......................... (95) --
Other.................................................. (24) 13
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Net cash provided by operating activities............ 438 429
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Cash flows from investing activities:
Purchase of property and equipment..................... (273) (272)
Acquisition of hospitals and health care entities...... -- (18)
Investment in and advances to affiliates............... (24) --
Disposition of property and equipment.................. 67 38
Change in investments.................................. (17) (22)
Other.................................................. 5 (26)
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Net cash used in investing activities................ (242) (300)
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Cash flows from financing activities:
Issuance of long-term debt............................. 500 1,200
Net change in revolving bank credit.................... 80 (550)
Repayment of long-term debt............................ (666) (607)
Payment of cash dividends.............................. (11) (11)
Repurchases of common stock, net....................... (218) (242)
Other.................................................. (7) 24
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Net cash used in financing activities................ (322) (186)
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Change in cash and cash equivalents......................... (126) (57)
Cash and cash equivalents at beginning of period............ 314 190
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Cash and cash equivalents at end of period.................. $ 188 $ 133
===== ======
Interest payments........................................... $ 103 $ 80
Income tax payments (refunds), net.......................... $(140) $ 32
See accompanying notes.
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HCA -- THE HEALTHCARE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
NOTE 1 -- BASIS OF PRESENTATION
HCA -- The Healthcare Company is a holding company whose affiliates own and
operate hospitals and related health care entities. The term "affiliates"
includes direct and indirect subsidiaries of HCA -- The Healthcare Company and
partnerships and joint ventures in which such subsidiaries are partners. At
March 31, 2001, these affiliates owned and operated 185 hospitals, 74
freestanding surgery centers and provided extensive outpatient and ancillary
services. Affiliates of HCA -- The Healthcare Company are also partners in 50/50
joint ventures that own and operate nine hospitals and three freestanding
surgery centers which are accounted for using the equity method. The Company's
facilities are located in 24 states, England and Switzerland. The terms "HCA" or
the "Company" as used in this Quarterly Report on Form 10-Q refer to HCA -- The
Healthcare Company and its affiliates unless otherwise stated or indicated by
context.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. Operating results for the
quarter ended March 31, 2001, are not necessarily indicative of the results that
may be expected for the year ending December 31, 2001. For further information,
refer to the consolidated financial statements and footnotes thereto included in
the Company's Annual Report on Form 10-K for the year ended December 31, 2000.
Certain prior year amounts have been reclassified to conform to the current
year presentation.
NOTE 2 -- INVESTIGATIONS AND AGREEMENTS TO SETTLE CERTAIN GOVERNMENT CLAIMS
The Company continues to be the subject of governmental investigations and
litigation relating to its business practices. Additionally, the Company is a
defendant in several qui tam actions brought by private parties on behalf of the
United States of America, some of which have been unsealed and served on the
Company. The Company is aware of additional qui tam actions that remain under
seal. There could also be other sealed qui tam cases of which it is unaware.
On December 14, 2000, the Company announced that it had entered into a Plea
Agreement with the Criminal Division of the Department of Justice and various
U.S. Attorney's Offices (the "Plea Agreement") and a Civil and Administrative
Settlement Agreement with the Civil Division of the Department of Justice (the
"Civil Agreement"). The agreements resolve all Federal criminal issues
outstanding against the Company and, subject to court approval, certain issues
involving Federal civil claims by or on behalf of the government against the
Company relating to DRG coding, outpatient laboratory billing and home health
issues. The Company also entered into a Corporate Integrity Agreement ("CIA")
with the Office of Inspector General of the Department of Health and Human
Services.
Pursuant to the Plea Agreement, the Company and its affiliates received a
full release from criminal liability for conduct arising from or relating to
billing and reimbursement for services provided pursuant to Federal health care
benefit programs regarding: Medicare cost reports; violations of the
Anti-kickback Statute or the Physician Self-referral law, and any other conduct
involving relations with referral sources and those in a position to influence
referral sources; DRG billing; laboratory billing; the acquisition of home
health agencies; and the provision of services by home health agencies. In
addition, the government agreed not to prosecute the Company for other possible
criminal offenses which are or have been under investigation by the Department
of Justice arising from or relating to billing and reimbursement for services
provided pursuant to Federal health care benefit programs. The Plea Agreement
provided that the Company pay the government
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HCA -- THE HEALTHCARE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
UNAUDITED
NOTE 2 -- INVESTIGATIONS AND AGREEMENTS TO SETTLE CERTAIN GOVERNMENT CLAIMS
(CONTINUED)
$95 million, which payment was made during the first quarter of 2001, and that
two non-operating subsidiaries enter certain criminal pleas, which pleas were
entered in January 2001.
The Civil Agreement covers, in general, the following issues: DRG coding
for calendar years 1990-1997; outpatient laboratory billings for calendar years
1989-1997; home health community education for Medicare cost report years
1994-1997; home health billing for calendar years 1995-1998; and certain home
health management transactions for Medicare cost report years 1993-1998. The
Civil Agreement provides that in return for releases on these issues, the
Company will pay the government $745 million, with interest accruing from May
18, 2000 to the payment date at a rate of 6.5%. The civil payment will be made
upon receipt of court approval of the Civil Agreement. The civil issues that are
not covered by the Civil Agreement include claims related to cost reports and
physician relations issues.
Under the Civil Agreement, the Company's existing Letter of Credit
Agreement with the Department of Justice will be reduced from $1 billion to $250
million at the time of the settlement payment. Any future civil settlement or
court ordered payments related to cost report or physician relations issues will
reduce the remaining amount of the letter of credit dollar for dollar. The
amount of any such future settlement or court ordered payments is not related to
the remaining amount of the letter of credit.
The CIA is structured to assure the government of the Company's overall
Medicare compliance and specifically covers DRG coding, outpatient laboratory
billing, outpatient prospective payment system ("PPS") billing and physician
relations. The CIA resulted in a waiver of the government's discretionary right
to exclude any of the Company's operations from participation in the Medicare
program for matters settled in the Civil Agreement.
The Company remains the subject of a formal order of investigation by the
Securities and Exchange Commission (the "SEC"). The Company understands that the
investigation includes the anti-fraud, insider trading, periodic reporting and
internal accounting control provisions of the Federal securities laws.
The Company continues to cooperate in the governmental investigations.
Given the scope of the investigations and current litigation, the Company
anticipates continued investigative activity to occur in these and other
jurisdictions in the future.
While management remains unable to predict the outcome of any of the
investigations and litigation or the initiation of any additional investigations
or litigation, were the Company to be found in violation of Federal or state
laws relating to Medicare, Medicaid or similar programs or breach of the CIA,
the Company could be subject to substantial monetary fines, civil and criminal
penalties and/or exclusion from participation in the Medicare and Medicaid
programs. Any such sanctions or expenses could have a material adverse effect on
the Company's financial position, results of operations and liquidity. See Note
9 -- Contingencies and Part II, Item 1: Legal Proceedings.
NOTE 3 -- FACILITY SALE
During the first quarter of 2001, HCA recognized a pretax gain of $13
million ($4 million after-tax) on the sale of one consolidating hospital.
Proceeds from the sale were used to repay bank borrowings.
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HCA -- THE HEALTHCARE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
UNAUDITED
NOTE 4 -- RESTRUCTURING OF OPERATIONS AND INVESTIGATION RELATED COSTS
HCA recorded the following pretax charges in connection with the
restructuring of operations and investigations as discussed in Note
2 -- Investigations and Agreements to Settle Certain Government Claims (in
millions):
QUARTER
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2001 2000
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Professional fees related to investigations................. $10 $ 8
Other....................................................... 4 5
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$14 $13
=== ===
The professional fees related to investigations represent incremental legal
and accounting expenses that are being recognized on the basis of when the costs
are incurred. The liability balance for accrued severance and lease commitments
was approximately $7 million at March 31, 2001.
NOTE 5 -- INCOME TAXES
HCA is currently contesting before the United States Tax Court (the "Tax
Court") and the United States Court of Federal Claims certain claimed
deficiencies and adjustments proposed by the IRS in conjunction with its
examinations of the Company's 1994-1996 Federal income tax returns, Columbia
Healthcare Corporation's ("CHC") 1993 and 1994 Federal income tax returns,
HCA -- Hospital Corporation of America's ("Hospital Corporation of America")
1981 through 1988 and 1991 through 1993 Federal income tax returns and
Healthtrust, Inc. -- The Hospital Company's ("Healthtrust") 1990 through 1994
Federal income tax returns. The disputed items include the disallowance of
certain financing costs, system conversion costs and insurance premiums which
were deducted in calculating taxable income, and the allocation of costs to
fixed assets and goodwill in connection with hospitals acquired by the Company
in 1995 and 1996. The IRS is claiming an additional $207 million in income taxes
and interest through March 31, 2001.
During the first quarter of 2000, the Company and the IRS filed a
Stipulated Settlement with the Tax Court regarding the IRS' proposed
disallowance of certain acquisition-related costs, executive compensation and
systems conversion costs which were deducted in calculating taxable income and
the methods of accounting used by certain subsidiaries for calculating taxable
income related to vendor rebates and governmental receivables. The settlement
resulted in the Company's payment of tax and interest of $156 million and had no
impact on the Company's results of operations.
Tax Court decisions received in 1996 and 1997, related to the examination
of Hospital Corporation of America's 1981 through 1988 Federal income tax
returns, may be appealed by the IRS or the Company to the United States Court of
Appeals, Sixth Circuit. The Company expects any decisions regarding the appeal
of these rulings will be made during the second quarter of 2001. Because no
final decisions have been made regarding appeals of the decisions, the Company
is presently unable to estimate the amount of any additional income tax and
interest which the IRS may claim.
During the first quarter of 2000, the IRS began an examination of the
Company's 1997 and 1998 Federal income tax returns. The Company expects the IRS
to complete its examination during the third quarter of 2001. HCA is presently
unable to estimate the amount of any additional income tax and interest which
the IRS may claim upon completion of the examination.
Management believes that adequate provisions have been recorded to satisfy
final resolution of the disputed issues. Management believes that the Company,
CHC, Hospital Corporation of America and Healthtrust properly reported taxable
income and paid taxes in accordance with applicable laws and
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HCA -- THE HEALTHCARE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
UNAUDITED
NOTE 5 -- INCOME TAXES (CONTINUED)
agreements established with the IRS during previous examinations and that the
final resolution of these disputes will not have a material adverse effect on
the results of operations or financial position of HCA.
NOTE 6 -- EARNINGS PER SHARE
Basic earnings per share is computed on the basis of the weighted average
number of common shares outstanding. Diluted earnings per share is computed on
the basis of the weighted average number of common shares outstanding plus the
dilutive effect of outstanding stock options and warrants, using the treasury
stock method, and the assumed net share settlement of structured repurchases of
common stock.
The following table sets forth the computation of basic and diluted
earnings per share for the quarters ended March 31, 2001 and 2000 (dollars in
millions, except per share amounts and shares in thousands):
QUARTER
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2001 2000
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Net income.................................................. $ 326 $ 296
Weighted average common shares outstanding.................. 541,381 563,239
Effect of dilutive securities:
Stock options............................................. 11,989 5,338
Other..................................................... 1,448 4,477
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Shares used for diluted earnings per share.................. 554,818 573,054
======== ========
Earnings per share:
Basic earnings per share.................................. $ 0.60 $ 0.53
Diluted earnings per share................................ $ 0.59 $ 0.52
NOTE 7 -- LONG-TERM DEBT
In January 2001, HCA issued $500 million of 7.875% notes due February 1,
2011. Proceeds from the notes were used to retire the outstanding balance under
HCA's $1.2 billion term loan agreement (the "2000 Term Loan").
In April 2001, HCA entered into a new credit agreement with a group of
banks consisting of a $1.75 billion revolving credit loan (the "2001 Revolving
Loan") and a $750 million term loan (the "2001 Term Loan"), collectively, the
"2001 Bank Loans". The 2001 Bank Loans have a final maturity in April 2006. The
2001 Revolving Loan refinanced and replaced HCA's revolving credit facility
which was scheduled to mature in February 2002. The 2001 Term Loan proceeds were
used to reduce outstanding bank loans and resulted in the reclassification of
$900 million of debt from current liabilities to noncurrent liabilities.
Interest under the 2001 Bank Loans is payable generally at either LIBOR plus 1%
to 2% or the prime lending rate plus 0% to 1% (in each case depending on HCA's
credit ratings) or a competitive bid rate.
In April 2001, Moody's Investors Service upgraded HCA's senior debt rating
to Ba1 and maintained a positive outlook on the Company.
NOTE 8 -- STOCK REPURCHASE PROGRAM
In March 2000, HCA announced that its Board of Directors authorized the
repurchase of up to $1 billion of common stock. Through March 31, 2001, certain
financial organizations purchased 30.3 million shares of the Company's common
stock for $941 million utilizing forward purchase contracts. During 2000, HCA
settled forward purchase contracts associated with the March 2000 authorization
representing 11.7 million shares at a cost of $300 million. During the first
quarter of 2001, HCA settled forward purchase contracts representing 1.9 million
shares at a cost of $66 million. In accordance with the terms of the contracts,
16.7
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HCA -- THE HEALTHCARE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
UNAUDITED
NOTE 8 -- STOCK REPURCHASE PROGRAM (CONTINUED)
million shares at a cost of $575 million remain outstanding until settled by the
Company. A component of the stock repurchase program has been the sale of put
options, which entitle the holder to sell HCA's stock to HCA at a specified
price on a specified date. At December 31, 2000, 3.8 million put options, with
an average exercise price of $35.66 per share, were outstanding. During the
first quarter of 2001, 1.0 million put options, at an exercise price of $35.25
per share, were exercised and 2.8 million put options expired unexercised. There
were no put options outstanding at March 31, 2001. HCA expects to repurchase,
from time to time, the remaining stock associated with the March 2000 repurchase
authorization through open market purchases, privately negotiated transactions,
forward purchase contracts or by utilizing the sale of put options.
In November 1999, HCA announced that its Board of Directors authorized the
repurchase of up to $1 billion of its common stock. During 2000, HCA settled
forward purchase contracts associated with its November 1999 authorization
representing 18.7 million shares at a cost of $539 million. During the first
quarter of 2001, HCA settled forward purchase contracts associated with its
November 1999 authorization representing 5.6 million shares at a cost of $163
million. In accordance with the terms of the forward purchase contracts,
approximately 10.1 million shares at a cost of approximately $297 million remain
outstanding until the forward purchase contracts are settled by the Company.
The significant terms of the forward purchase contracts utilized in the
repurchase transactions include: (1) in consideration for the purchases, the
Company is obligated to pay the counterparties an amount equal to their average
cost to acquire the stock plus a rate of return that varies by contract (from
LIBOR plus 100 basis points to LIBOR plus 150 basis points), (2) the contracts
generally have a stated term of one year, but the Company may settle the
contracts at any time, subject to certain notification requirements and (3) the
Company may settle the contracts, at its discretion, by one of three methods:
(a) physical settlement -- where the Company would pay cash in exchange for the
shares, (b) net share settlement -- where the Company would issue shares to the
counterparties or the counterparties would return shares to the Company in
amounts that provide value equal to the differential between the market value of
the shares on the settlement date less transaction costs and the counterparties'
cost to acquire the shares plus the specified rate of return or (c) net cash
settlement -- where the Company would pay cash to the counterparties or the
counterparties would pay cash to the Company in amounts that would provide value
equal to the differential between the market value of the shares on the
settlement date less transaction costs and the cost to acquire the shares plus
the specified rate of return.
At the November 2000 meeting of the Emerging Issues Task Force ("EITF"),
the SEC provided guidance that in situations where public companies have
outstanding equity derivative contracts that are not compliant with the EITF
guidance in Issue 00-19, "Accounting for Derivative Financial Instruments
Indexed to, and Potentially Settled in, a Company's Own Stock" ("Issue 00-19"),
they are required to reclassify the maximum amount of the potential cash
obligation (the forward price in a forward stock purchase contract or the strike
price for a written put option) to temporary equity. Pursuant to this guidance,
HCA reclassified $747 million and $769 million to temporary equity at March 31,
2001 and December 31, 2000, respectively. These reclassifications were made,
though the transition provisions in Issue 00-19 do not require overall
compliance until June 30, 2001. The Company believes that any equity derivative
contracts that may remain unsettled at June 30, 2001 will be in compliance with
the requirements of Issue 00-19 and does not expect the adoption of Issue 00-19
to have a material impact on the Company's results of operations or financial
position.
In connection with the Company's share repurchase programs, the Company
entered into a Letter of Credit Agreement with the United States Department of
Justice. As part of the agreement, the Company provided the government with
letters of credit totaling $1 billion. The Civil Agreement with the government,
as discussed in Note 2 -- Investigations and Agreements to Settle Certain
Government Claims, provides that the letters of credit will be reduced from $1
billion to $250 million at the time of the civil settlement payment.
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HCA -- THE HEALTHCARE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
UNAUDITED
NOTE 9 -- CONTINGENCIES
Significant Legal Proceedings
Various lawsuits, claims and legal proceedings (see Note
2 -- Investigations and Agreements to Settle Certain Government Claims and Part
II, Item 1: Legal Proceedings, for descriptions of the ongoing government
investigations and other legal proceedings) have been and are expected to be
instituted or asserted against the Company, including those relating to
shareholder derivative and class action complaints; purported class action
lawsuits filed by patients and payers alleging, in general, improper and
fraudulent billing, coding, claims and overcharging, as well as other violations
of law; certain qui tam or "whistleblower" actions alleging, in general,
unlawful claims for reimbursement or unlawful payments to physicians for the
referral of patients and other violations of law. While the amounts claimed may
be substantial, the ultimate liability cannot be determined or reasonably
estimated at this time due to the considerable uncertainties that exist.
Therefore, it is possible that results of operations, financial position and
liquidity in a particular period could be materially, adversely affected upon
the resolution of certain of these contingencies.
General Liability Claims
The Company is subject to claims and suits arising in the ordinary course
of business, including claims for personal injuries or wrongful restriction of,
or interference with, physicians' staff privileges. In certain of these actions
the claimants may seek punitive damages against the Company, which may not be
covered by insurance. It is management's opinion that the ultimate resolution of
these pending claims and legal proceedings will not have a material adverse
effect on the Company's results of operations or financial position.
NOTE 10 -- COMPREHENSIVE INCOME
The components of comprehensive income, net of related taxes, for the
quarters ended March 31, 2001 and 2000 are as follows (in millions):
QUARTER
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2001 2000
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Net income.................................................. $326 $296
Unrealized gains (losses) on securities..................... (39) 8
Foreign currency translation adjustments.................... (5) --
---- ----
Comprehensive income........................................ $282 $304
==== ====
The components of accumulated other comprehensive income, net of related
taxes are as follows (in millions):
MARCH 31, DECEMBER 31,
2001 2000
--------- ------------
Net unrealized gains on securities.......................... $14 $53
Foreign currency translation adjustments.................... (6) (1)
--- ---
Accumulated other comprehensive income...................... $ 8 $52
=== ===
NOTE 11 -- SEGMENT AND GEOGRAPHIC INFORMATION
HCA operates in one line of business, which is operating hospitals and
related health care entities. During the quarters ended March 31, 2001 and 2000
approximately 29.9% and 30.2%, respectively, of the Company's revenues related
to patients participating in the Medicare program.
HCA's operations are structured into two geographically organized groups:
the Eastern Group includes 95 consolidating hospitals located in the Eastern
United States and the Western Group includes 78 consolidating hospitals located
in the Western United States. These two groups represent HCA's core
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HCA -- THE HEALTHCARE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
UNAUDITED
NOTE 11 -- SEGMENT AND GEOGRAPHIC INFORMATION (CONTINUED)
operations and are typically located in urban areas that are characterized by
highly integrated facility networks. An additional group, the National Group,
includes 4 consolidating hospitals which HCA intends to sell or close and the
residual operations of certain other hospitals which have been sold. HCA also
operates eight consolidating hospitals in England and Switzerland.
HCA's Chief Executive Officer reviews geographic distributions of HCA's
revenues, EBITDA, depreciation and amortization, and assets. EBITDA is defined
as income before depreciation and amortization, interest expense, gains on sales
of facilities, restructuring of operations and investigation related costs,
minority interests and income taxes. HCA uses EBITDA as an analytical indicator
for purposes of allocating resources to geographic areas and assessing their
performance. EBITDA is commonly used as an analytical indicator within the
health care industry, and also serves as a measure of leverage capacity and debt
service ability. EBITDA should not be considered as a measure of financial
performance under generally accepted accounting principles, and the items
excluded from EBITDA are significant components in understanding and assessing
financial performance. Because EBITDA is not a measurement determined in
accordance with generally accepted accounting principles and is thus susceptible
to varying calculations, EBITDA, as presented, may not be comparable to other
similarly titled measures of other companies. The geographic distributions,
restated for the transfers of certain facilities to the National Group, of HCA's
revenues, EBITDA and depreciation and amortization are summarized in the
following table (dollars in millions):
QUARTER ENDED
MARCH 31,
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2001 2000
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Revenues:
Eastern Group............................................. $2,249 $2,143
Western Group............................................. 2,055 1,883
Corporate and other(a).................................... 158 89
National Group............................................ 39 156
------ ------
$4,501 $4,271
====== ======
EBITDA:
Eastern Group............................................. $ 552 $ 538
Western Group............................................. 434 368
Corporate and other(a).................................... (4) (2)
National Group............................................ (10) 2
------ ------
$ 972 $ 906
====== ======
Depreciation and amortization:
Eastern Group............................................. $ 109 $ 114
Western Group............................................. 108 110
Corporate and other(a).................................... 37 23
National Group............................................ 3 9
------ ------
$ 257 $ 256
====== ======
- ---------------
(a) Includes the Company's eight consolidating hospitals located in England and
Switzerland.
NOTE 12 -- DERIVATIVES
Effective January 1, 2001, HCA adopted Statement of Financial Accounting
Standards No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities -- an amendment of FASB Statement 133" ("SFAS 138"). SFAS 138
and 133 require HCA to recognize all derivatives on the balance sheet at fair
value. The adoption of SFAS 138 had no impact on the Company's financial
statements.
12
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains disclosures which contain
"forward-looking statements." Forward-looking statements include all statements
that do not relate solely to historical or current facts, and may be identified
by the use of words like "may," "believe," "will," "expect," "project,"
"estimate," "anticipate," "plan," "initiative," "should," "intends" or
"continue." These forward-looking statements are based on the current plans and
expectations of the Company and are subject to a number of known and unknown
uncertainties and risks, many of which are beyond the Company's control, that
could significantly affect current plans and expectations and the Company's
future financial condition and results. These factors include, but are not
limited to, (i) the outcome of the known and unknown litigation and governmental
investigations and litigation involving the Company's business practices,
including the ability to negotiate, execute and timely consummate definitive
settlement agreements in the government's remaining civil cases and to obtain
court approval thereof, (ii) the highly competitive nature of the health care
business, (iii) the efforts of insurers, health care providers and others to
contain health care costs, (iv) possible changes in the Medicare and Medicaid
programs that may limit reimbursements to health care providers and insurers,
(v) changes in Federal, state or local regulation affecting the health care
industry, (vi) the possible enactment of Federal or state health care reform,
(vii) the ability to attract and retain qualified management and personnel,
including affiliated physicians, nurses and medical support personnel, (viii)
liabilities and other claims asserted against the Company, (ix) fluctuations in
the market value of the Company's common stock, (x) ability to complete the
share repurchase program and to settle related forward purchase contracts, (xi)
changes in accounting practices, (xii) changes in general economic conditions,
(xiii) future divestitures which may result in additional charges, (xiv) changes
in revenue mix and the ability to enter into and renew managed care provider
arrangements on acceptable terms, (xv) the availability and terms of capital to
fund the expansion of the Company's business, (xvi) changes in business strategy
or development plans, (xvii) slowness of reimbursement, (xviii) the ability to
implement the Company's shared services and other initiatives and realize a
decrease in costs, (xix) the outcome of pending and future tax audits and
litigation associated with the Company's tax positions, (xx) the outcome of the
Company's continuing efforts to monitor, maintain and comply with appropriate
laws, regulations, policies and procedures and the Company's corporate integrity
agreement with the government, (xxi) increased reviews of the Company's cost
reports, (xxii) the ability to maintain and increase patient volumes and control
the costs of providing services, and (xxiii) other risk factors. As a
consequence, current plans, anticipated actions and future financial condition
and results may differ from those expressed in any forward-looking statements
made by or on behalf of the Company. You are cautioned not to unduly rely on
such forward-looking statements when evaluating the information presented in
this report, including in "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
INVESTIGATIONS AND AGREEMENTS TO SETTLE CERTAIN GOVERNMENT CLAIMS
The Company continues to be the subject of governmental investigations and
litigation relating to its business practices. Additionally, the Company is a
defendant in several qui tam actions brought by private parties on behalf of the
United States of America, some of which have been unsealed and served on the
Company. The Company is aware of additional qui tam actions that remain under
seal. There could also be other sealed qui tam cases of which it is unaware.
On December 14, 2000, the Company announced that it had entered into a Plea
Agreement with the Criminal Division of the Department of Justice and various
U.S. Attorney's Offices (the "Plea Agreement") and a Civil and Administrative
Settlement Agreement with the Civil Division of the Department of Justice (the
"Civil Agreement"). The agreements resolve all Federal criminal issues
outstanding against the Company and, subject to court approval, certain issues
involving Federal civil claims by or on behalf of the government against the
Company relating to DRG coding, outpatient laboratory billing and home health
13
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
INVESTIGATIONS AND AGREEMENTS TO SETTLE CERTAIN GOVERNMENT CLAIMS (CONTINUED)
issues. The Company also entered into a Corporate Integrity Agreement ("CIA")
with the Office of Inspector General of the Department of Health and Human
Services.
Pursuant to the Plea Agreement, the Company and its affiliates received a
full release from criminal liability for conduct arising from or relating to
billing and reimbursement for services provided pursuant to Federal health care
benefit programs regarding: Medicare cost reports; violations of the
Anti-kickback Statute or the Physician Self-referral law, and any other conduct
involving relations with referral sources and those in a position to influence
referral sources; DRG billing; laboratory billing; the acquisition of home
health agencies; and the provision of services by home health agencies. In
addition, the government agreed not to prosecute the Company for other possible
criminal offenses which are or have been under investigation by the Department
of Justice arising from or relating to billing and reimbursement for services
provided pursuant to Federal health care benefit programs. The Plea Agreement
provided that the Company pay the government $95 million, which payment was made
during the first quarter of 2001, and that two non-operating subsidiaries enter
certain criminal pleas, which pleas were entered in January 2001.
The Civil Agreement covers, in general, the following issues: DRG coding
for calendar years 1990-1997; outpatient laboratory billings for calendar years
1989-1997; home health community education for Medicare cost report years
1994-1997; home health billing for calendar years 1995-1998; and certain home
health management transactions for Medicare cost report years 1993-1998. The
Civil Agreement provides that in return for releases on these issues, the
Company will pay the government $745 million, with interest accruing from May
18, 2000 to the payment date at a rate of 6.5%. The civil payment will be made
upon receipt of court approval of the Civil Agreement. The civil issues that are
not covered by the Civil Agreement include claims related to cost reports and
physician relations issues.
Under the Civil Agreement, the Company's existing Letter of Credit
Agreement with the Department of Justice will be reduced from $1 billion to $250
million at the time of the settlement payment. Any future civil settlement or
court ordered payments related to cost report or physician relations issues will
reduce the remaining amount of the letter of credit dollar for dollar. The
amount of any such future settlement or court ordered payments is not related to
the remaining amount of the letter of credit.
The CIA is structured to assure the government of the Company's overall
Medicare compliance and specifically covers DRG coding, outpatient laboratory
billing, outpatient PPS billing and physician relations. The CIA resulted in a
waiver of the government's discretionary right to exclude any of the Company's
operations from participation in the Medicare Program for matters settled in the
Civil Agreement.
The Company remains the subject of a formal order of investigation by the
Securities and Exchange Commission. The Company understands that the
investigation includes the anti-fraud, insider trading, periodic reporting and
internal accounting control provisions of the Federal securities laws.
The Company continues to cooperate in the governmental investigations.
Given the scope of the investigations and current litigation, the Company
anticipates continued investigative activity to occur in these and other
jurisdictions in the future.
While management is unable to predict the outcome of any of the
investigations and litigation or the initiation of any additional investigations
or litigation, were the Company to be found in violation of Federal or state
laws relating to Medicare, Medicaid or similar programs or breach of the CIA,
the Company could be subject to substantial monetary fines, civil and criminal
penalties and/or exclusion from participation in the Medicare and Medicaid
programs. Any such sanctions or expenses could have a material adverse effect on
the Company's financial position, results of operations and liquidity. See Note
2 -- Investigations and Agreements to Settle Certain Government Claims and Note
9 -- Contingencies in the Notes to Condensed Consolidated Financial Statements
and Part II, Item 1: Legal Proceedings.
14
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
BUSINESS STRATEGY
HCA's primary objective is to provide the communities it serves a
comprehensive array of quality health care services in the most cost-effective
manner and consistent with the Company's ethics and compliance program, the CIA
and governmental regulations. HCA also seeks to enhance financial performance by
increasing utilization and improving operating efficiencies of the Company's
facilities. To achieve these objectives, HCA pursues the following strategies:
- Emphasize a "patients first" philosophy and a commitment to ethics and
compliance: HCA is committed to a values-based corporate culture that
prioritizes the care and improvement of human life above all else. The
values highlighted by the Company's corporate culture -- compassion,
honesty, integrity, fairness, loyalty, respect and kindness -- are the
cornerstone of HCA. To reinforce the Company's dedication to these values
and to ensure integrity in all that HCA does, the Company has developed
and implemented a comprehensive ethics and compliance program that
articulates a high set of values and behavioral standards. HCA believes
that this program has reinforced the Company's dedication to excellent
patient care.
- Focus on strong assets in select, core communities: HCA focuses on
communities where the Company is, or can be, the number one or number two
health care provider. To achieve this goal, management initiated a
comprehensive restructuring process in 1997 that has transformed HCA into
a smaller, more focused company. This restructuring allows HCA to focus
its efforts on core communities, which are typically located in urban
areas characterized by highly integrated health care facility networks.
This restructuring included the divestiture of home health operations and
the Value Health, Inc. business units, the spin-offs of LifePoint
Hospitals, Inc. and Triad Hospitals, Inc. to HCA's stockholders, and the
sales of various other hospitals and surgery centers outside HCA's
strategic locations. HCA intends to continue to optimize core assets
through selected divestitures, acquisitions and capital expenditures.
- Develop comprehensive local health care networks with a broad range of
health care services: HCA seeks to operate each of the Company's
facilities as part of a network with other health care facilities that
HCA's affiliates own or operate within a common region. Being a
comprehensive provider of quality health care services in selected
communities should enable the Company to attract and serve patients and
physicians.
- Grow through increased patient volume, expansion of specialty and
outpatient services and selective acquisitions: HCA intends to identify
opportunities in areas where demand for comprehensive health services is
not adequately met. Expansion of specialty services should strengthen the
Company's health care delivery networks and attract new patients. To
support this expansion, HCA plans to actively recruit additional
specialists. Recognizing that within the health care industry, the shift
from inpatient to outpatient care is likely to continue, HCA intends to
enhance the Company's outpatient services by devoting additional capital
resources to outpatient facilities.
- Improve operating efficiencies through enhanced cost management and
resource utilization, and the implementation of shared services
initiatives: HCA has initiated several measures to improve the financial
performance of the Company's facilities. To address labor costs, HCA
implemented, in many communities, a flexible staffing model. To curtail
supply costs, HCA formed a group purchasing organization that allows the
Company to achieve better pricing in negotiating purchasing and supply
contracts. In addition, as HCA grows in select core markets, the Company
should continue to benefit from economies of scale, including supply
chain efficiencies and volume discount cost savings. The Company expects
to be able to reduce operating costs and to be better positioned to work
with health maintenance organizations, preferred provider organizations
and employers, by sharing certain services among several facilities in
the same market.
15
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
BUSINESS STRATEGY (CONTINUED)
- Recruit, develop and maintain relationships with physicians: HCA plans
to actively recruit physicians to enhance patient care and fulfill the
needs of the communities the Company serves. HCA believes that recruiting
and retaining quality physicians is essential to being a premier provider
of health care services.
- Streamline and decentralize management, consistent with our local
focus: HCA's strategy to streamline and decentralize the Company's
management structure affords management of the Company's facilities
greater flexibility to make decisions that are specific to the respective
local communities. This operating structure creates a more nimble,
responsive organization.
- Effectively allocate capital to maximize return on
investments: Management carefully evaluates investment opportunities and
invests in projects that add to the primary objective of providing
comprehensive, high-quality health care services in the most
cost-effective manner. HCA maintains and replaces equipment, renovates
and constructs replacement facilities and adds new services to increase
the attractiveness of the Company's hospitals and other facilities to
patients and physicians. In addition, HCA evaluates acquisitions that
complement the Company's strategies and assesses opportunities to enhance
stockholder value, including repayment of indebtedness and stock
repurchases.
RESULTS OF OPERATIONS
Revenue/Volume Trends
HCA's revenues are affected by pressure on payment rates by government,
managed care providers and others. Under the Balanced Budget Act of 1997
("BBA-97"), the Company's reimbursement from the Medicare and Medicaid programs
was reduced. Subsequent to BBA-97, two relief bills were passed by Congress. The
Medicare, Medicaid and SCHIP Balanced Budget Refinement Act of 1999 ("BBRA") was
passed in November 1999 and was primarily directed at reducing potential future
Medicare cuts that would have occurred as a result of BBA-97. The Medicare,
Medicaid and SCHIP Benefit Improvement and Protection Act of 2000 ("BIPA") was
enacted in December 2000. Under BIPA, HCA believes it may realize Medicare rate
increases over the next five years beginning in April 2001. BBA-97 contained a
requirement that the Health Care Financing Administration adopt a prospective
payment system ("PPS") for outpatient hospital services, which was implemented
during August 2000. The outpatient PPS has not had a measurable effect on the
Company's financial results. During the first quarter of 2001, the Company
experienced an increase in revenue per equivalent admission of 5% over the first
quarter of 2000 primarily the result of renegotiating and renewing certain
managed care contracts on more favorable terms. Payer pressure to utilize
outpatient and alternative health care delivery services also presents a
challenge to the Company and the health care industry in general. Admissions
related to Medicare, Medicaid and managed care plans and other discounted
arrangements for the quarters ended March 31, 2001 and 2000 are set forth below.
QUARTER
--------------
2001 2000
----- -----
Medicare.................................................... 39.0% 38.4%
Medicaid.................................................... 10.7 10.8
Managed care and other discounted........................... 40.3 41.6
Other....................................................... 10.0 9.2
----- -----
100.0% 100.0%
===== =====
16
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Revenue/Volume Trends (continued)
The approximate percentages of inpatient revenues of the Company's
facilities related to Medicare, Medicaid and managed care plans and other
discounted arrangements for the quarters ended March 31, 2001 and 2000 are set
forth below:
QUARTER
--------------
2001 2000
----- -----
Medicare.................................................... 40.7% 41.8%
Medicaid.................................................... 6.6 7.8
Managed care and other discounted........................... 38.3 35.1
Other....................................................... 14.4 15.3
----- -----
100.0% 100.0%
===== =====
Payment pressure on payment rates and pressure by payers for patients to
utilize outpatient or alternative delivery services presents an ongoing
challenge. The challenges presented by these trends are enhanced by HCA's
inability to control these trends and the associated risks. To maintain and
improve its operating margins in future periods, HCA must increase patient
volumes while controlling the cost of providing services.
Management believes that the proper response to these challenges includes
the delivery of a broad range of quality health care services to physicians and
patients, with operating decisions being made by the local management teams and
local physicians, and a focus on reducing operating costs through implementation
of its shared services initiative.
17
18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Operating Results Summary
The following are comparative summaries of results from operations for the
quarters ended March 31, 2001 and 2000 (dollars in millions, except per share
amounts):
QUARTER
------------------------------------------
2001 2000
------------------- -------------------
AMOUNT RATIO AMOUNT RATIO
-------- ----- -------- -----
Revenues.................................................... $4,501 100.0 $4,271 100.0
Salaries and benefits....................................... 1,782 39.6 1,661 38.9
Supplies.................................................... 711 15.8 670 15.7
Other operating expenses.................................... 757 16.8 764 17.8
Provision for doubtful accounts............................. 325 7.2 302 7.1
Depreciation and amortization............................... 257 5.7 256 6.0
Interest expense............................................ 142 3.2 119 2.8
Equity in earnings of affiliates............................ (46) (1.0) (32) (0.7)
Gains on sales of facilities................................ (13) (0.3) -- --
Restructuring of operations and investigation related
costs..................................................... 14 0.3 13 0.3
------ ----- ------ -----
3,929 87.3 3,753 87.9
------ ----- ------ -----
Income before minority interests and income taxes........... 572 12.7 518 12.1
Minority interests in earnings of consolidated entities..... 30 0.7 26 0.6
------ ----- ------ -----
Income before income taxes.................................. 542 12.0 492 11.5
Provision for income taxes.................................. 216 4.8 196 4.6
------ ----- ------ -----
Net income.................................................. $ 326 7.2 $ 296 6.9
====== ===== ====== =====
Basic earnings per share.................................... $ 0.60 $ 0.53
Diluted earnings per share.................................. $ 0.59 $ 0.52
% changes from prior year:
Revenues.................................................. 5.4% (8.2)%
Income before income taxes................................ 10.3 (13.7)
Net income................................................ 10.3 (8.0)
Basic earnings per share.................................. 13.2 6.0
Diluted earnings per share................................ 13.5 4.0
Admissions(a)............................................. 1.0 (14.5)
Equivalent admissions(b).................................. 0.3 (15.3)
Revenue per equivalent admission.......................... 5.0 8.3
Same facility % changes from prior year(c):
Revenues.................................................. 6.8 6.4
Admissions(a)............................................. 2.3 2.2
Equivalent admissions(b).................................. 1.8 2.5
Revenue per equivalent admission.......................... 4.9 3.8
- ---------------
(a) Represents the total number of patients admitted (in the facility for a
period in excess of 23 hours) to the Company's hospitals and is used by
management and certain investors as a general measure of inpatient volume.
(b) Equivalent admissions are used by management and certain investors as a
general measure of combined inpatient and outpatient volume. Equivalent
admissions are computed by multiplying admissions (inpatient volume) by the
sum of gross inpatient revenue and gross outpatient revenue and then
dividing the resulting amount by gross inpatient revenue. The equivalent
admissions computation "equates" outpatient revenue to the volume measure
(admissions) used to measure inpatient volume resulting in a general measure
of combined inpatient and outpatient volume.
(c) Same facility information excludes the operations of hospitals and their
related facilities which were either acquired or divested during the current
and prior period.
18
19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Quarters Ended March 31, 2001 and 2000
Income before income taxes increased 10.3% from income of $492 million in
2000 to $542 million in 2001 and pretax margins increased to 12.0% in 2001 from
11.5% in 2000. The increase in pretax income was primarily attributable to an
increase in revenue per equivalent admission and improvement in other operating
expenses as a percentage of revenue.
Revenues increased 5.4% to $4.5 billion in 2001 from $4.3 billion in 2000.
The increase was primarily the result of renegotiating and renewing certain
managed care contracts on more favorable terms. Admissions increased 1.0% from
2000 and equivalent admissions (adjusted to reflect combined inpatient and
outpatient volume) increased 0.3%. Revenue per equivalent admission increased
5.0% over 2000. On a same facility basis, revenues increased 6.8%, admissions
increased 2.3% and equivalent admissions increased 1.8% from 2000. Revenue per
equivalent admission on a same facility basis increased 4.9% over 2000.
Salaries and benefits, as a percentage of revenues increased to 39.6% in
2001 from 38.9% in 2000. Increasing wage rates, as evidenced by labor cost per
man-hour increasing approximately 7.0% over the first quarter of 2000, continue
to present a management and industry challenge. Salaries and benefits, as a
percentage of revenues, also increased due to manhours associated with HCA's
shared services initiatives.
Supply costs increased slightly as a percentage of revenues to 15.8% in the
first quarter of 2001 compared to 15.7% in the first quarter of 2000. The rate
of increase in the cost of pharmaceutical, orthopedic and cardiac supplies was
generally consistent with the increase in revenue per equivalent admission.
Other operating expenses (primarily consisting of contract services,
professional fees, repairs and maintenance, rents and leases, utilities,
insurance and non-income taxes) as a percentage of revenues, decreased to 16.8%
in 2001 from 17.8% in 2000 due to small decreases in several of these areas as a
percentage of revenues.
The provision for doubtful accounts, as a percentage of revenues, increased
to 7.2% in the first quarter of 2001 from 7.1% in 2000. The Company continues to
experience trends that make it difficult to maintain or reduce the provision for
doubtful accounts as a percentage of revenues. These trends include delays in
payments and the denial of claims by managed care payers and increases in the
volume of health care services provided to uninsured patients in the Company's
facilities.
Equity in earnings of affiliates increased as a percentage of revenues to
1.0% in the first quarter of 2001 from 0.7% in 2000 due primarily to improved
operations during 2001 in the Denver market joint venture.
Depreciation and amortization decreased as a percentage of revenues to 5.7%
in the first quarter of 2001 from 6.0% in the first quarter or 2000, primarily
to due to depreciation and amortization levels remaining relatively unchanged
while revenues increased.
Interest expense increased to $142 million in the first quarter of 2001
from $119 million in the first quarter of 2000. The Company recognized $12
million of interest expense during the first quarter of 2001 related to the
proposed settlement with the Federal government. The increase was also due to an
increase in the average debt balance outstanding during the first quarter of
2001 compared to the first quarter of 2000. The average debt balance outstanding
was $6.6 billion for the first quarter 2001 compared to $6.3 billion for the
first quarter of 2000.
During 2001 and 2000, respectively, the Company incurred $14 million and
$13 million of restructuring of operations and investigation related costs. In
2001, the restructuring of operations and investigation related costs included
$10 million of legal and accounting fees related to the governmental
investigations and $4 million of other costs. In 2000, the costs included $8
million of legal and accounting fees and $5 million of other costs.
19
20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Quarters Ended March 31, 2001 and 2000 (continued)
During the first quarter of 2001, HCA recognized a pretax gain of $13
million ($4 million after-tax) on the sale of one consolidating hospital.
Proceeds from the sale were used to repay bank borrowings.
Minority interests increased slightly as a percentage of revenues to 0.7%
during the first quarter of 2001 compared to 0.6% during the first quarter of
2000 due to improved operations at certain joint ventures.
Liquidity and Capital Resources
Cash provided by operating activities totaled $438 million in 2001 compared
to $429 million in 2000. The increase in cash provided by operating activities
during 2001 was primarily due to an increase in net income. HCA received an
income tax refund of $140 million during the first quarter of 2001, but this was
partially offset by the payment of $95 million to the government pursuant to the
Plea Agreement.
Working capital totaled $1.336 billion at March 31, 2001 and $312 million
at December 31, 2000. During 2001, HCA refinanced $900 million which was
included in current liabilities at December 31, 2000.
Cash used in investing activities was $242 million in 2001 compared to $300
million in 2000. Excluding acquisitions, capital expenditures were $273 million
in 2001 and $272 million in 2000. Planned capital expenditures in 2001 are
expected to approximate $1.3 billion. At March 31, 2001, there were projects
under construction, which had an estimated additional cost to complete and equip
over the next five years of approximately $1.9 billion. HCA expects to finance
capital expenditures with internally generated and borrowed funds. Available
sources of capital include amounts available under HCA's credit agreement
(approximately $664 million as of April 30, 2001) and anticipated access to
public and private debt markets. Management believes that its capital
expenditure program is adequate to expand, improve and equip its existing health
care facilities.
HCA has various agreements with joint venture partners whereby the partners
have an option to sell or "put" their interests in the joint venture back to
HCA, within specific periods at fixed prices or prices based on certain
formulas. The combined put price under all such agreements was approximately
$513 million at March 31, 2001. During 2000, two of HCA's joint venture partners
exercised their put options whereby HCA purchased the partners' interests in the
joint ventures for approximately $95 million. HCA cannot predict if, or when,
other joint venture partners will exercise such options.
During 1998, the Internal Revenue Service ("IRS") issued guidance regarding
certain tax consequences of joint ventures between for-profit and not-for-profit
hospitals. As a result of the tax ruling, the IRS has proposed and may in the
future propose to revoke the tax-exempt or public charity status of certain
not-for-profit entities, which participate in such joint ventures, or to treat
joint venture income as unrelated business taxable income. HCA is continuing to
review the impact of the tax ruling on its existing joint ventures, or the
development of future ventures, and is consulting with its joint venture
partners and tax advisers to develop appropriate courses of action. In January
2001, a not-for-profit entity which participates in a joint venture with HCA
filed a refund suit in Federal District Court seeking to recover taxes, interest
and penalties assessed by the IRS in connection with the IRS' proposed
revocation of the not-for-profit entity's tax-exempt status. In the event that
the not-for-profit entity's tax-exempt status is upheld, the IRS has proposed to
treat the not-for-profit entity's share of joint venture income as unrelated
business taxable income. HCA is not a party to this lawsuit. The tax ruling or
any adverse determination by the IRS or the courts regarding the tax-exempt or
public charity status of a not-for-profit partner or the characterization of
joint venture income as unrelated business taxable income could limit joint
venture development with not-for-profit hospitals, require the restructuring of
certain existing joint ventures with not-for-profits and influence the exercise
of the put agreements by certain existing joint venture partners.
20
21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Liquidity and Capital Resources (continued)
Investments of the Company's professional liability insurance subsidiary to
maintain statutory equity and pay claims totaled $1.6 billion at March 31, 2001
and $1.7 billion at December 31, 2000. HCA's wholly-owned insurance subsidiary
has entered into certain reinsurance contracts. The obligations covered by the
reinsurance contracts remain on the balance sheet as HCA remains liable to the
extent that the reinsurers do not meet their obligations under the reinsurance
contracts. The unamortized balance of the amounts receivable related to the
reinsurance contracts of $222 million at March 31, 2001 and $230 million at
December 31, 2000, are included in other assets.
HCA has entered into retroactive insurance contracts in regards to certain
workers' compensation and professional liability risks. As a result of the
reinsurance and retroactive contracts, deferred gains of $86 million at March
31, 2001 and $21 million at December 31, 2000 are included in other liabilities
and will be recognized over the estimated recovery period using the interest
method.
Cash flows used in financing activities totaled approximately $322 million
during 2001 and $186 million during 2000. The cash flows provided by continuing
operating activities and investing activities were primarily used to repurchase
common stock.
In March 2000, HCA announced that its Board of Directors authorized the
repurchase of up to $1 billion of the Company's common stock. Through March 31,
2001, certain financial organizations purchased approximately 30.3 million
shares of the Company's common stock for $941 million, utilizing forward
purchase contracts. During 2000, HCA settled forward purchase contracts
associated with the March 2000 authorization representing 11.7 million shares at
a cost of $300 million. During 2001, HCA settled forward purchase contracts
representing 1.9 million shares at a cost of $66 million. In accordance with the
terms of the contracts, approximately 16.7 million shares at a cost of $575
million remain outstanding until settled by the Company. A component of the
stock repurchase program has been the sale of put options, which entitle the
holder to sell HCA's stock to HCA at a specified price on a specified date. At
December 31, 2000, 3.8 million put options, with an average exercise price of
$35.66 per share, were outstanding. During the first quarter of 2001, 1.0
million put options, at an exercise price of $35.25 per share, were exercised
and 2.8 million put options expired unexercised. There were no put options
outstanding at March 31, 2001. HCA expects to repurchase the remaining stock
associated with the March 2000 repurchase authorization through open market
purchases, privately negotiated transactions, forward purchase contracts or by
utilizing the sale of put options.
In November 1999, HCA announced that its Board of Directors had authorized
the repurchase of up to $1 billion of its common stock. During 2000, HCA settled
forward purchase contracts associated with its November 1999 authorization
representing 18.7 million shares at a cost of $539 million. During the first
quarter of 2001, HCA settled forward purchase contracts associated with its
November 1999 authorization representing 5.6 million shares at a cost of $163
million. In accordance with the terms of the forward purchase contracts, the
shares purchased remain outstanding until the Company settles the forward
purchase contracts. Approximately 10.1 million shares at a cost of $297 million
remain outstanding until the forward purchase contracts are settled by HCA.
At the November 2000 meeting of the Emerging Issues Task Force ("EITF"),
the SEC provided guidance that in situations where public companies have
outstanding equity derivative contracts that are not compliant with the EITF
guidance in Issue 00-19, "Accounting for Derivative Financial Instruments
Indexed to, and Potentially Settled in, a Company's Own Stock" ("Issue 00-19"),
they are required to reclassify the maximum amount of the potential cash
obligation (the forward price in a forward stock purchase contract or the strike
price for a written put option) to temporary equity. Pursuant to this guidance,
HCA reclassified $747 million and $769 million to temporary equity at March 31,
2001 and December 31, 2000, respectively.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Liquidity and Capital Resources (continued)
In connection with the Company's share repurchase programs, the Company
entered into a Letter of Credit Agreement with the United States Department of
Justice. As part of the agreement, the Company provided the government with
letters of credit totaling $1 billion. The settlement reached with the
government in December 2000, as discussed in Note 2 -- Investigations and
Agreements to Settle Certain Government Claims in the Notes to Condensed
Consolidated Financial Statements, provides that the letters of credit will be
reduced from $1 billion to $250 million at the time of the civil settlement
payment. Any future civil settlement or court ordered payments related to cost
report or physician relations issues will reduce the remaining amount of the
letter of credit dollar for dollar. The amount of any such future settlement or
court ordered payments is not related to the remaining amount of the letter of
credit.
The resolution of the remaining government investigations and litigation,
and the various other lawsuits and legal proceedings that have been asserted
could result in substantial liabilities to the Company. The ultimate liabilities
cannot be reasonably estimated, as to the timing or amounts, at this time;
however, it is possible that the resolution of certain of the contingencies
could have a material adverse effect on the Company's results of operations,
financial position and liquidity.
In December 2000, HCA filed a "shelf" registration statement and prospectus
with the SEC relating to $1.5 billion in debt securities.
In January 2001, the Company issued $500 million of 7.875% notes due 2011.
Proceeds from the notes were used to retire the outstanding balance under the
2000 Term Loan.
In April 2001, HCA entered into a new credit agreement with a group of
banks consisting of a $1.75 billion revolving credit loan (the "2001 Revolving
Loan") and a $750 million term loan (the "2001 Term Loan"), collectively, the
"2001 Bank Loans". The 2001 Bank Loans have a final maturity in April 2006. The
2001 Revolving Loan refinanced and replaced HCA's revolving credit facility
which was scheduled to mature in February 2002. The 2001 Term Loan proceeds were
used to reduce outstanding bank loans and resulted in the reclassification of
$900 million of debt from current liabilities to noncurrent liabilities.
Interest under the 2001 Bank Loans is payable generally at either LIBOR plus 1%
to 2% or the prime lending rate plus 0% to 1% (in each case depending on HCA's
credit ratings) or a competitive bid rate.
The 2001 Bank Loans contain customary covenants which include (i)
limitations on additional debt, (ii) limitations on sales of assets, mergers and
changes of ownership, and (iii) maintenance of certain interest coverage ratios.
HCA is currently in compliance with all such covenants.
In April 2001, Moody's Investors Service upgraded HCA's senior debt rating
to Ba1 and maintained a positive outlook on the Company.
Management believes that cash flows from operations, amounts available
under the 2001 Bank Loans and the Company's anticipated access to public and
private debt markets are sufficient to meet expected liquidity needs during the
next twelve months.
Market Risk
The Company is exposed to market risk related to changes in interest rates
and market values of securities. HCA currently does not use derivative
instruments to offset the market risk exposure of the investments in debt or
equity securities of HCA's wholly-owned insurance subsidiary or to alter the
interest rate characteristics of the Company's debt instruments.
The investments of HCA's wholly-owned insurance subsidiary were $1.09
billion in debt securities and $514 million in equity securities at March 31,
2001. These investments are carried at fair value with changes
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
Market Risk (continued)
in unrealized gains and losses being recorded as adjustments to comprehensive
income. The fair value of investments is generally based on quoted market
prices. Changes in interest rates and market values of securities are not
expected to be material in relation to the financial position and operating
results of the Company.
With respect to the Company's interest-bearing liabilities, approximately
$1.28 billion of long-term debt at March 31, 2001 was subject to variable rates
of interest, while the remaining balance in long-term debt of $5.38 billion at
March 31, 2001 was subject to fixed rates of interest. The Company's variable
interest rate is affected by both the general level of U.S. interest rates and
the Company's credit rating. The Company's variable rate debt at March 31, 2001
was comprised of the Company's revolving credit facility of which interest was
payable generally at LIBOR plus 0.45% to 1.5% (depending on the Company's credit
ratings), and bank term loans of which interest was payable generally at LIBOR
plus 0.75% to 2.5%. Due to decreases in LIBOR, the average rate for the
Company's revolving credit facility decreased from 6.8% for the quarter ended
March 31, 2000 to 6.3% for the quarter ended March 31, 2001, and the average
rate for the Company's term loans decreased from 7.4% for the quarter ended
March 31, 2000 to 7.3% for the quarter ended March 31, 2001. The estimated fair
value of the Company's total long-term debt was $6.6 billion at March 31, 2001.
The estimates of fair value are based upon the quoted market prices for the same
or similar issues of long-term debt with the same maturities. In April 2001, HCA
entered into the 2001 Bank Loans which did not change significantly the
allocation of HCA's debt between variable and fixed rates of interest. Interest
under the 2001 Bank Loans is payable generally at either LIBOR plus 1% to 2% or
the prime lending rate plus 0% to 1% (in each case depending on HCA's credit
ratings) or a competitive bid rate. Based on a hypothetical 1% increase in
interest rates, the potential annualized losses in future pretax earnings would
be approximately $13 million. The impact of such a change in interest rates on
the carrying value of long-term debt would not be significant. The estimated
changes to interest expense and the fair value of long-term debt are determined
considering the impact of hypothetical interest rates on the Company's borrowing
cost and long-term debt balances. To mitigate the impact of fluctuations in
interest rates, the Company generally targets a portion of its debt portfolio at
a fixed rate, either by borrowing on a fixed or floating rate basis or entering
into interest rate swap transactions. The Company has not, during 2001 or 2000,
participated in any interest rate swap agreements.
Foreign operations and the related market risks associated with foreign
currency are currently insignificant to the Company's results of operations and
financial position.
PENDING IRS DISPUTES
The Company is contesting income taxes and related interest proposed by the
IRS for prior years aggregating approximately $207 million as of March 31, 2001.
Management believes that final resolution of these disputes will not have a
material adverse effect on the results of operations or liquidity of the
Company. See Note 5 -- Income Taxes in the Notes to Condensed Consolidated
Financial Statements for a description of the pending IRS disputes.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
OPERATING DATA
2001 2000
------- ---------
CONSOLIDATING
Number of hospitals in operation at:
March 31.................................................. 185 192
June 30................................................... 195
September 30.............................................. 189
December 31............................................... 187
Number of freestanding outpatient surgical centers in
operation at:
March 31.................................................. 74 80
June 30................................................... 80
September 30.............................................. 76
December 31............................................... 75
Licensed hospital beds at(a):
March 31.................................................. 40,895 42,006
June 30................................................... 42,240
September 30.............................................. 41,298
December 31............................................... 41,009
Weighted average licensed beds(b):
Quarter:
First................................................... 40,950 42,184
Second.................................................. 41,923
Third................................................... 41,409
Fourth.................................................. 41,128
Year...................................................... 41,659
Average daily census(c):
Quarter:
First................................................... 22,842 22,697
Second.................................................. 20,526
Third................................................... 20,028
Fourth.................................................. 20,572
Year...................................................... 20,952
Admissions(d):
Quarter:
First................................................... 412,000 408,100
Second.................................................. 380,600
Third................................................... 381,200
Fourth.................................................. 383,600
Year...................................................... 1,553,500
Equivalent admissions(e):
Quarter:
First................................................... 597,800 595,900
Second.................................................. 570,600
Third................................................... 568,500
Fourth.................................................. 565,800
Year...................................................... 2,300,800
Average length of stay (days)(f):
Quarter:
First................................................... 5.0 5.1
Second.................................................. 4.9
Third................................................... 4.8
Fourth.................................................. 4.9
Year...................................................... 4.9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- (CONTINUED)
OPERATING DATA (CONTINUED)
2001 2000
------- ---------
NON-CONSOLIDATING(G)
Number of hospitals in operation at:
March 31.................................................. 9 13
June 30................................................... 9
September 30.............................................. 9
December 31............................................... 9
Number of freestanding outpatient surgical centers in
operation at:
March 31.................................................. 3 3
June 30................................................... 3
September 30.............................................. 3
December 31............................................... 3
Licensed hospital beds at:
March 31.................................................. 2,698 3,251
June 30................................................... 2,697
September 30.............................................. 2,697
December 31............................................... 2,715
- ---------------
(a) Licensed beds are those beds for which a facility has been granted approval
to operate from the applicable state licensing agency.
(b) Weighted average licensed beds represents the average number of licensed
beds, weighted based on periods owned.
(c) Represents the average number of patients in the Company's hospital beds
each day.
(d) Represents the total number of patients admitted (in the facility for a
period in excess of 23 hours) to the Company's hospitals and is used by
management and certain investors as a general measure of inpatient volume.
(e) Equivalent admissions are used by management and certain investors as a
general measure of combined inpatient and outpatient volume. Equivalent
admissions are computed by multiplying admissions (inpatient volume) by the
sum of gross inpatient revenue and gross outpatient revenue and then
dividing the resulting amount by gross inpatient revenue. The equivalent
admissions computation "equates" outpatient revenue to the volume measure
(admissions) used to measure inpatient volume resulting in a general measure
of combined inpatient and outpatient volume.
(f) Represents the average number of days admitted patients stay in the
Company's hospitals.
(g) The non-consolidating facilities include facilities operated through 50/50
joint ventures which are not controlled by the Company and are accounted for
using the equity method of accounting.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK.
The information called for by this item is provided under the caption
"Market Risk" under Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
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PART II. OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS.
The Company is facing significant legal challenges. The Company is the
subject of various government investigations and litigation, qui tam actions,
shareholder derivative and class action suits filed in Federal court,
shareholder derivative actions filed in state court, patient/payer actions and
general liability claims.
GOVERNMENT INVESTIGATIONS AND LITIGATION
The Company continues to be the subject of governmental investigations and
litigation relating to its business practices. Additionally, the Company is a
defendant in several qui tam actions brought by private parties on behalf of the
United States of America, some of which have been unsealed and served on the
Company. The Company is aware of additional qui tam actions that remain under
seal. There could also be other sealed qui tam cases of which it is unaware.
On December 14, 2000, the Company announced that it had entered into a Plea
Agreement with the Criminal Division of the Department of Justice and various
U.S. Attorney's Offices (the "Plea Agreement") and a Civil and Administrative
Settlement Agreement with the Civil Division of the Department of Justice (the
"Civil Agreement"). The agreements resolve all Federal criminal issues
outstanding against the Company and, subject to court approval, certain issues
involving Federal civil claims by or on behalf of the government against the
Company relating to DRG coding, outpatient laboratory billing and home health
issues. The Company also entered into a Corporate Integrity Agreement ("CIA")
with the Office of Inspector General of the Department of Health and Human
Services.
Pursuant to the Plea Agreement, the Company and its affiliates received a
full release from criminal liability for conduct arising from or relating to
billing and reimbursement for services provided pursuant to Federal health care
benefit programs regarding: Medicare cost reports; violations of the
Anti-kickback Statute or the Physician Self-referral law, and any other conduct
involving relations with referral sources and those in a position to influence
referral sources; DRG billing; laboratory billing; the acquisition of home
health agencies; and the provision of services by home health agencies. In
addition, the government agreed not to prosecute the Company for other possible
criminal offenses which are or have been under investigation by the Department
of Justice arising from or relating to billing and reimbursement for services
provided pursuant to Federal health care benefit programs. The Plea Agreement
provided that the Company pay the government $95 million, which payment was made
during the first quarter of 2001, and that two non-operating subsidiaries enter
certain criminal pleas, which pleas were entered in January 2001.
The Civil Agreement covers, in general, the following issues: DRG coding
for calendar years 1990-1997; outpatient laboratory billings for calendar years
1989-1997; home health community education for Medicare cost report years
1994-1997; home health billing for calendar years 1995-1998; and certain home
health management transactions for Medicare cost report years 1993-1998. The
Civil Agreement provides that in return for releases on these issues, the
Company will pay the government $745 million, with interest accruing from May
18, 2000 to the payment date at a rate of 6.5%. The civil payment will be made
upon receipt of court approval of the Civil Agreement. The civil issues that are
not covered by the Civil Agreement include claims related to cost reports and
physician relations issues.
Under the Civil Agreement, the Company's existing Letter of Credit
Agreement with the Department of Justice will be reduced from $1 billion to $250
million at the time of the settlement payment. Any future civil settlement or
court ordered payments related to cost report or physician relations issues will
reduce the remaining amount of the letter of credit dollar for dollar. The
amount of any such future settlement or court ordered payments is not related to
the remaining amount of the letter of credit.
The CIA is structured to assure the government of the Company's overall
Medicare compliance and specifically covers DRG coding, outpatient laboratory
billing, outpatient PPS billing and physician relations. The CIA resulted in a
waiver of the government's discretionary right to exclude any of the Company's
operations from participation in the Medicare program for matters settled in the
Civil Agreement.
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The Company remains the subject of a formal order of investigation by the
Securities and Exchange Commission. The Company understands that the
investigation includes the anti-fraud, insider trading, periodic reporting and
internal accounting control provisions of the Federal securities laws.
The Company continues to cooperate in government investigations. Given the
scope of the investigations and current litigation, the Company anticipates
continued investigative activity to occur in these and other jurisdictions in
the future.
While management remains unable to predict the outcome of any of the
investigations and litigation or the initiation of any additional investigations
or litigation, were the Company to be found in violation of Federal or state
laws relating to Medicare, Medicaid or similar programs or breach of the CIA,
the Company could be subject to substantial monetary fines, civil and criminal
penalties and/or exclusion from participation in the Medicare and Medicaid
programs. Any such sanctions or expenses could have a material adverse effect on
the Company's financial position, results of operations and liquidity. See Note
2 -- Investigations and Agreements to Settle Certain Government Claims and Note
9 -- Contingencies in the Notes to Condensed Consolidated Financial Statements.
LAWSUITS
Qui Tam Actions
Several qui tam actions have been brought by private parties ("relators")
on behalf of the United States and have been unsealed and served on the Company.
To the best of the Company's knowledge the actions allege, in general, that the
Company and certain affiliates violated the False Claims Act, 31 U.S.C. 3729 et
seq., for improper claims submitted to the government for reimbursement. The
lawsuits generally seek damages of three times the amount of excessive Medicare
or Medicaid claims (involving false claims) presented by the defendants to the
Federal government, civil penalties of not less than $5,000 or more than $11,000
for each such Medicare or Medicaid claim, attorneys' fees and costs. In many
instances there are additional common law claims. There are qui tam cases that
have been unsealed but have not yet been served on the Company. The Company is
aware of additional qui tam actions that remain under seal, and there may be
other sealed qui tam cases of which it is unaware.
On February 12, 1999, the United States filed a motion before the Judicial
Panel on Multidistrict Litigation ("MDL") seeking to transfer and consolidate,
pursuant to 28 U.S.C. 1407, qui tam actions against the Company, including those
sealed and unsealed, for purposes of discovery and pretrial matters, to the
United States District Court for the District of Columbia. The MDL panel granted
the motion and all of the qui tam cases subject to the motion have been
consolidated to the U.S. District Court of the District of Columbia. There are
some qui tam actions that remain outside the consolidation.
On January 30, 2001, the District Court in the District of Columbia entered
an order establishing an initial schedule for the consolidated qui tam cases.
Among other things, the Court ordered that for those qui tam cases which will be
dismissed in full or in part pursuant to the Civil Agreement, the parties must
file motions to dismiss by February 14, 2001. The Court ordered that, by March
15, 2001, the government must make an intervention decision on the remaining
cases and file and serve a Complaint for those cases in which it intervenes. On
March 15, 2001, the government filed its notice of intervention or notice
declining intervention (where it had not already declined intervention) in each
qui tam action in the MDL proceeding. In each case where the government
intervened, it served the complaint on the Company. In those cases where the
government declined intervention, the respective relators were required to serve
the complaint by March 15, 2001 or within 15 days after the government's notice
declining intervention, whichever is later.
The unsealed qui tam Complaints included in the consolidated MDL proceeding
include the following:
In October 1998, the U.S. District Court for the Middle District of Florida
unsealed United States ex rel. Alderson v. Columbia/HCA et al, Case No.
97-2-35-CIV-T-23E. The case had been pending under seal since 1992, and is a qui
tam action alleging various violations of the Federal False Claims Act
concerning the Company's claims for reimbursement under various Federal programs
including Medicare, Medicaid and other federally funded programs. The complaint
focuses on the alleged creation of certain "cost report
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reserves" in connection with the preparation of hospital cost reports submitted
for the purpose of federal reimbursement. On October 1, 1998, the government
intervened in this case and on March 15, 2001, served an amended complaint on
the Company. The Company filed an answer and counterclaim in response to the
complaint. The counterclaim seeks payment which includes, but is not limited to,
the amounts owed to the Company, with interest, for all outstanding cost reports
not settled by the Government dating back to cost report years ended in 1994 and
thereafter. In addition, the relator has served a complaint to preserve the non-
intervened claims.
In December 1998, the U.S. District for the Middle District of Florida
unsealed United States, ex rel. Schilling v. Columbia/HCA, Civil Action No.
96-1264-CIV-T-23B. The case alleges violations of the False Claims Act, also
concerning cost reporting issues. On December 30, 1998, the government
intervened in this case and, on March 15, 2001, the government served an amended
complaint on the Company. Certain claims alleging home health issues have been
dismissed as being covered by the Civil Agreement. The Company filed an answer
and counterclaim in response to the complaint. The counterclaim seeks payment
which includes, but is not limited to, the amounts owed to the Company, with
interest, for all outstanding cost reports not settled by the Government dating
back to cost report years ended in 1994 and thereafter. In addition, the relator
has served a complaint to preserve the non-intervened claims.
On July 31, 1998, the U.S. District Court for the Western District of
Texas, unsealed United States ex rel. Sara Ortega v. Columbia/HCA Healthcare
Corp., et al. No. EP 95-CA-259H. The case had been pending under seal since
1995, and alleges various violations of the False Claims Act concerning
statements made to the Joint Commission on Accreditation of Healthcare
Organizations ("Joint Commission"). In 1997, the relator filed an amended
complaint alleging other issues, including DRG upcoding, physician referral
violations and certain cost reporting issues. In September 1998, the government
intervened in some of these allegations, but not the allegations relating to the
Joint Commission issues. The court has dismissed the DRG upcoding allegations as
being covered by the Civil Agreement. On March 15, 2001, the government moved to
dismiss relator's physician referral allegations and certain of the relator's
cost report allegations on jurisdictional grounds. The government also withdrew
its intervention on the one cost-shifting allegation, and relator has dismissed
that allegation. The government retained intervention in the surviving
cost-shifting allegations. The first amended complaint was served on the Company
on March 9, 2001. The Company has filed a Motion to Dismiss the complaint, which
is pending before the Court.
The matter of United States ex rel. James Thompson v. Columbia/HCA
Healthcare Corp., et al., Civ. Action No. C-95-110 was filed on March 10, 1995
in the United States District Court for the Southern District of Texas. The
relator alleges that the Company engaged in improper financial arrangements with
physicians to induce referrals. The defendants filed a motion to dismiss the
second amended complaint in November 1995 which was granted by the court in July
1996. In August 1996, the relator appealed to the United States Court of Appeals
for the Fifth Circuit, and in October 1997, the Fifth Circuit affirmed in part
and vacated and remanded in part the trial court's rulings. Defendants filed a
Second Amended Motion to Dismiss which was denied on August 18, 1998. On August
21, 1998, relator filed a Third Amended Complaint. Discovery in this matter is
currently stayed. Effective February 16, 2001, the government intervened in this
case and, on March 15, 2001, served its amended complaint on the Company. The
Company intends to file a response to the complaint on or before May 14, 2001.
The matter of United States ex rel. Scott Pogue v. Diabetes Treatment
Centers of America, Inc., et al., Civil Action No. 3-94-0515, was filed under
seal on June 23, 1994 in the United States District Court for the Middle
District of Tennessee. On February 6, 1995, the United States filed its Notice
of Non-Intervention and on that same date, the District Court ordered the
complaint unsealed. In general, the relator contends that sums paid to
physicians by the Diabetes Treatment Centers of America, who served as medical
directors at a hospital affiliated with the Company, were unlawful payments for
the referrals of their patients. The relator filed a motion for partial summary
judgment. The court ordered the relator's motion for partial summary judgment
stricken. The relator did not file an amended motion for summary judgment.
In June 1998, the case United States ex rel. Joseph "Mickey" Parslow v.
Columbia/HCA Healthcare Corporation and Curative Health Services, Incorporated,
No 98-1260-CIV-T-23F, in the Middle District of
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Florida, Tampa Division, was filed. The government intervened in this action on
March 31, 1999. This action alleges that the Company submitted false claims
relating to contracts with Curative for the management of certain wound care
centers. The complaint further alleges that management fees paid to Curative
included non-allowable costs which were reimbursed and that the claims for
reimbursement for these management fees violated the Anti-kickback Statute. On
March 15, 2001, the government withdrew its intervention as to certain claims
and served a complaint on the Company. The relator has moved to dismiss the
remaining non-intervened claims. The Company intends to file a response to the
complaint on or before May 14, 2001.
The case United States ex rel. Lanni v. Curative Health Services, et al.,
98 Civ. 2501 (S.D. N.Y.) was filed on April 8, 1998 in the United States
District Court for the Southern District of New York. The government has
intervened in the case, in part, in order to seek dismissal of any outpatient
laboratory claims covered by the Civil Agreement and has dismissed those
allegations. On March 15, 2001, the government intervened in certain claims
relating to the request for reimbursement for non-allowable costs and served its
complaint on the Company. The relator has moved to dismiss the remaining claims.
The Company intends to file a response to the complaint on or before May 14,
2001.
The matter of United States ex rel. McLendon v. Columbia/HCA, et al., Civ.
No. 1 97 CV 0890, was filed under seal on April 4, 1997 in the U.S. District
Court for the Northern District of Georgia, Atlanta Division. On July 19, 1999,
the court unsealed this action. The complaint alleges that the Company acted to
illegally obtain Medicare reimbursement for costs incurred in purchasing home
health agencies. The complaint also alleges that the Company illegally billed
Medicare for certain sales and marketing activities and for certain home care
visits. The government has intervened in this action and has served the
complaint. On February 16, 2001, the court dismissed this case as released under
the Civil Agreement.
In August 1999, the Company was made aware that the case of United States
ex rel. Tonya M. Atchison v. Col/HCA Healthcare, Inc., El Paso Healthcare
System, Ltd. Columbia West Radiology Group, P.A. West Texas Radiology Group, Rio
Grande Physicians' Services Inc., El Paso Nurses Unlimited inc., El Paso
Healthcare Systems Limited, and El Paso Healthcare Systems United Partnership,
No. EP 97-CA234, was unsealed in the U.S. District Court for the Western
District of Texas and the Company was served on or about September 16, 1999. In
general, the complaint alleges that the defendants submitted false claims
regarding the 72-hour rule, cost reports and central business office billings,
wrote off bad debt on international patients, inflated financial information on
the sale of a hospital, improperly billed pharmacy and radiology charges,
improperly billed skilled nursing facility charges, improperly accounted for
discounts and rebates, and improperly billed charges for certified first
assistants in surgery, home health visits, senior health centers, diabetic
treatment centers and wound care centers. Also in 1997, the relator filed a
case, United States ex rel. Atchison v. Columbia/HCA Healthcare, Inc., Civ.
Action No. 3-97-0571 (M.D. Tenn.) in the United States District Court for the
Middle District of Tennessee alleging the same violations. The court has
dismissed claims relating to the home health issues as being covered by the
Civil Agreement. On March 15, 2001, the government declined to intervene on both
complaints. Relator has served both complaints on the Company, and the Company
intends to respond.
In December 1997, United States ex rel. Michael R. Marine v. Columbia
Aventura Medical Center, et al., Case No. 97-4368 (S.D. Fla.) was filed in the
United States District Court for the Southern District of Florida. In general,
the case alleges that the Company engaged in improper cost shifting between
facilities to improperly maximize reimbursement and then filing false claims on
its cost reports. The government intervened on February 11, 2000. On March 15,
2001, the government withdrew its intervention on certain claims and served the
complaint on the Company. The Company intends to respond to the complaint on or
before May 14, 2001. Relator has served a complaint to preserve its
non-intervened counts, and the Company intends to respond.
In 1997, United States ex rel. Adams v. Columbia/HCA Healthcare Corp., Civ.
Action No. SA-97-CA-1230 (W.D. Tex.) was filed in the United States District
Court for the Western District of Texas. In general, the complaint alleges that
the Company engaged in improper financial arrangements with physicians to induce
referrals, in violation of the Anti-kickback Statute. On March 15, 2001, the
government declined to intervene in this case. Relator has served the complaint
on the Company, and the Company intends to respond.
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In August 1997, United States ex rel. Baker, Trent & Ekery v. Columbia/HCA
Healthcare Corp., et al., Civ. Action No. SA-97-CA-0955 (W.D. Tex.) was filed in
the United States District Court for the Western District of Texas. In general,
the case alleges that the Company engaged in improper financial arrangements
with physicians to induce referrals in violation of the Anti-kickback Statute as
well as engaging in improper cost shifting, allegedly creating the filing of
false cost report claims. On March 15, 2001, the government declined to
intervene in this case. Relator did not serve a complaint on the Company.
In 1996, United States ex rel. King v. Columbia/HCA Healthcare Corp., et
al., Civ. Action No. EP-96-CA-342 (W.D. Tex.) was filed in the United States
District Court for the Western District of Texas. In general, the case alleges
that the Company engaged in improper financial relationships with physicians to
induce referrals in violation of the Anti-kickback Statute as well as other
alleged improper cost reporting practices in violation of the False Claims Act,
including improper billing, laboratory fraud, falsification of records,
upcoding, and lack of certification to perform specific services. On March 15,
2001, the government intervened in part and declined to intervene as to the
billing fraud allegations. The government served the complaint on the Company.
The Company intends to respond to the complaint on or before May 14, 2001.
Relator has withdrawn the non-intervened counts.
On September 2, 1997, United States ex rel. Ann Mroz v. Columbia/HCA
Healthcare Corp., Civ. Action No. 97-2828 (S.D. Fla.) was filed in the United
States District Court for the Southern District of Florida. This case alleges
that the Company engaged in improper arrangements with physicians to induce
referrals in violation of the Anti-kickback Statute. On March 15, 2001, the
government intervened in this case and served the complaint on the Company. The
Company intends to respond to this complaint on or before May 14, 2001.
In 1998, United States ex rel Barrett and Goodwin v. Columbia/HCA
Healthcare Corp., et al., Civ. Action No. H-98-0861 (S.D. Tex.) was filed in the
United States District Court for the Southern District of Texas. In general, the
complaint alleges that the Company engaged in improper financial arrangements
with physicians to induce referrals in violation of the Anti-kickback Statute as
well as improper upcoding of DRG codes. On March 15, 2001, the government
declined to intervene in this case. Relator served the complaint and the Company
filed a Motion to Dismiss, which is currently pending before the Court.
In 1996, United States ex rel Rappaport v. Hospital Corp. of America, et
al., Civ. Action No. CV 96-N-1491-S (A)(N.D. Ala.) was filed in the United
States District Court for the Northern District of Alabama. In general, the
complaint alleges the Company engaged in improper financial arrangements with
physicians to induce referrals in violation of the Anti-kickback Statute as well
as upcoding, improper lab billing, cost-shifting and other improper cost
reporting practices in violation of the False Claims Act. On February 16, 2001
the court dismissed the DRG upcoding claims. On March 9, 2000, the government
declined to intervene in this case. Relator did not serve a complaint on the
Company.
In 1999, United States ex rel. Hampton v. Columbia/HCA Healthcare Corp., et
al., Civ. Action No. 5:99-CV-59-2 (M.D. Ga.) was filed in the United States
District Court for the Middle District of Georgia. In general, the case alleges
improper billing and improper practices with regard to home health agencies. The
government has intervened in this case for the purpose of dismissing the
relator's home health claims as being covered by the Civil Agreement. On March
15, 2001, the government moved to dismiss the claims. The government also
declined to intervene in the kickback allegations. The relator served the
complaint on the Company on March 15, 2001.
In 1998, United States ex rel. Buck v. St. Petersburg General Hospital, et
al., Civ. Action No. 98-1631-CIV-T26B (M.D. Fla.) was filed in United States
District Court for the Middle District of Florida. In general, the complaint
alleges that the Company improperly billed Medicare for private rooms for
patients when they were actually put in semi-private rooms. On December 27,
1999, the government declined to intervene in this case. Relator did not serve a
complaint on the Company.
In 1997, United States ex rel. Hockett, Thompson & Staley v. Columbia/HCA
Healthcare Corp., et al., Civ. Action No. 97-MC-29-A (W.D. Va.) was filed in the
United States District Court for the Western District of Virginia. In general,
the case alleges that the Company filed false claims in connection with the
filing of its cost reports by improper inflation of cost basis relating to the
gero-psych ward. On March 15, 2001,
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the government declined to intervene in this case. The relator served the
complaint on the Company, and the Company intends to respond.
In 1997, United States ex rel. Christian, Long & Kuhn v. Columbia Homecare
Group, Inc., et al., Civ. Action No. CA-H-97-3083 (S.D. Tex.) was filed in the
United States District Court for the Southern District of Texas. In general, the
complaint alleges improper billing with respect to home health agencies and
other false claims in connection with the filing of cost reports. On February
16, 2001, the court dismissed the case.
In 1998, United States ex rel. Scussel v. Patton Medical. Inc. et al, Civ.
Action No. 4:98-CV-145 (M.D. Ga.) was filed in the United States District Court
for the Middle District of Georgia. In general, the complaint alleges that the
Company entered into an improper referral arrangement with a durable medical
equipment supplier. On February 2, 2001, the government declined to intervene in
this case. On March 8, 2001, the Company was served with a complaint by the
relator.
In 1999, United States ex rel. McCready v. Columbia North Monroe Hospital,
Civil Action No. 99-1099M was filed in the United States District Court for the
Western District of Louisiana. In general, the case alleges that a Company
hospital failed to timely transfer patients to the rehabilitation unit, a
practice which allegedly resulted in improper cost allocation to the hospital's
acute care services and thus improperly increased reimbursement. On February 13,
2001, the government declined to intervene in this case. The relator served the
complaint on the Company, and the Company intends to respond.
In 1996, United States ex rel. Health Outcomes v. Columbia Medical Center
East, et al., Civ. Action No. 96-1552 (E.D. Pa.) was filed in the United States
District Court for the Eastern District of Pennsylvania. In general, the
complaint alleges improper upcoding of DRG codes. The government has intervened
for the purpose of dismissing the claims covered by the Civil Agreement. On
February 16, 2001, the court dismissed this case.
In 1999, United States ex rel. Cianci v. Columbia/HCA Healthcare Corp., et
al., was filed in United States District Court for the Middle District of
Florida. The complaint alleges improper upcoding of DRG codes. On February 13,
2001, the government intervened in this case for the purpose of dismissing the
claims in the complaint. The relator has objected to the dismissal.
In 1995, United States ex rel. Wyman & Rothfeder v. Healthtrust, Inc. et
al., Civ. Action No. 2:95CV-0079-K (D. Utah) was filed in the United States
District Court for the District of Utah. In general, the case alleges improper
billing of laboratory tests. On February 16, 2001, the court dismissed this
action in its entirety as being covered by the Civil Agreement.
In August 1997, United States ex rel. Boston v. Columbia/HCA Healthcare
Corp., No. 3-97-CV1943-R (N.D. Tex.), was filed in the United States District
Court for the Northern District of Texas. In general, the Complaint alleges
improper billing relating to home health agencies. The government has intervened
in this action for the purpose of dismissing the claims covered by the Civil
Agreement, and on February 16, 2001, the court dismissed the case.
Shareholder Derivative and Class Action Complaints Filed in the U.S. District
Courts
During the April 1997 to October 1997 period, numerous securities class
action and derivative lawsuits were filed in the United States District Court
for the Middle District of Tennessee against the Company and a number of its
current and former directors, officers and/or employees.
On October 10, 1997, the court entered an order consolidating the
above-mentioned securities class action claims into a single-captioned case,
Morse, Sidney, et al. v. R. Clayton McWhorter, et al., Case No. 3-97-0370. All
of the other individual securities class action lawsuits were administratively
closed by the court. The consolidated Morse lawsuit is a purported class action
seeking the certification of a class of persons or entities who acquired the
Company's common stock from April 9, 1994 to September 9, 1997. The consolidated
lawsuit was brought against the Company, Richard Scott, David Vandewater, Thomas
Frist, Jr., R. Clayton McWhorter, Carl E. Reichardt, Magdalena Averhoff, M.D.,
T. Michael Long and Donald S. MacNaughton. The lawsuit alleges, among other
things, that the defendants committed violations of the
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32
Federal securities laws by materially inflating the Company's revenues and
earnings through a number of practices, including upcoding, maintaining reserve
cost reports, disseminating false and misleading statements, cost shifting,
illegal reimbursements, improper billing, unbundling and violating various
Medicare laws. The lawsuit seeks damages, costs and expenses.
On October 10, 1997, the court entered an order consolidating the
above-mentioned derivative law claims into a single-captioned case, McCall, H.
Carl, as Comptroller of the State of New York and as Trustee of the New York
State Common Retirement Fund, derivatively on behalf of Columbia/HCA Healthcare
Corporation v. Richard L. Scott, et al., No. 3-97-0838. All of the other
derivative lawsuits were administratively closed by the court. The consolidated
McCall lawsuit was brought against the Company, Thomas Frist, Jr., Richard L.
Scott, David T. Vandewater, R. Clayton McWhorter, Magdalena Averhoff, M.D.,
Frank S. Royal, M.D., T. Michael Long, William T. Young and Donald S.
MacNaughton. The lawsuit alleges, among other things, derivative claims against
the individual defendants that they intentionally or negligently breached their
fiduciary duties to the Company by authorizing, permitting or failing to prevent
the Company from engaging in various schemes involving improperly increasing
revenue, upcoding, improper cost reporting, improper referrals, improper
acquisition practices and overbilling. In addition, the lawsuit asserts a
derivative claim against some of the individual defendants for breaching their
fiduciary duties by allegedly engaging in improper insider trading. The lawsuit
seeks restitution, damages, recoupment of fines or penalties paid by the
Company, restitution and pre-judgment interest against the alleged insider
trading defendants, and costs and expenses. In addition, the lawsuit seeks
orders: (i) prohibiting the Company from paying individual defendants employment
benefits; (ii) terminating all improper business relationships with individual
defendants; and (iii) requiring the Company to implement effective corporate
governance and internal control mechanisms designed to monitor compliance with
Federal and state laws and ensure reports to the Board of material violations.
The defendants filed motions to dismiss in both the Morse and McCall
lawsuits. In September 1999, the District Court entered an order granting the
defendants' motion to dismiss McCall with prejudice. The plaintiffs in the
McCall lawsuit filed an appeal from that order. On February 13, 2001, the United
States Court of Appeals for the Sixth Circuit entered an order reversing, in
part, the district court's dismissal order and remanding the case to the trial
court. On April 23, 2001, the Sixth Circuit denied defendants' motion for
rehearing, or certification to the Delaware Supreme Court.
On July 28, 2000, the District Court entered an order granting the
defendants' motions to dismiss in Morse. The District Court's order dismissed
Morse with prejudice. On or about August 10, 2000, plaintiffs filed a motion to
alter or amend judgment and for leave to file an amended complaint and requested
oral argument on their motion. The plaintiffs' motion to alter or amend was
denied in October 2000. On October 18, 2000, plaintiffs filed their Notice of
Appeal. That appeal is currently pending before the Sixth Circuit.
Shareholder Derivative Actions Filed in State Courts
Several derivative actions have been filed in state courts by certain
purported stockholders of the Company against certain of the Company's current
and former officers and directors alleging breach of fiduciary duty, and failure
to take reasonable steps to ensure that the Company did not engage in illegal
practices thereby exposing the Company to significant damages.
Two purported derivative actions entitled Barron, Evelyn, et al. v.
Magdelena Averhoff, et al., (Civil Action No. 15822NC), filed on July 22, 1997,
and Kovalchick, John E. v. Magdelena Averhoff, et al., (Civil Action No.
15829NC), filed on July 29, 1997, have been filed in the Court of Chancery of
the State of Delaware in and for New Castle County. In addition, a purported
derivative action entitled Williams v. Averhoff, (Civil Action No. 15055-NC) was
filed on August 5, 1997, in the Court of Chancery of the State of Delaware in
and for New Castle County, but has not been served on any defendants. The
actions were brought on behalf of the Company by certain purported shareholders
of the Company against certain of the Company's current and former officers and
directors. The suits seek damages, attorneys' fees and costs. In the Barron
lawsuit, plaintiffs also seek an Order (i) requiring individual defendants to
return to the Company all salaries
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or remunerations paid them by the Company, together with proceeds of the sale of
the Company's stock made in breach of their fiduciary duties; (ii) prohibiting
the Company from paying any individual defendant any benefits pursuant to the
terms of employment, consulting or partnership agreements; and (iii) terminating
all improper business relationships between the Company and any individual
defendant. In the Kovalchick and Williams lawsuits, plaintiffs also seek an
Order (i) requiring individual defendants to return to the Company all salaries
or remunerations paid to them by the Company and all proceeds from the sale of
the Company's stock made in breach of their fiduciary duties; (ii) requiring
that an impartial Compliance Committee be appointed to meet regularly; and (iii)
requiring that the Company be prohibited from paying any director/defendant any
benefits pursuant to terms of employment, consulting or partnership agreements.
The parties have stipulated to a temporary stay of the Kovalchick and Williams
lawsuits. Plaintiffs in both Barron and Kovalchick have granted the defendants
an indefinite extension of time to respond to the Complaints. On August 14,
1997, a similar purported derivative action entitled State Board of
Administration of Florida, the public pension fund of the State of Florida in
behalf of itself and in behalf of all other stockholders of Columbia/HCA
Healthcare Corporation derivatively in behalf of Columbia/HCA Healthcare
Corporation vs. Magdalena Averhoff, et al., (No. 97-2729), was filed in the
Circuit Court in Davidson County, Tennessee on behalf of the Company by certain
purported shareholders of the Company against certain of the Company's current
and former directors and officers. These lawsuits seek damages and costs as well
as orders (i) enjoining the Company from paying benefits to individual
defendants; (ii) requiring termination of all improper business relationships
with individual defendants; (iii) requiring the Company to provide for
independent public directors; and (iv) requiring the Company to put in place
proper mechanisms of corporate governance. The court has entered an order
temporarily staying the lawsuit.
The matter of Louisiana State Employees Retirement System, a public pension
fund of the State of Louisiana, in behalf of itself and in behalf of all other
stockholders of Columbia/HCA Healthcare Corporation derivatively in behalf of
Columbia/HCA Healthcare Corporation v. Magdalena Averhoff, et al., another
derivative action, was filed on March 19, 1998 in the Circuit Court of the
Eleventh Judicial Circuit, Dade County, Florida, General Jurisdiction Division
(Case No. 98-6050 CA04), and the defendants removed it to the United States
District Court, Southern District of Florida (Case No. 98-814-CIV). The suit
alleges, among other things, breach of fiduciary duties resulting in damage to
the Company. The lawsuit seeks damages from the individual defendants to be paid
to the Company and attorneys' fees, costs and expenses. In addition, the lawsuit
seeks orders (i) requiring the individual defendants to pay to the Company all
benefits received by them from the Company; (ii) enjoining the Company from
paying any benefits to individual defendants; (iii) requiring that defendants
terminate all improper business relationships with the Company and any
individual defendants; (iv) requiring that the Company provide for appointment
of a majority of independent public directors; and (v) requiring that the
Company put in place proper mechanisms of corporate governance. On August 10,
1998, the court transferred this case to the United States District Court,
Middle District of Tennessee (Case No. 3:98-0846). By agreement of the parties,
the case has been administratively closed pending the outcome of the court's
ruling on the defendants' motions to dismiss the McCall action referred to
above. As a result of the court's September 1, 1999, order dismissing the McCall
lawsuit, this lawsuit was also dismissed with prejudice. The plaintiffs in this
lawsuit filed an appeal from that order. On February 13, 2001, the United States
Court of Appeals for the Sixth Circuit entered an order reversing, in part, the
district court's dismissal order and remanding the case to the trial court, and,
on April 23, 2001, the Sixth Circuit denied defendants' motion for rehearing,
or, in the alternative, certification to the Delaware Supreme Court. (See Carl
H. McCall, as Comptroller of the State of New York and as Trustee of the New
York State Common Retirement Fund, derivatively on behalf of Columbia/HCA
Healthcare Corporation v. Richard L. Scott, et al., above.)
The Company intends to pursue the defense of these Federal and state
shareholder derivative and class action complaints vigorously.
Patient/Payer Actions and Other Class Actions
The Company is a party to several purported class action lawsuits which
have been filed by patients and/or payers against the Company and/or certain of
its current and former officers and directors alleging, in
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34
general, improper and fraudulent billing, overcharging, coding and physician
referrals, as well as other violations of law. Certain of the lawsuits have been
conditionally certified as class actions.
The matter of In re: Columbia/HCA Healthcare Corporation Billing Practices
Litigation, Master File No. MDL 1227, was commenced by Order of the MDL Panel
entered on June 11, 1998 granting the Company's petition to consolidate the
Boyson and Operating Engineers cases (see cases below) for pretrial purposes in
the Middle District of Tennessee pursuant to 28 U.S.C. 1407. Three other cases
(see cases below) that have been consolidated with Boyson and Operating
Engineers in the MDL proceeding are (i) Board of Trustees of the Carpenters &
Millwrights of Houston & Vicinity Welfare Trust Fund, (ii) Board of Trustees of
the Texas Ironworkers' Health Benefit Plan, and (iii) Tennessee Laborers Health
and Welfare Fund. On September 21, 1998, the plaintiffs in five consolidated
cases filed a Coordinated Class Action Complaint, which the Company answered on
October 13, 1998. The plaintiffs seek certification of two proposed classes
including all private individuals and all employee welfare benefit plans that
have paid for health-related goods or services provided by the Company. The
plaintiffs allege, among other things, that the Company has engaged in a pattern
and practice of inflating charges, concealing the true nature of patients'
illnesses, providing unnecessary medical care, and billing for services never
rendered. The plaintiffs seek damages, attorneys' fees and costs, as well as
disgorgement and injunctive relief. A scheduling order was entered that provided
for class certification motions to be filed by February 22, 1999 and for
discovery to be completed by June 30, 1999. In February 1999, plaintiffs filed a
motion to extend the time periods in the scheduling order, which was granted by
the court on August 24, 1999. However, the court has not entered a new
scheduling order. Effective November 2, 1999, a sixth case, The United
Paperworkers International Union, et al. v. Columbia/HCA Healthcare Corporation,
et al., was transferred by the MDL Panel for consolidated pretrial proceedings.
On December 30, 1999, plaintiffs filed a motion seeking leave to file a first
amended coordinated complaint. On March 15, 2000, the court entered an order
granting the plaintiffs' motion. The amended complaint did not include Board of
Trustees of the Texas Ironworkers' Health Benefit Plan as a plaintiff but added
a new plaintiff, Board of Trustees of the Pipefitters Local 522 Hospital,
Medical and Life Benefit Fund. Defendants have filed an answer to the amended
complaint. The parties are currently engaged in discovery pending a ruling on
plaintiffs' motion to modify the case schedule. In addition, in an order and
memorandum opinion dated April 12, 2000, the Court ordered the Company to
produce certain documents that the Company listed as subject to the
attorney-client privilege and/or the attorney work product doctrine on privilege
logs. The Company appealed the court's decision to the United States Court of
Appeals for the Sixth Circuit. The matter has been fully briefed in the Court of
Appeals. No oral argument date has been set.
The matter of Boyson, Cordula, on behalf of herself and all others
similarly situated v. Columbia/HCA Healthcare Corporation was filed on September
8, 1997 in the United States District Court for the Middle District of
Tennessee, Nashville Division (Civil Action No. 3-97-0936). The original
complaint, which sought certification of a national class comprised of all
persons or entities who have paid for medical services provided by the Company,
alleges, among other things, that the Company has engaged in a pattern and
practice of (i) inflating diagnosis and medical treatments of its patients to
receive larger payments from the purported class members; (ii) providing
unnecessary medical care; and (iii) billing for services never rendered. This
lawsuit seeks injunctive relief requiring the Company to perform an accounting
to identify and disgorge medical bill overcharges. It also seeks damages,
attorneys' fees, interest and costs. In an Order entered on June 11, 1998 by the
MDL Panel, other lawsuits against the Company were consolidated with the Boyson
case in the Middle District of Tennessee. The amended complaint in Boyson was
withdrawn and superseded by the Coordinated Class Action Complaint filed in the
MDL proceeding on September 21, 1998. (See In re: Columbia/HCA Healthcare
Corporation Billing Practices Litigation.)
The matter of Operating Engineers Local No. 312 Health & Welfare Fund, on
behalf of itself and as representative of a class of those similarly situated v.
Columbia/HCA Healthcare Corporation was filed on August 6, 1997 in the United
States District Court for the Eastern District of Texas, Civil Action No.
597CV203. The original complaint alleged violations of the Racketeering
Influenced and Corrupt Organizations Act ("RICO") based on allegations that the
defendant employed one or more schemes or artifices to defraud the plaintiff and
purported class members through fraudulent billing for services not performed,
fraudulent overcharging in excess of correct rates and fraudulent concealment
and misrepresenta-
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tion. In October 1997, the Company filed a motion to transfer venue and to
dismiss the lawsuit on jurisdiction and venue grounds because the RICO claims
are deficient. The motion to transfer was denied on January 23, 1998. The motion
to dismiss was also denied. In February 1998, defendant filed a petition with
the MDL Panel to consolidate this case with Boyson for pretrial proceedings in
the Middle District of Tennessee. During the pendency of the motion to
consolidate, plaintiff amended its Complaint to add allegations under the
Employee Retirement Income Security Act of 1974 ("ERISA") as well as state law
claims. The amended complaint seeks damages, attorneys' fees and costs, as well
as disgorgement and injunctive relief. The MDL Panel granted defendant's motion
to consolidate in June 1998, and this action was transferred to the Middle
District of Tennessee. The amended complaint in Operating Engineers was
withdrawn and superseded by the Coordinated Class Action Complaint filed in the
MDL proceeding on September 21, 1998. (See In re: Columbia/HCA Healthcare
Corporation Billing Practices Litigation.)
On April 24, 1998, two matters, Board of Trustees of the Carpenters &
Millwrights of Houston & Vicinity Welfare Trust Fund v. Columbia/HCA Healthcare
Corporation, Case No. 598CV157, and Board of Trustees of the Texas Ironworkers'
Health Benefit Plan v. Columbia/HCA Healthcare Corporation, Case No. 598CV158,
were filed in the United States District Court for the Eastern District of
Texas. The original complaint in these suits alleged violations of RICO only.
Plaintiffs in both cases principally alleged that in order to inflate its
revenues and profits, defendant engaged in fraudulent billing for services not
performed, fraudulent overcharging in excess of correct rates and fraudulent
concealment and misrepresentation. These suits seek damages, attorneys' fees and
costs, as well as disgorgement and injunctive relief. Plaintiffs subsequently
amended their complaint to add allegations under ERISA as well as state law
claims. These suits have been consolidated by the MDL Panel with Boyson and
transferred to the Middle District of Tennessee for pretrial proceedings. The
amended complaints in these suits were withdrawn and superseded by the
Coordinated Class Action Complaint filed in the MDL proceeding on September 21,
1998. (See In re: Columbia/HCA Healthcare Corporation Billing Practices
Litigation.)
The matter of Tennessee Laborers Health and Welfare Fund, on behalf of
itself and all others similarly situated vs. Columbia/HCA Healthcare
Corporation, Case No. 3-98-0437, was filed in the United States District Court
of the Middle District of Tennessee, Nashville Division, on May 14, 1998. The
lawsuit seeks certification of a national class comprised of all employee
welfare benefit plans that have paid for medical services provided by the
Company. This case involves allegations under ERISA, as well as state law claims
which are similar to those alleged in Boyson. Plaintiff, an Employee Welfare
Benefit Plan, alleges that defendant violated the terms of the Plan documents by
overbilling the Plans, including but not limited to, exaggerating the severity
of illnesses, providing unnecessary treatment, billing for services not rendered
and other methods of overbilling and further violated the terms of the Plan
documents by taking Plan assets in payment of such improper bills. Plaintiff
further alleges that defendant intentionally concealed or suppressed the true
nature of its patients' illnesses, and the actual treatment provided to those
patients, and its improper billing. The suit seeks injunctive relief in the form
of an accounting, damages, attorneys' fees, interest and costs. This suit has
been consolidated by the court with Boyson and the other cases transferred by
the MDL Panel to the Middle District of Tennessee. The complaint in Tennessee
Laborers was withdrawn and superseded with the filing of the Coordinated Class
Action Complaint in the MDL proceeding on September 21, 1998. (See In re:
Columbia/HCA Healthcare Corporation Billing Practices Litigation.)
The matter of The United Paperworkers International Union, et al. v.
Columbia/HCA Healthcare Corporation, et al., was filed on September 3, 1998 in
the Circuit Court for Washington County, Tennessee, Civil Action No. 19350. The
lawsuit contains billing fraud allegations similar to those in the Ferguson case
(below) and seeks certification of a national class comprised of all
self-insured employers who paid or were obligated to pay any portion of a bill
for, among other things, pharmaceuticals, medical supplies or medical services.
The suit seeks declaratory relief, damages, interest, attorneys' fees and other
litigation costs. In addition, the suit seeks an Order (i) requiring defendants
to provide an accounting to plaintiffs and class members who overpaid or were
obligated to overpay, (ii) requiring defendants to disgorge all monies illegally
collected from plaintiffs and the class, and (iii) rescinding all contracts of
defendants with plaintiffs and all class members. Following the service of this
complaint on the Company on August 20, 1999, the Company subsequently removed
this lawsuit to the United States District Court for the Eastern District of
Tennessee
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36
and it was conditionally transferred by the MDL Panel to the Middle District of
Tennessee for consolidated pretrial proceedings with In re: Columbia/HCA
Healthcare Corporation Billing Practices Litigation and was later formally
joined in plaintiffs' amended complaint (See In re: Columbia/HCA Healthcare
Corporation Billing Practices Litigation.)
The matter of Brown, Nancy, individually and on behalf of all others
similarly situated v. Columbia/ HCA Healthcare Corporation was filed on November
16, 1995, in the Fifteenth Judicial Circuit Court in and for Palm Beach County,
Florida, Case No. 95-9102 AD. The suit alleges that Palms West Hospital charged
excessive amounts for goods and services associated with patient care and
treatment, including items such as pharmaceuticals, medical supplies, laboratory
tests, medical equipment and related medical services such as x-rays. The suit
seeks the certification of a nationwide class, and damages for patients who have
paid bills for the allegedly unreasonable portion of the charges as well as
interest, attorneys' fees and costs. In response to defendant's amended motion
to dismiss filed in January 1996, plaintiff amended the Complaint and defendant
subsequently filed an answer and defenses in June 1996. On October 15, 1997,
Harald Jackson moved to intervene in the lawsuit (see case below). The court
denied Jackson's motion on December 19, 1997. To date, discovery is proceeding
and no class has been certified.
The matter of Jackson, Harald F., individually and on behalf of all others
similarly situated v. Columbia/HCA Healthcare Corporation was initially filed as
a motion to intervene in the Brown matter (above) in October 1997 in the
Fifteenth Judicial Circuit Court in and for Palm Beach County, Florida. The
court denied Jackson's motion on December 19, 1997, and Jackson subsequently
filed a complaint in the same state court on December 23, 1997, Case No.
97-011419-AI. This suit seeks certification of a national class of persons or
entities who were allegedly overcharged for medical services by the Company
through an alleged practice of systematically and unlawfully inflating prices,
concealing its practice of inflating prices, and engaging in, and concealing, a
uniform practice of overbilling. The proposed class is broad enough to encompass
all private payers, including individuals, insurers and health and welfare
plans. This suit seeks damages on behalf of the plaintiff and individual members
of the class as well as interest, attorneys' fees and costs. In January 1998,
the case was removed to the United States District Court, Southern District of
Florida, Case No. 98-CIV-8050. In February 1998, Jackson filed an amended
complaint, and the case was remanded to state court. The Company has filed
motions in response to the amended complaint which are pending. Jackson moved to
transfer the case to the judge handling the Brown case which is also pending,
but the motion to transfer was denied on April 8, 1999. Discovery has commenced.
Jane Doe and her husband, John Doe, on their own behalf, and on behalf of
all other persons similarly situated vs. HCA Health Services of Tennessee, Inc.,
d/b/a HCA Donelson Hospital n/k/a Summit Medical Center is a class action suit
filed on August 17, 1992 in the First Circuit Court for Davidson County,
Tennessee, Case No. 92C-2041. The suit principally alleges that Summit Medical
Center's ("Summit") charges for hospital services and supplies for medical
services (a hysterectomy in the plaintiff's case) exceeded the reasonable costs
of its goods and services, that the overcharges constitute a breach of contract
and an unfair or deceptive trade practice as well as a breach of the duty of
good faith and fair dealing. This suit seeks damages, costs and attorneys' fees.
In addition, the suit seeks a declaratory judgment recognizing plaintiffs'
rights to be free from predatory billing and collection practices and an Order
(i) requiring defendants to notify plaintiff class members of entry of
declaratory judgment and (ii) enjoining defendants from further efforts to
collect charges from the plaintiffs. In 1997, this case was certified as a class
action consisting of all past, present and future patients at Summit. In July
1997, Summit filed a Motion for Summary Judgment. In March 1998, the court
denied the Motion for Summary Judgment and ordered the parties into mediation.
In June 1998, the Court of Appeals denied defendant's application for permission
to appeal the trial court's denial of the summary judgment motion. Summit filed
an application for permission to appeal to the Supreme Court of Tennessee, which
the Supreme Court granted on November 9, 1998, and remanded the case to the
Court of Appeals for review on the merits. On August 27, 1999, the Court of
Appeals issued an opinion affirming the trial court's denial of Summit's Motion
for Summary Judgment. Summit filed an application for permission to appeal to
the Tennessee Supreme Court in October 1999. On December 10, 1999, the Tennessee
Supreme Court granted permission for the Tennessee Hospital Association and
Adventist Health System Sunbelt
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Healthcare Corporation to file an amicus brief in this case. On October 3, 2000,
the Tennessee Supreme Court heard oral arguments in this case.
Ferguson, Charles, on behalf of himself and all other similarly situated v.
Columbia/HCA Healthcare Corporation, et al. was filed on September 16, 1997 in
the Circuit Court for Washington County, Tennessee, Civil Action No. 18679. This
lawsuit seeks certification of a national class comprised of all individuals and
entities who paid or were responsible for payment of any portion of a bill for
medical care or treatment provided by the Company and alleges, among other
things, that the Company engaged in billing fraud by excessively billing
patients for services rendered, billing patients for services not rendered or
not medically necessary, uniformly using improper codes to report patient
diagnoses, and improperly and illegally recruiting doctors to refer patients to
the Company's hospitals. The proposed class is broad enough to encompass all
private payers, including individuals, insurers and health and welfare plans.
The suit seeks damages, interest, attorneys' fees, costs and expenses. In
addition, the suit seeks an Order (i) requiring defendants to provide an
accounting of plaintiffs and class members who overpaid or were obligated to
overpay; and (ii) requiring defendants to disgorge all monies illegally
collected from plaintiffs and the class. Plaintiff filed a Motion for Class
Certification in September 1997. No ruling has been made on the motion. In
December 1997, the Company filed a Motion for Summary Judgment which was denied.
In January 1998, plaintiff filed a Motion for Leave to File a Second Amended
Class Action Complaint to add an additional class representative which was
granted but the court dismissed the claims asserted by the additional plaintiff.
In June 1998, plaintiff filed a Motion for Leave of Court to File a Third
Amended Class Action Complaint, and in October 1998 plaintiff filed a Motion for
Leave of Court to File a Fourth Amended Class Action Complaint. Both proposed
Amended Complaints seek to add new named plaintiffs to represent the proposed
class. Both seek to add additional allegations of billing fraud, including
improper billing for laboratory tests, inducing doctors to perform unnecessary
medical procedures, improperly admitting patients from emergency rooms and
maximizing patients' lengths of stay as inpatients in order to increase charges,
and improperly inducing doctors to refer patients to the Company's home health
care units or psychiatric hospitals. Both seek an additional order that the
Company's contracts with plaintiffs and all class members are rescinded and that
the Company must repay all monies received from plaintiffs and the class
members. The court has not ruled on either Motion for Leave to Amend. Discovery
is underway in the case. The Company in September 1998 filed another Motion for
Summary Judgment contesting the standing of the named plaintiffs to bring the
alleged claims. That motion has not been ruled on by the court. Amended motions
for summary judgment were filed in January 2000. Those motions have not yet been
ruled on by the court.
The matter of Hoop, Kemp, et al. v. Columbia/HCA Health Corporation, et al.
was filed on August 18, 1997 in the District Court of Johnson County, Texas,
Civil Action No. 249-171-97. This suit seeks certification of a Texas class
comprised of persons who paid for any portion of an improper or fraudulent bill
for medical services rendered by any Texas facility owned or operated by the
Company. The suit seeks damages, attorneys' fees, costs and expenses, as well as
restitution to plaintiffs and the class in the amount by which defendants have
been unjustly enriched and equitable and injunctive relief. The lawsuit
principally alleges that the Company perpetrated a fraudulent scheme that
consisted of systematic and routine overbilling through false and inaccurate
bills, including padding, billing for services never provided, and exaggerating
the seriousness of patients' illnesses. The lawsuit also alleges that the
Company systematically entered into illegal kickback schemes with doctors for
patient referrals. The Company filed its answer in November 1997 denying the
claims. Discovery has commenced.
The matter of Ultimate Home Healthcare, Inc., on behalf of itself and all
other entities similarly situated in the states of Tennessee, Texas, Florida and
Georgia v. Columbia/HCA Healthcare Corporation, Columbia Homecare Group, Olsten
Corporation, and Olsten Health Management a/k/a Hospital Contract Management
Services was filed in the United States District Court for the Middle District
of Tennessee on June 14, 2000, as Civil Case No. 3-00-0560. The case is filed as
a purported class action on behalf of home health care companies and agencies
that conducted business in Tennessee, Texas, Florida and Georgia during the
years 1994 through 1996. On July 21, 2000 an amended complaint was filed. The
amended complaint alleges violations of civil RICO, antitrust and consumer
protection laws, and other business torts arising out of transactions and
operations in which the Company's affiliates purchased home health care
agencies, or assets
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of agencies, from Olsten Corporation affiliates. The District Court dismissed
plaintiff's RICO, intentional interference with prospective economic advantage,
and unjust enrichment claims. The complaint seeks compensatory and punitive
damages in an unstated amount plus costs and attorneys' fees. The suit is in its
early stages. The Company has filed a response denying the allegations.
The Company intends to pursue the defense of these class actions
vigorously.
While it is premature to predict the outcome of the qui tam, shareholder
derivative and class action lawsuits, the amounts in question are substantial.
It is possible that an adverse resolution, individually or in the aggregate,
could have a material adverse impact on the Company's liquidity, financial
position and results of operations. See Note 2 -- Investigations and Agreements
to Settle Certain Government Claims and Note 9 -- Contingencies in the Notes to
Condensed Consolidated Financial Statements.
General Liability and Other Claims
The matter of Landgraff, Anne M. and Gina Magarian, on behalf of the
Columbia/HCA Stock Bonus Plan v. Columbia/HCA Healthcare Corporation of America,
et al. was originally filed on November 7, 1997 in the United States District
Court for the Northern District of Georgia, Atlanta Division, Civil Action No.
97-CV-3381 and transferred by agreement of the parties to the United States
District Court for the Middle District of Tennessee, Civil Action No. 3-98-0090.
The plaintiffs filed a second amended complaint on April 24, 1998 against the
Company and certain members of the Company's Retirement Committee during 1997
alleging breach of fiduciary duty owed to the participants in the Company's
Stock Bonus Plan by failing to sell the Plan holdings of Company stock based
upon knowledge of material public and non-public adverse information and by
failing to act solely in the interests and for the benefit of the participants.
The suit generally alleges that the defendants fraudulently concealed
information from the public and fraudulently inflated the Company's stock price
through billing fraud, overcharges, inaccurate Medicare cost reports and illegal
kickbacks for physician referrals. The suit seeks an order allowing the
plaintiffs to proceed on behalf of the plan as in a derivative action, a
judgment for compensatory and restitutionary damages for the losses allegedly
experienced by the Plan because of breaches of fiduciary duty, an order
transferring management of the plan to a competent, neutral third-party, and an
award of pre-judgment interest, reasonable attorneys' fees and costs. A bench
trial was held from June 8 through July 1, 1999. Additional oral arguments were
held on March 23, 2000. On May 24, 2000, the court issued a memorandum opinion
and an order dismissing the plaintiffs' action with prejudice and entered a
judgment in favor of defendants. The court ruled that the defendants did not
breach their fiduciary duty to the Stock Bonus Plan. On June 12, 2000,
plaintiffs filed a notice of appeal. The appeal has been fully briefed. Oral
argument has not been set by the Court of Appeals.
On December 4, 1997, a lawsuit captioned Florida Software Systems, Inc., a
Florida corporation v. Columbia/HCA Healthcare Corporation, a Delaware
corporation was filed in the United States District Court for the Middle
District of Florida (Civil Action No. 97-2866-C.V.-T-17b). The lawsuit alleges
that the defendant breached an agreement under which Florida Software Systems,
Inc. was allegedly granted the exclusive right to provide medical claims
management for certain claims made by the Company for payment to any third-party
payers in connection with the rendering of medical care or services. The lawsuit
alleges claims for fraud, breach of implied contract and breach of contract. The
lawsuit seeks damages, attorneys' fees and costs in excess of $2 billion, as
well as injunctive relief. The court denied the plaintiff's motion for a
preliminary injunction. On October 15, 1998, the Company filed a counterclaim
and third-party complaint against Florida Software Systems, Inc., Receivable
Dynamics Inc., Nevada Communications Corporation, Norman R. Dobiesz, Maureen
Donovan Dobiesz, Stuart M. Lopata, and Samuel A. Greco (a former senior officer
at the Company). The counterclaim alleges racketeering, conspiracy, breach of
fiduciary duty, and breach of contract. Defendants in the counterclaim and
third-party complaint have filed answers to the counterclaim and third-party
complaint. Discovery has been conducted and several dispositive motions are
pending with the court. A related pending lawsuit, Nevada Communications
Corporation, a Delaware Corporation v. Columbia/HCA Healthcare Corporation, a
Delaware Corporation, which was filed in the 12th Judicial Circuit Court for
Manatee County, Florida (Civil Action No. CA 98-3039) involves similar issues
and alleges a breach of a telecommunications contract. The Company has filed a
counterclaim containing allegations similar to the counterclaim in the Florida
Software lawsuit. A trial on the Nevada Communications
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matter was commenced on April 9, 2001. The Nevada Communications and Florida
Software matters were settled on April 30, 2001, with no payments required of
the Company.
Two law firms representing groups of health insurers have approached the
Company and alleged that the Company's affiliates may have overcharged or
otherwise improperly billed the health insurers for various types of medical
care during the time frame from 1994 through 1997. The Company is engaged in
discussions with these insurers, but no litigation has been filed. The Company
is unable to determine if litigation will be filed, and if filed, what damages
would be asserted.
The Company intends to pursue the defense of these actions and prosecution
of its counterclaims and third-party claims vigorously.
The Company from time to time is a party to certain proceedings in the
United States Tax Court and the United States Court of Federal Claims. For a
description of those proceedings, see Note 5 -- Income Taxes in the Notes to
Condensed Consolidated Financial Statements.
The Company is also subject to claims and suits arising in the ordinary
course of business, including claims for personal injuries or for wrongful
restriction of, or interference with, physicians' staff privileges. In certain
of these actions the claimants have asked for punitive damages against the
Company, which may not be covered by insurance. In the opinion of management,
the ultimate resolution of these pending claims and legal proceedings will not
have a material adverse effect on the Company's results of operations or
financial position.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K.
(a) List of Exhibits:
Exhibit 10.1 -- HCA -- The Healthcare Company 2001 Performance Equity
Incentive Plan (which plan is filed herewith).*
Exhibit 10.2 -- $2.5 Billion Credit Agreement, dated April 30, 2001, among
the Company, The Several Banks and Other Financial Institutions, JPMorgan,
a Division of Chase Securities, Inc., as Sole Advisor, Lead Arranger and
Bookrunner and The Chase Manhattan Bank, as Administrative Agent (which
agreement is filed herewith).*
Exhibit 12 -- Statement re Computation of Ratio of Earnings to Fixed
Charges.
*Included only in filings under the Electronic Data, Gathering, Analysis
and Retrieval System.
(b) Reports on Form 8-K filed during the quarter ended March 31, 2001:
On January 31, 2001, the Company filed a report on Form 8-K which announced
the issuance of $500 million of 7 7/8% Notes due 2011.
On February 20, 2001, the Company filed a report on Form 8-K which
announced its operating results for the year and fourth quarter ended December
31, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HCA -- THE HEALTHCARE COMPANY
/s/ R. MILTON JOHNSON
--------------------------------------
R. Milton Johnson
Senior Vice President and Controller
Date: May 11, 2001
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