1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended September 30, 1996
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 33-31717-A
----------------------
QUORUM HEALTH GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 62-1406040
(State of incorporation) (IRS Employer Identification No.)
103 CONTINENTAL PLACE, BRENTWOOD, TENNESSEE 37027
(Address of principal executive offices) (Zip Code)
(615) 371-7979
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at November 7, 1996
- ----- -------------------------------
Common Stock, $.01 Par Value 48,750,785 Shares
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
QUORUM HEALTH GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months
Ended September 30
-------------------------
1996 1995
----------- -----------
(In thousands, except per share data)
Revenue:
Net patient service revenue $ 282,050 $ 221,663
Hospital management/professional services 19,371 18,686
Reimbursable expenses 14,580 13,363
--------- ---------
Net operating revenue 316,001 253,712
Expenses:
Salaries and benefits 125,431 98,442
Reimbursable expenses 14,580 13,363
Supplies 44,581 38,343
Fees 27,346 24,263
Other operating expenses 26,609 20,790
Provision for doubtful accounts 19,320 12,380
Depreciation and amortization 17,811 12,933
Interest 10,993 8,337
Minority interest 265 315
--------- ---------
286,936 229,166
--------- ---------
Income before income taxes 29,065 24,546
Provision for income taxes 11,539 9,966
--------- ---------
Net income $ 17,526 $ 14,580
========= =========
Net income per common share:
Primary $ 0.35 $ 0.29
========= =========
Fully diluted $ 0.35 $ 0.29
========= =========
Weighted average shares used in earnings
per share computations:
Primary 50,109 49,564
========= =========
Fully diluted 50,112 49,611
========= =========
See accompanying notes.
2
3
QUORUM HEALTH GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30 June 30
1996 1996
-------------- -------------
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 25,979 $ 20,382
Accounts receivable, less allowance for doubtful
accounts of $42,975,292 at September 30, 1996
and $39,752,284 at June 30, 1996 213,236 185,743
Supplies 29,464 27,170
Other 34,506 25,772
-------------- -------------
Total current assets 303,185 259,067
Property, plant and equipment:
Land 57,135 53,273
Buildings and improvements 274,084 237,359
Equipment 388,894 362,007
Construction in progress 20,596 17,796
-------------- -------------
740,709 670,435
Less accumulated depreciation 135,298 119,740
-------------- -------------
605,411 550,695
Cost in excess of net assets acquired 145,593 142,708
Unallocated purchase price 16,122 15,138
Other 63,566 52,953
-------------- -------------
Total assets $ 1,133,877 $ 1,020,561
============== =============
3
4
QUORUM HEALTH GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30 June 30
1996 1996
------------- ------------
(In thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 61,183 $ 47,049
Accrued salaries and benefits 52,429 42,694
Deferred revenue 5,938 4,965
Other current liabilities 5,435 1,509
Current maturities of long-term debt 2,163 2,441
----------- -----------
Total current liabilities 127,148 98,658
Long-term debt 487,323 430,877
Deferred income taxes 32,675 33,343
Other liabilities and deferrals 21,417 19,855
Minority interest in consolidated entities 14,951 5,964
Commitments and contingencies -- Note 5
Stockholders' equity:
Common stock, $.01 par value;
100,000,000 shares authorized; 48,732,661
issued and outstanding at September 30,
1996 and 48,645,750 at June 30,1996 487 486
Additional paid-in capital 263,552 262,581
Retained earnings 186,324 168,797
----------- -----------
450,363 431,864
----------- -----------
Total liabilities and stockholders' equity $ 1,133,877 $ 1,020,561
=========== ===========
See accompanying notes.
4
5
QUORUM HEALTH GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months
Ended September 30
-----------------------
1996 1995
--------- ---------
(In thousands)
Net cash provided by operating activities $ 38,350 $ 41,195
Cash flows used by investing activities:
Purchase of acquired companies (71,947) (170,888)
Purchase of property, plant and equipment (20,523) (11,689)
Other (837) (219)
--------- ---------
Net cash used by investing activities (93,307) (182,796)
Cash flows provided by financing activities:
Borrowings under bank debt 101,000 194,750
Repayments of bank debt (44,000) (56,000)
Proceeds from issuance of notes 4,698 4,053
Repayments of notes (1,434) (969)
Proceeds from issuance of common stock, net 973 404
Loan origination costs (26) (86)
Other (657) (415)
--------- ---------
Net cash provided by financing activities 60,554 141,737
--------- ---------
Increase in cash and cash equivalents 5,597 136
Cash and cash equivalents at beginning of period 20,382 27,475
--------- ---------
Cash and cash equivalents at end of period $ 25,979 $ 27,611
========= =========
Supplemental cash flow information:
Interest paid $ (3,763) $ (2,432)
Income taxes paid (1,798) (331)
See accompanying notes.
5
6
QUORUM HEALTH GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
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 (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three months
ended September 30, 1996 are not necessarily indicative of the results that may
be expected for the year ending June 30, 1997. 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 June 30, 1996. Certain
reclassifications have been made to the fiscal 1996 financial presentation to
conform with fiscal 1997.
2. ACQUISITIONS AND DIVESTITURES
The following is a summary of acquisitions consummated during the three months
ended September 30, 1996 and 1995:
1996 1995
------- --------
(in thousands)
Fair value of assets acquired $90,280 $174,580
Fair value of liabilities assumed (9,569) (3,692)
Contributions from minority investors (8,764) --
------- --------
Net cash paid $71,947 $170,888
======= ========
Fiscal 1997 Acquisitions and Letters of Intent
On June 21, 1996, the Company signed a letter of intent to form a joint venture
controlled by the Company to acquire the assets and business of Barberton
Citizens Hospital in Barberton, Ohio. The proposed transaction is subject to
the completion of customary closing conditions and obtaining certain regulatory
approvals.
On July 1, 1996, a limited liability company controlled by the Company acquired
the assets and business of Mary Black Memorial Hospital, Inc. and affiliated
businesses in Spartanburg, South Carolina for approximately $86.4 million. On
August 1, 1996, a subsidiary of the Company acquired certain assets and the
business of Williamsburg County Memorial Hospital in Kingstree, South Carolina
for approximately $1.3 million.
6
7
Fiscal 1996 Acquisitions and Divestitures
On August 1, 1995, a subsidiary of the Company acquired certain assets and
businesses of The Lutheran Hospital of Indiana, Inc. in Fort Wayne, Indiana for
approximately $172.0 million. On February 1, 1996, a subsidiary of the Company
acquired certain assets and businesses of Fort Wayne Center Equipment, Inc. and
affiliate for approximately $13.6 million. On February 1, 1996, a subsidiary
of the Company sold a minority ownership interest in Midlands Community
Hospital in Papillion, Nebraska to Alegent Health. On March 1, 1996, a
subsidiary of the Company sold certain assets and the business of Concho Valley
Regional Hospital in San Angelo, Texas. On June 1, 1996, a subsidiary of the
Company acquired the assets and business of Jacksonville Hospital in
Jacksonville, Alabama for approximately $18.5 million.
Other Information Regarding Acquisitions and Divestitures
All of the foregoing acquisitions were accounted for using the purchase method
of accounting. The allocation of the purchase price associated with certain of
the acquisitions has been determined by the Company based upon available
information and is subject to further refinement. The operating results of the
acquired hospitals have been included in the accompanying condensed
consolidated statements of income from the respective dates of acquisition.
The following unaudited pro forma results of operations give effect to the
operations of the entities acquired and divested in fiscal 1996 and 1997 as if
the respective transactions had occurred at the beginning of the periods
presented. The pro forma results of operations do not purport to represent
what the Company's results of operations would have been had such transactions
in fact occurred at the beginning of the periods presented or to project the
Company's results of operations in any future period.
THREE MONTHS
ENDED
SEPTEMBER 30
----------------------------------
1996 1995
-------- --------
(In thousands, except per share data)
Net operating revenue $316,547 $288,862
Net income 17,334 14,387
Net income per common share:
Primary .35 .29
Fully diluted .35 .29
3. INCOME PER COMMON SHARE
Income per common share is based on the weighted average number of shares of
common stock
7
8
outstanding, and common stock equivalents consisting of dilutive stock options.
4. INCOME TAXES
The income tax provision recorded for the three months ended September 30, 1996
and 1995 differs from the expected income tax provision due to permanent
differences and the provision for state income taxes.
5. COMMITMENTS AND CONTINGENCIES
Management continually evaluates contingencies based on the best available
evidence and believes that adequate provision for losses has been provided to
the extent necessary. In the opinion of management, the ultimate resolution of
the following contingencies will not have a material effect on the Company's
results of operations or financial position.
General and Professional Liability Risks
The reserve for the self-insured portion of general and professional liability
risks is included in "Other liabilities and deferrals" and is based on
actuarially determined estimates.
Litigation
The Company currently, and from time to time, is expected to be subject to
claims and suits arising in the ordinary course of business.
Net Patient Service Revenue
Final determination of amounts earned under the Medicare and Medicaid programs
often occurs in subsequent years because of audits by the program, rights of
appeal and the application of numerous technical provisions.
Income Taxes
The Internal Revenue Service (IRS) is in the process of conducting examinations
of the Company's federal income tax returns for the years ended 1993 through
1995. During fiscal 1996, the IRS completed an examination of the Company's
federal income tax returns for the fiscal years ended June 30, 1990 through
1992. Federal income tax on the proposed adjustments amounts to $10.9 million,
excluding interest. The most significant adjustment involves the amortization
deductions claimed on certain acquired intangible assets in conjunction with
the acquisition of Quorum Health Resources, Inc. The Company has protested all
of the proposed adjustments through the appeals process of the IRS.
8
9
Other
In June 1993, the Office of the Inspector General (OIG) of the Department of
Health and Human Services requested information from the Company in connection
with an investigation involving the Company's procedures for preparing Medicare
cost reports. In January 1995, the U.S. Department of Justice issued a Civil
Investigative Demand which also requested information from the Company in
connection with that same investigation. As a part of the government's
investigation, several former and current employees of the Company have been
interviewed. The Company is continuing to provide information and is
cooperating fully with the investigation. The Company cannot predict whether
the government will commence litigation regarding this matter.
6. SUBSEQUENT EVENT
On November 1, 1996, a limited liability company controlled by the Company
acquired the assets and business of Doctors Hospital in Massillon, Ohio.
9
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
IMPACT OF ACQUISITIONS
The Company was formed in July 1989 to acquire a hospital contract
management business established in the mid- 1970s. Since that acquisition, the
Company has expanded the scope of its business by acquiring acute care
hospitals. During fiscal 1996, the Company acquired two facilities (one as of
September 30, 1995) and divested one facility. During the three months ended
September 30, 1996, the Company acquired two additional facilities.
Because of the financial impact of the Company's recent acquisitions
and divestitures, it is difficult to make meaningful comparisons between the
Company's financial statements for the fiscal periods presented. In addition,
due to the current number of owned hospitals, each additional hospital
acquisition can affect the overall operating margin of the Company. Upon the
acquisition of a hospital, the Company has typically taken a number of
immediate steps, including staffing adjustments, to lower operating costs. The
impact of such actions can be partially offset by cost increases to expand the
hospital's services, strengthen its medical staff and improve its market
position. The benefits of these investments and of other activities to
improve operating margins may not occur immediately. Consequently, the
financial performance of an acquired hospital may adversely affect overall
operating margins in the near-term. As the Company makes additional hospital
acquisitions, the Company expects that this effect will be mitigated by the
expanded financial base of existing hospitals.
SELECTED OPERATING STATISTICS - OWNED HOSPITALS
The following table sets forth certain operating statistics for the
Company's owned hospitals for each of the periods presented. The results of
the owned hospitals for the three months ended September 30, 1996 include three
months of operations for fifteen hospitals and a partial period for one
hospital acquired during such period. The results of the owned hospitals for
the three months ended September 30, 1995 include three months of operations
for thirteen hospitals and a partial period for one hospital acquired during
such period.
10
11
Three Months
Ended
September 30
---------------------------
1996 1995
------- --------
Number of hospitals at end of period 16 14
Licensed beds at end of period 3,585 3,298
Beds in service at end of period 2,939 2,715
Admissions 26,740 22,027
Average length of stay (days) 5.5 5.8
Patient days 147,481 128,551
Adjusted patient days 231,622 198,282
Occupancy rates (average licensed beds) 45.0% 44.1%
Occupancy rates (average beds in service) 55.0% 53.7%
Gross inpatient revenues (in thousands) $321,732 $254,860
Gross outpatient revenues (in thousands) $183,555 $138,247
RESULTS OF OPERATIONS
The table below reflects the percentage of net operating revenue
represented by various categories in the Condensed Consolidated Statements of
Income and the percentage change in the related dollar amounts. The results of
operations for the three months ended September 30, 1996 include three months
of operations for fifteen hospitals and a partial period for one hospital
acquired during such period. The results of operations for the three months
ended September 30, 1995 include three months of operations for thirteen
hospitals and a partial period for one hospital acquired during such period.
11
12
Percentage
Increase
September 30 (Decrease) of
------------------- Dollar
1996 1995 Amounts
----- ----- -------------
Net operating revenue 100.0% 100.0% 24.6%
Operating expenses before
depreciation and amortization 81.6 81.8 24.2
----- ----- ----
EBITDA (1) 18.4 18.2 26.0
Depreciation and amortization 5.6 5.1 37.7
Interest expense 3.5 3.3 31.9
Minority expense 0.1 0.1 (15.9)
----- ----- ----
Income before income taxes 9.2 9.7 18.4
Provision for income taxes 3.7 4.0 15.8
----- ----- ----
Net income 5.5% 5.7% 20.2%
===== ===== ====
___________________
(1) EBITDA represents earnings before interest, minority interest, income
taxes, depreciation and amortization expense. The Company has included EBITDA
data because such data is used by certain investors to measure a company's
ability to service debt. EBITDA is not a measure of financial performance
under generally accepted accounting principles and should not be considered an
alternative to net income as a measure of operating performance or to cash
flows from operating activities as a measure of liquidity.
Three Months Ended September 30, 1996 Compared to Three Months Ended September
30, 1995
The Company's net operating revenue was $316.0 million for the three
months ended September 30, 1996, compared to $253.7 million for the comparable
period of fiscal 1995, an increase of $62.3 million or 25%. This increase was
attributable to, among other things, three hospital acquisitions, a full three
months of revenue from one hospital acquired during fiscal 1996, a 9% increase
in revenue generated by hospitals owned during both periods (calculated by
comparing the same periods in both fiscal periods for hospitals owned as of
September 30, 1996) and a 6% increase in management services revenue. The
Company's owned hospitals accounted for 89% of the Company's net operating
revenue for the three months ended September 30, 1996 compared to 87% for the
three months ended September 30, 1995.
Operating expenses before depreciation and amortization as a percent
of net operating revenue decreased to 81.6% for the three months ended
September 30, 1996 from 81.8% for the three months ended September 30,
12
13
1995. Operating expenses before depreciation and amortization as a percentage
of net operating revenue for the Company's owned hospitals decreased to 81.8%
for the three months ended September 30, 1996 from 82.8% for the three months
ended September 30, 1995. Operating expenses before depreciation and
amortization as a percentage of net operating revenue for the Company's
hospitals owned during both periods decreased to 81.1% for the three months
ended September 30, 1996 from 82.6% for the three months ended September 30,
1995 which was primarily attributable to a reduction in salaries and benefits,
fees and supplies expense as a percent of net revenue.
EBITDA as a percent of net operating revenue was 18.4% for the three
months ended September 30, 1996 compared to 18.2% for the three months ended
September 30, 1995. EBITDA as a percent of net operating revenue for the
Company's owned hospitals was 18.2% for the three months ended September 30,
1996 compared to 17.2% for the three months ended September 30, 1995. EBITDA
as a percent of net operating revenue for the Company's hospitals owned during
both periods was 18.9% for the three months ended September 30, 1996 compared
to 17.4% for the three months ended September 30, 1995. EBITDA as a percent of
net operating revenue for the Company's management services business was 20.4%
for the three months ended September 30, 1996 compared to 25.1% for the three
months ended September 30, 1995 which was primarily attributable to the costs
of new services.
Depreciation and amortization expense as a percent of net operating
revenue increased to 5.6% for the three months ended September 30, 1996 from
5.1% for the three months ended September 30, 1995 primarily due to the fiscal
1996 and 1997 acquisitions and the Company's investment in management
information systems. Interest expense as a percent of net operating revenue
increased to 3.5% for the three months ended September 30, 1996 from 3.3% for
the three months ended September 30, 1995 due to the fiscal 1996 and 1997
acquisitions and the issuance of the Senior Subordinated Notes in November
1995. The provision for income taxes as a percent of net operating revenue
decreased to 3.7% for the three months ended September 30, 1996 from 4.0% for
the three months ended September 30, 1995 which is primarily attributable to a
lower effective tax rate and a relative change in pretax income.
Net income as a percent of net operating revenue was 5.5% for the
three months ended September 30, 1996 compared to 5.7% for the three months
ended September 30, 1995. This decrease was primarily attributable to the
fiscal 1997 acquisitions, which was partially offset by the increased
profitability of the Company's hospitals owned during both periods, as
discussed above.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company had working capital of $176.0
million, including cash and cash equivalents of $26.0 million. The ratio of
current assets to current liabilities was 2.4 to 1.0 at September 30, 1996
compared to 2.6 to 1.0 at June 30, 1996.
13
14
The Company's cash requirements excluding acquisitions have
historically been funded by cash generated from operations. Cash generated
from operations was $38.4 million and $41.2 million for the three months ended
September 30, 1996 and 1995, respectively. The decrease is primarily due to an
increase in working capital.
Capital expenditures excluding acquisitions for the three months ended
September 30, 1996 and 1995 were $20.5 million and $11.7 million, respectively.
The management services business does not require significant capital
expenditures. Capital expenditures for owned hospitals may vary from year to
year depending on facility improvements and service enhancements undertaken by
the hospitals. In fiscal 1997, the Company expects to make capital
expenditures from $75 to $85 million, excluding acquisitions. In addition, the
Company anticipates commencing construction of a replacement hospital in
Florence, South Carolina.
The Company intends to acquire additional acute care facilities, and
the Company is actively seeking out such acquisitions. There can be no
assurance that the Company will not require additional debt or equity financing
for any particular acquisition. Also, the Company continually reviews its
capital needs and financing opportunities and may seek additional equity or
debt financing for its acquisition program or other needs. At September 30,
1996, the Company had $366.0 million available under its Revolving Line of
Credit.
On June 21, 1996, the Company signed a letter of intent to form a
joint venture controlled by the Company to acquire the assets and business of
Barberton Citizens Hospital in Barberton, Ohio. The proposed transaction is
subject to the completion of customary closing conditions and obtaining certain
regulatory approvals.
On November 1, 1996, a limited liability company controlled by the
Company acquired the assets and business of Doctors Hospital in Massillon,
Ohio.
During the three months ended September 30, 1996, the Company invested
approximately $71.9 million in hospital and affiliated business acquisitions.
On July 1, 1996, a limited liability company controlled by the Company acquired
the assets and business of Mary Black Memorial Hospital, Inc. and affiliated
businesses in Spartanburg, South Carolina for approximately $86.4 million. On
August 1, 1996, a subsidiary of the Company acquired certain assets and
business of Williamsburg County Memorial Hospital in Kingstree, South Carolina
for approximately $1.3 million.
In fiscal 1996, the Company invested approximately $205.3 million in
hospital and affiliated business acquisitions. On August 1, 1995, a subsidiary
of the Company acquired certain assets and businesses of The Lutheran Hospital
of Indiana, Inc. in Fort Wayne, Indiana for approximately $172.0 million. On
February 1, 1996, a subsidiary of the Company acquired certain assets and
businesses of Fort Wayne Center
14
15
Equipment, Inc. and affiliate for approximately $13.6 million. On February 1,
1996, a subsidiary of the Company sold a minority ownership interest in
Midlands Community Hospital in Papillion, Nebraska to Alegent Health. On March
1, 1996, a subsidiary of the Company sold certain assets and the business of
Concho Valley Regional Hospital in San Angelo, Texas. On June 1, 1996, a
subsidiary of the Company acquired the assets and business of Jacksonville
Hospital in Jacksonville, Alabama for approximately $18.5 million.
The Internal Revenue Service (IRS) is in the process of conducting
examinations of the Company's federal income tax returns for the years ended
1993 through 1995. During fiscal 1996, the IRS completed an examination of the
Company's federal income tax returns for the fiscal years ended June 30, 1990
through 1992. Federal income tax on the proposed adjustments amounts to $10.9
million, excluding interest. The most significant adjustment involves the
amortization deductions claimed on certain acquired intangible assets in
conjunction with the acquisition of Quorum Health Resources, Inc. The Company
has protested all of the proposed adjustments through the appeals process of
the IRS. Management believes that the final outcome of the IRS examination
will not have a material effect on the Company's results of operations or
financial position.
In June 1993, the OIG of the Department of Health and Human Services
requested information from the Company in connection with an investigation
involving the Company's procedures for preparing Medicare cost reports. In
January 1995, the U.S. Department of Justice issued a Civil Investigative
Demand which also requested information from the Company in connection with
that same investigation. As a part of the government's investigation, several
former and current employees of the Company have been interviewed. The Company
is continuing to provide information and is cooperating fully with the
investigation. The Company cannot predict whether the government will commence
litigation regarding this matter. Management believes that any claims likely
to be asserted by the government as a result of its investigation would not
have a material effect on the Company's results of operations or financial
position.
INDUSTRY TRENDS
The Company's owned hospitals derive a substantial portion of their
revenue from the federal Medicare program and the state Medicaid programs. The
payment rates under the Medicare program for inpatients are prospective, based
upon the diagnosis of a patient. While these rates are indexed for inflation
annually, the increases have historically been less than actual inflation.
Both federal and state legislators are continuing to scrutinize the
health care industry for the purpose of reducing health care costs. The
Company is unable to predict what, if any, future health reform legislation may
be enacted at the federal or state level. Changes in the
15
16
Medicare or Medicaid programs and other proposals to limit health care spending
could have an adverse impact upon the health care industry and the Company.
In addition, states, insurance companies and employers are actively
negotiating the amounts paid to hospitals, which are typically lower than their
standard rates. The trend toward managed care, including health maintenance
organizations, preferred provider organizations and various other forms of
managed care, may affect hospitals' ability to maintain their current rate of
net revenue growth and operating margins.
The Company expects the industry trend from inpatient to outpatient
services to continue due to the increased focus on managed care and advances in
technology. Outpatient revenue of the Company's owned hospitals was
approximately 36.3% and 35.2% of gross patient service revenue for the three
months ended September 30, 1996 and 1995, respectively.
INFLATION
The health care industry is labor intensive. Wages and other expenses
increase during periods of inflation and when shortages in marketplaces occur.
In addition, suppliers pass along rising costs to the Company in the form of
higher prices. The Company has generally been able to offset increases in
operating costs by increasing charges, expanding services, and implementing
cost control measures to curb increases in operating costs and expenses. The
Company cannot predict its ability to offset or control future cost increases.
16
17
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
For the purpose of informing the market, the Registrant announces
that, effective November 1, 1996, an affiliate of the Registrant acquired
Doctors Hospital, an acute care hospital located in Massillon, Ohio. A
previously released press announcement of this acquisition is filed as an
exhibit to this Report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The exhibits filed as part of this Report are listed
in the Index to Exhibits immediately following the signature page.
(b) A report on Form 8-K was filed with the Commission on July 17,
1996, to inform the market of the acquisition of Jacksonville Hospital, located
in Jacksonville, Alabama, and Mary Black Memorial Hospital, located in
Spartanburg, South Carolina. Previously released press announcements of the
respective acquisitions were filed in connection with the report.
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.
QUORUM HEALTH GROUP, INC.
Date: November 11, 1996 By: /s/ Steve B. Hewett
----------------------------
Steve B. Hewett
Vice President and Treasurer
(Chief Financial Officer)
17
18
Exhibit Index
Exhibit No.
- -----------
11 Computation of Earnings Per Share
27 Financial Data Schedule (for SEC use only)
99.1 Press Release dated November 1, 1996, regarding the
acquisition of Doctors Hospital