HCA Healthcare
HCA
#252
Rank
A$135.29 B
Marketcap
A$609.89
Share price
-0.79%
Change (1 day)
-5.55%
Change (1 year)
Text size:
1

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------

FORM 10-K

<TABLE>
<C> <S>
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
</TABLE>

COMMISSION FILE NUMBER 1-11239
---------------------
COLUMBIA/HCA HEALTHCARE CORPORATION
(Exact Name of Registrant as Specified in its Charter)
---------------------

<TABLE>
<S> <C> <C>
DELAWARE 75-2497104
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
ONE PARK PLAZA 37203
NASHVILLE, TENNESSEE (Zip Code)
(Address of Principal Executive Offices)
</TABLE>

Registrant's Telephone Number, Including Area Code: (615) 344-9551

Securities Registered Pursuant to Section 12(b) of the Act:

<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
<S> <C> <C>
Common Stock, $.01 Par Value New York Stock Exchange
</TABLE>

Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

As of March 15, 2000, there were outstanding 543,479,300 shares of the
Registrant's Voting Common Stock and 21,000,000 shares of the Registrant's
Nonvoting Common Stock. As of March 15, 2000 the aggregate market value of the
Common Stock held by non-affiliates was approximately $10,992,420,000. For
purposes of the foregoing calculation only, the Registrant's directors,
executive officers, The Columbia/HCA Healthcare Corporation Stock Bonus Plan,
the Columbia/HCA Healthcare Corporation Salary Deferral Plan, the EPIC Profit
Sharing Plan and the Healthtrust 401(k) Retirement Program have been deemed to
be affiliates.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's definitive Proxy Statement for its 2000 Annual
Meeting of Stockholders are incorporated by reference into Part III hereof.
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2

INDEX

<TABLE>
<CAPTION>
PAGE
REFERENCE
---------
<S> <C> <C>
PART I
Item 1. Business.................................................... 3
Item 2. Properties.................................................. 20
Item 3. Legal Proceedings........................................... 21
Item 4. Submission of Matters to a Vote of Security Holders......... 32

PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters......................................... 33
Item 6. Selected Financial Data..................................... 34
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 36
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 49
Item 8. Financial Statements and Supplementary Data................. 49
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 49

PART III
Item 10. Directors and Executive Officers of the Registrant.......... 50
Item 11. Executive Compensation...................................... 50
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 50
Item 13. Certain Relationships and Related Transactions.............. 50

PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 51
</TABLE>

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PART I
ITEM 1. BUSINESS

GENERAL

Columbia/HCA Healthcare Corporation is one of the leading health care
services companies in the United States. At December 31, 1999, the Company
operated 207 hospitals, comprised of 184 general, acute care hospitals, 11
psychiatric hospitals, and 12 hospitals included in joint ventures, which are
accounted for using the equity method. In addition, the Company operated 83
outpatient surgery centers, three of which are accounted for using the equity
method. The Company's facilities are located in 24 states, England and
Switzerland. The terms "Company" or "Columbia/HCA" as used herein refer to
Columbia/HCA Healthcare Corporation and its affiliates unless otherwise stated
or indicated by context. The term "affiliates" means direct and indirect
subsidiaries of Columbia/HCA Healthcare Corporation and partnerships and joint
ventures in which such subsidiaries are partners.

The Company's primary objective is to provide the communities it serves a
comprehensive array of quality health care services in the most cost effective
manner possible. The Company's general, acute care hospitals usually provide a
full range of services commonly available in hospitals to accommodate such
medical specialties as internal medicine, general surgery, cardiology, oncology,
neurosurgery, orthopedics and obstetrics, as well as diagnostic and emergency
services. Outpatient and ancillary health care services are provided by the
Company's general, acute care hospitals and through the Company's freestanding
outpatient surgery and diagnostic centers, and rehabilitation facilities. The
Company's psychiatric hospitals provide a full range of mental health care
services through inpatient, partial hospitalization and outpatient settings. The
Company also operates preferred provider organizations in 47 states and the
District of Columbia.

The Company, through various predecessor entities, began operations on July
1, 1988. The Company was incorporated in Nevada in January 1990 and
reincorporated in Delaware in September 1993. The Company's principal executive
offices are located at One Park Plaza, Nashville, Tennessee 37203, and its
telephone number at such address is (615) 344-9551.

Prior to 1997, the Company grew substantially through a series of corporate
mergers and acquisitions of individual facilities. In September 1993, the
Company acquired Galen Health Care, Inc. ("Galen") in a merger accounted for as
a pooling of interests. In February 1994, the Company acquired HCA-Hospital
Corporation of America ("HCA") in a merger accounted for as a pooling of
interests. In September 1994, the Company acquired Medical Care America, Inc.
("MCA") in a transaction accounted for as a purchase, and in April 1995, the
Company acquired Healthtrust, Inc. -- The Hospital Company ("Healthtrust") in a
merger accounted for as a pooling of interests. During the 1993-1996 time
period, the Company also completed numerous joint ventures and other
acquisitions of health care assets.

In August of 1997, following the inception of a Federal investigation into
its business practices, the Company made substantial changes to its top
management and initiated a plan to restructure its operations to create a
smaller and more focused company. During 1998, the Company completed the sales
of 36 hospitals and 36 ambulatory surgery centers, and substantially completed
the sales of its home health businesses and three of the four units acquired in
the August 1997 acquisition of Value Health, Inc. ("Value Health"). Throughout
1998, the Company acquired six hospitals and completed the construction of three
hospitals.

During 1999, the Company completed the sales of 24 hospitals and closed
four hospitals. The Company also terminated a lease to operate another facility
and leased two hospitals to another party to operate. The Company completed the
sales of four surgery centers and closed two surgery centers. In May 1999, the
Company also completed the tax-free spin-offs of LifePoint Hospitals, Inc.
("LifePoint") and Triad Hospitals, Inc. ("Triad") creating two independent
publicly traded companies, which together operated 57 hospitals at the time of
the spin-offs.

The Company remains the subject of several Federal investigations into its
business practices, as well as governmental investigations by numerous states.
The Company is working closely with the appropriate governmental authorities to
resolve these matters. The Company is also named in other various legal
proceedings, which include qui tam actions, shareholder derivative and class
action suits filed in Federal court,

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shareholder derivative actions filed in state courts, patient/payer actions and
general liability claims. The Company is defending these actions vigorously. See
Item 3 -- "Legal Proceedings."

BUSINESS STRATEGY

The Company's business strategy is to be a comprehensive provider of
quality health care services, in the most cost-effective manner possible in
select communities. The Company maintains and replaces equipment, renovates and
constructs replacement facilities and adds new services to increase the
attractiveness of its hospitals and other facilities to patients and local
physicians. By developing a comprehensive health care network with a broad range
of health care services located throughout a market area, the Company believes
it is better able to attract and serve patients and physicians. The Company
believes it is also able to reduce operating costs by sharing certain services
among several facilities in the same area and is better positioned to work with
health maintenance organizations ("HMOs"), preferred provider organizations
("PPOs") and employers.

The Company has substantially implemented the action plan developed in
August 1997, to become a smaller, more focused Company and to return the
Company's emphasis to its primary goal of local, community-focused patient care.
The Company has also redefined its approach to certain business practices that
may have led to the investigations by certain government agencies and has
instituted a values based culture to insure patient care is our primary focus.
This strategy will allow Company management to concentrate their efforts on the
Company's strategic locations.

The Company and the health care industry are facing many challenges,
including the growing number of uninsured, reimbursement pressures from
government and non-government payers and the increasing costs of supplies,
pharmaceuticals and new technologies. As a response to these challenges, the
Company is implementing a shared services initiative. This initiative is a
company-wide program designed to reduce operating costs and provide additional
resources for patient care by consolidating hospitals' back-office functions
such as billing and collections and standardizing and upgrading financial
services. In addition, the Company is implementing company-wide supply
improvement and distribution programs that will include consolidating purchasing
and accounts payable functions regionally, combining warehouses and developing
division-based procurement programs.

HEALTH CARE FACILITIES

The Company currently owns, manages or operates hospitals, ambulatory
surgery centers, diagnostic centers, cardiac rehabilitation centers, physical
therapy centers, radiation oncology centers, comprehensive outpatient
rehabilitation centers and various other facilities.

At December 31, 1999, the Company operated 184 general, acute care
hospitals with 41,080 licensed beds and an additional 12 hospitals with 3,179
licensed beds that are operated through joint ventures which are accounted for
using the equity method. Most of the Company's general, acute care hospitals
provide medical and surgical services, including inpatient care, intensive care,
cardiac care, diagnostic services and emergency services. The general, acute
care hospitals also provide outpatient services such as outpatient surgery,
laboratory, radiology, respiratory therapy, cardiology and physical therapy.
Each hospital has an organized medical staff and a local board of trustees or
governing board, made up of members of the local community.

Like most hospitals, the Company's hospitals do not engage in extensive
medical research and medical education programs. However, some of the Company's
hospitals are affiliated with medical schools, and, among other things, may
participate in the clinical rotation of medical students.

At December 31, 1999, the Company operated 11 psychiatric hospitals with
1,404 licensed beds. The Company's psychiatric hospitals provide therapeutic
programs including child, adolescent and adult psychiatric care, as well as,
adult and adolescent alcohol and drug abuse treatment and counseling. The
hospitals use the "treatment team" concept whereby the admitting physician, team
psychologist, social workers, nurses, therapists and counselors coordinate each
phase of therapy. Services provided by this team include crisis intervention,
individual psychotherapy, group and family therapy, social services, chemical
dependency

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counseling, behavioral modification and physical therapy. Certain of the
Company's general, acute care hospitals also have a limited number of licensed
psychiatric beds.

Other outpatient or related health care services operated by the Company
include ambulatory surgery centers, diagnostic centers, outpatient physical
therapy/rehabilitation centers, outpatient radiation therapy centers, cardiac
rehabilitation centers and skilled nursing services. These outpatient and
related services are an integral component of the Company's strategy to develop
a comprehensive health care network in select communities.

In addition to providing capital resources, the Company makes available a
variety of management services to its health care facilities, most
significantly: ethics and compliance programs; national supply contracts;
equipment purchasing and leasing contracts; accounting, financial and clinical
systems; governmental reimbursement assistance; construction planning and
coordination; information technology systems and solutions; legal counsel;
personnel management and internal audit.

SOURCES OF REVENUE

Hospital revenues depend upon inpatient occupancy levels, the ancillary
services and therapy programs ordered by physicians and provided to patients,
the volume of outpatient procedures and the charges or negotiated payment rates
for such services. Charges and reimbursement rates for inpatient services vary
significantly depending on the type of service (e.g., medical/surgical,
intensive care or psychiatric) and the geographic location of the hospital.

The Company receives payment for patient services from the Federal
government primarily under the Medicare program, state governments under their
respective Medicaid or similar programs, HMOs, PPOs and private insurers, as
well as directly from patients. The approximate percentages of patient revenues
from continuing operations of the Company's facilities from such sources were as
follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Medicare.................................................... 29% 30% 34%
Medicaid.................................................... 7% 6% 6%
Managed care................................................ 37% 32% 28%
Other sources............................................... 27% 32% 32%
---- ---- ----
Total............................................. 100% 100% 100%
==== ==== ====
</TABLE>

Medicare is a Federal program that provides certain hospital and medical
insurance benefits to persons age 65 and over, some disabled persons and persons
with end-stage renal disease. Medicaid is a Federal-state program, administered
by the states, which provides hospital benefits to qualifying individuals who
are unable to afford care. Substantially all of the Company's hospitals are
certified as providers of Medicare and Medicaid services. Amounts received under
the Medicare and Medicaid programs are generally significantly less than the
hospital's customary charges for the services provided.

To attract additional volume, most of the Company's hospitals offer
discounts from customary charges to certain large group purchasers of health
care services, including Blue Cross, other private insurance companies,
employers, HMOs, PPOs and other managed care plans. Blue Cross is a private
health care program that funds hospital benefits through independent plans that
vary in each state. These discount programs limit the Company's ability to
increase charges in response to increasing costs. See "Competition." Patients
are generally not responsible for any difference between customary hospital
charges and amounts reimbursed for such services under Medicare, Medicaid, some
Blue Cross plans, HMOs or PPOs, but are responsible to the extent of any
exclusions, deductibles or co-insurance features of their coverage. The amount
of such exclusions, deductibles and co-insurance has been increasing each year.
Collection of amounts due from individuals is typically more difficult than from
governmental or third party payers.

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Medicare

Under the Medicare program the Company receives reimbursement under a
prospective payment system ("PPS") for inpatient hospital services. Psychiatric,
long-term care, rehabilitation, specially designated children's hospitals and
certain designated cancer research hospitals, as well as psychiatric or
rehabilitation units that are distinct parts of a hospital and meet Health Care
Financing Administration ("HCFA") criteria for exemption, are currently exempt
from PPS and are reimbursed on a cost based system, subject to certain cost
limits (known as TEFRA limits).

Under PPS, fixed payment amounts per inpatient discharge are established
based on the patient's assigned diagnosis related group ("DRG"). DRGs classify
treatments for illnesses according to the estimated intensity of hospital
resources necessary to furnish care for each principal diagnosis. DRG rates have
been established for each hospital participating in the Medicare program. DRG
weights are based upon a statistically normal distribution of severity. When the
cost of treatment for certain patients falls well outside the normal
distribution, providers receive additional payments (cost outliers). DRG
payments do not consider a specific hospital's cost, but are adjusted for area
wage differentials. The majority of inpatient capital costs for acute care
facilities are reimbursed on a prospective payment system based on DRG weights
multiplied by a Federal rate adjusted by a geographic adjustment factor.
Outpatient capital costs are reimbursed at cost less 10%.

DRG rates are updated and DRG weights are recalibrated annually and have
been affected by several recent Federal enactments. The index used to adjust the
DRG rates (the "market basket") gives consideration to the inflation experienced
by hospitals (within the hospital market basket) in purchasing goods and
services. However, for several years the percentage increases to the DRG rates
have been lower than the percentage increases in the costs of goods and services
purchased by hospitals. The DRG rates are adjusted each Federal fiscal year,
which begins on October 1. The historical DRG rate increases were 1.1%, 1.5%,
2.0%, 0.0%, 0.5% and 1.1% for Federal fiscal years 1995, 1996, 1997, 1998, 1999,
and 2000, respectively. The budgeted updates for Federal fiscal years 2001 and
2002 are market basket minus 1.1% for both years.

Outpatient services provided at general, acute care hospitals typically are
reimbursed by Medicare at the lower of customary charges, a blend of fee
schedule amounts and costs that are subject to limits, or actual costs, subject
to limits. The Balanced Budget Act of 1997 ("BBA-97"), enacted August 5, 1997,
contains provisions that affect outpatient services, including a requirement
that HCFA adopt a prospective payment system for outpatient hospital services to
begin January 1, 1999. However, implementation of the outpatient PPS was delayed
because of Year 2000 systems concerns. The outpatient PPS is currently
anticipated to be implemented in July 2000. At such time as outpatient PPS is
implemented, the rates will be based on the rates that would have been in effect
January 1, 1999, updated by the rate of increase in the hospital market basket
minus one percentage point. The Company is not able to predict the effect, if
any, that the new payment system will have on its financial results. After the
fee schedule is established for this new PPS system, the fee schedule is to be
updated by the market basket minus 1.0% for each of Federal fiscal years 2000
through 2002. Similarly, effective January 1, 1999, therapy services rendered by
hospitals to outpatients and inpatients not covered under a Part A stay are
reimbursed according to the Medicare physician fee schedule.

Payments to PPS-exempt hospitals and units, (i.e., inpatient psychiatric,
rehabilitation and long-term hospital services), are based upon reasonable cost,
subject to a cost per discharge target (the TEFRA limit). These limits are
updated annually by a market basket index. For Federal fiscal years 1995, 1996
and 1997, the market basket rate of increase was 3.7%, 3.4%, and 2.5%
respectively. For Federal fiscal years 1994 through 1997, the market basket was
reduced by the lesser of 1% or the percentage difference between 10% and the
percentage by which the hospital's allowable operating costs exceeded the target
amount in Federal fiscal year 1990. For Federal fiscal year 1998, there was no
increase. The update for cost reporting periods beginning on or after October 1,
1998 (i.e., FY 1999) is the market basket less a percentage point between 0% and
2.4% depending on the hospital's or unit's costs in relation to the ceiling
(target). Furthermore, limits have been established for the cost per discharge
target at the 75th percentile for each category of PPS-exempt hospitals and
hospital units. For Federal fiscal year 1998, these limits were $10,534,
$19,104, and $37,688 per discharge for inpatient psychiatric, rehabilitation and
long-term hospital services, respectively. For Federal fiscal year

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1999, these new limits were $10,787, $19,562 and $38,593 per discharge,
respectively. For Federal fiscal year 2000, these limits are $11,100, $20,129
and $39,712 per discharge respectively. In addition the cost per discharge for
new hospitals/hospital units cannot exceed 110% of the national median target
rate for hospitals in the same category. For Federal fiscal year 1998 these
amounts were $8,517, $16,738, and $18,947 per discharge for inpatient
psychiatric, rehabilitation and long-term hospital services, respectively, and
are wage adjusted. For Federal fiscal year 1999, these amounts are $8,686,
$17,077 and $22,010 per discharge for inpatient psychiatric, rehabilitation and
long-term hospital services, respectively. For Federal fiscal year 2000, these
amounts are $8,938, $17,573 and $22,649 per discharge for inpatient psychiatric,
rehabilitation and long-term hospital services, respectively.

Skilled nursing facilities ("SNF") have historically been reimbursed by
Medicare on the basis of actual costs, subject to certain limits. BBA-97
requires the establishment of a prospective payment system for Medicare skilled
nursing facilities under which facilities will be paid a Federal per diem rate
for virtually all covered services. The new payment system is being phased in
over three cost reporting periods, starting with cost reporting periods
beginning on or after July 1, 1998. The law also institutes consolidated billing
for skilled nursing facility services, under which payments for most
non-physician Part B services for beneficiaries no longer eligible for Part A
skilled nursing facility care will be made to the facility, regardless of
whether the item or service was furnished by the facility, by others under
arrangement, or under any other contracting or consulting arrangement. The
consolidated billing and coding requirements are effective for services and
items furnished on or after July 1, 1998. Originally, HCFA provided for a
"transition period", but this instruction was subsequently superseded. The
transition period was eliminated and instead HCFA provided that a SNF must
consolidate its bills as of its PPS start date, for those of its residents who
are in a covered Part A stay.

BBA-97 also requires the United States Department of Health and Human
Services ("HHS") to establish a PPS for home health services, to be implemented
beginning October 1, 1999. Prior to implementation, BBA-97 establishes certain
interim payment reforms for cost reporting periods beginning on or after October
1, 1997, including reduced per visit costs limits, and agency-specific per
beneficiary annual limits on an agency's costs. Effective for cost reporting
periods beginning on or after October 1, 1997, home health agencies are paid the
lower of (i) their reasonable costs, (ii) per visit limits or (iii) blended
agency specific per beneficiary limits based on 98% of 1994 base year costs. The
interim payment system will continue to be utilized until the PPS for home
health services is implemented. HCFA intends to implement full transition to the
PPS on October 1, 2000. The Company substantially divested its home health care
services in 1998.

Currently, physicians are paid by Medicare on a physician fee schedule.
However, physicians working in rural health clinics, such as those maintained by
the Company, are reimbursed for their professional and administrative services
through the rural health clinic at cost, subject to per visit limits, unless the
rural health clinic is based at a rural hospital with less than 50 beds.

Medicare has special payment provisions for "sole community hospitals." A
sole community hospital is generally the only hospital in at least a 35-mile
radius. Five of the Company's facilities qualify as sole community hospitals
under Medicare regulations. Special payment provisions related to sole community
hospitals include a higher reimbursement rate, which is based on a blend of
hospital-specific costs and the national DRG rate, and a 90% payment "floor" for
capital costs which guarantees the sole community hospital capital reimbursement
equal to 90% of capital cost. In addition, the Tricare (formally known as
CHAMPUS) program has special payment provisions for hospitals recognized as sole
community hospitals for Medicare purposes (i.e., exempt from Tricare DRG-based
payment system).

BBA-97 mandates a prospective payment system for skilled nursing facility
services for Medicare cost reporting periods commencing after June 30, 1998,
hospital outpatient services beginning January 1, 1999 (delayed until July 1,
2000), home health services for Medicare cost reporting periods beginning after
September 30, 1999 (delayed until October 1, 2000), and inpatient rehabilitation
hospital services for Medicare cost reporting periods beginning after September
30, 2000. Prior to the commencement of the prospective payment systems, payment
constraints will be applied to PPS-exempt hospitals and units for Medicare cost
reporting periods beginning on or after October 1, 1997. As of December 31,
1999, the

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Company had 59 rehabilitation hospitals/units, 103 skilled nursing facility
units, one long-term care hospital and 78 psychiatric hospitals/units.

On November 29, 1999 President Clinton signed the Medicare, Medicaid, and
SCHIP Balanced Budget Refinement Act of 1999. This significant legislation will
likely have a positive impact on the BBA-97 provisions described above. Changes
were made to medical education payments and adjustments, inpatient PPS
disproportionate share payments, limits for the cost per discharge target at the
75th percentile for each category of PPS-exempt hospitals and hospital units,
rural health clinic payments (Critical Access Hospitals), sole community
hospitals payment rate options, SNF payment rates, home health payment rates and
many other payment rate provisions. Transition provisions for outpatient PPS and
suspension of the outpatient therapy caps for Federal fiscal years 2000 and 2001
were also included. With the exception of a few program memoranda, HCFA has not
yet begun to translate this legislation into published regulations.

Medicaid

Most state Medicaid payments are made under a prospective payment system or
under programs which negotiate payment levels with individual hospitals.
Medicaid reimbursement is often less than a hospital's cost of services.
Medicaid is currently funded jointly by the states and Federal government. The
amount of the Federal government's portion is at least 50% of the state's
qualifying costs. The Federal government and many states are currently
considering significant reductions in the level of Medicaid funding while at the
same time expanding Medicaid benefits, which could adversely affect future
levels of Medicaid reimbursement received by the Company's hospitals.

On November 27, 1991, Congress enacted the Medicaid Voluntary Contribution
and Provider-Specific Tax Amendments of 1991 which limit the amount of voluntary
contributions and provider-specific taxes that can be used by states to fund
Medicaid and require the use of broad-based taxes for such funding. As a result
of enactment of these amendments, certain states in which the Company operates
have adopted broad-based provider taxes to fund their Medicaid programs. The
impact of these new taxes upon the Company has not been materially adverse.
However, the Company is unable to predict whether any additional broad-based
provider taxes will be adopted by the states in which it operates and,
accordingly, is unable to assess the effect of such additional taxes on its
results of operations or financial position.

Annual Cost Reports

All hospitals participating in the Medicare program, whether paid on a
reasonable cost basis or under PPS, are required to meet certain financial
reporting requirements. Federal regulations require the submission of annual
cost reports covering the revenue, costs and expenses associated with the
services provided by each hospital to Medicare beneficiaries.

Annual cost reports required under the Medicare and Medicaid programs are
subject to routine audits, which may result in adjustments to the amounts
ultimately determined to be due to the Company under these reimbursement
programs. These audits often require several years to reach the final
determination of amounts earned under the programs. Providers also have rights
of appeal, and it is common to contest issues raised in audits of prior years'
reports. As a result of the ongoing government investigations, the annual audits
of many of the Company's cost reports are being delayed. The Company believes
that adequate provisions have been made in its financial statements for any
material retroactive adjustments that might result from such audits and that
final resolution of the contested issues will not have a material adverse effect
upon its results of operations or financial position.

Reviews of previously submitted annual cost reports and the cost report
preparation process are areas included in the ongoing government investigations
of the Company. We remain unable to predict the outcome of these investigations;
however, if the Company or any of its facilities were found to be in violation
of Federal or state laws relating to Medicare, Medicaid or similar programs, the
Company could be subject to substantial monetary fines, civil and criminal
penalties and exclusion from participation in the Medicare and Medicaid
programs. Any such sanctions could have a material adverse effect on the
financial position and results of operations of the Company. See Item
3 -- "Legal Proceedings."
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Managed Care

Pressures to control the costs of health care have resulted in increases to
the percentage of admissions and revenues attributable to managed care payers.
The percentage of the Company's admissions attributable to managed care payers
increased from 38.7% for the year ended December 31, 1998 to 41.4% for the year
ended December 31, 1999. The percentage of the Company's revenues from
continuing operations attributable to managed care payers increased from 31.7%
for the year ended December 31, 1998 to 36.7% for the year ended December 31,
1999. The Company expects that the trend toward increasing percentages of
admissions and revenues related to managed care payers will continue in the
future. The Company generally receives lower payments from managed care payers
than from traditional commercial/indemnity insurers.

Commercial Insurance

The Company's hospitals provide services to individuals covered by private
health care insurance. Private insurance carriers make direct payments to such
hospitals or, in some cases, reimburse their policyholders based upon the
particular hospital's established charges and the particular coverage provided
in the insurance policy.

Commercial insurers are continuing efforts to limit the costs of hospital
services by adopting discounted payment mechanisms, including prospective
payment or DRG-based payment systems for more inpatient and outpatient services.
To the extent that such efforts are successful and reduce the insurers'
reimbursement to hospitals for the costs of providing services to their
beneficiaries, such reduced levels of reimbursement may have a negative impact
on the operating results of the Company's hospitals.

HOSPITAL UTILIZATION

The Company believes that the two most important factors relating to the
overall utilization of a hospital are the quality and market position of the
hospital and the number and quality of physicians providing patient care within
the facility. Generally, the Company believes that the ability of a hospital to
be a market leader is determined by its breadth of services, level of
technology, emphasis on quality of care and convenience for patients and
physicians. Other factors which impact utilization include the growth in local
population, local economic conditions and market penetration of managed care
programs.

The following table sets forth certain operating statistics for hospitals
owned by the Company. Medical/surgical hospital operations are subject to
certain seasonal fluctuations, including decreases in patient utilization during
holiday periods and increases in the cold weather months. Psychiatric hospital
operations are also subject to certain seasonal fluctuations, including
decreases in patient occupancy during the summer months and holiday periods.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Number of hospitals at end of period(a)... 195 281 309 319 319
Number of licensed beds at end of
period(b)............................... 42,484 53,693 60,643 61,931 61,347
Weighted average licensed beds(c)......... 46,291 59,104 61,096 62,708 61,617
Admissions(d)............................. 1,625,400 1,891,800 1,915,100 1,895,400 1,774,800
Equivalent admissions(e).................. 2,425,100 2,875,600 2,901,400 2,826,000 2,598,300
Average length of stay (days)(f).......... 4.9 5.0 5.0 5.1 5.3
Average daily census(g)................... 22,002 25,719 26,006 26,583 25,917
Occupancy rate(h)......................... 48% 44% 43% 42% 42%
</TABLE>

- ---------------

(a) Excludes 12 facilities in 1999, 24 facilities in 1998, 27 facilities in
1997, 22 facilities in 1996 and 19 facilities in 1995 that are not
consolidated (accounted for using the equity method) for financial reporting
purposes.
(b) Licensed beds are those beds for which a facility has been granted approval
to operate from the applicable state licensing agency.
(c) Represents the average number of licensed beds, weighted based on periods
owned.

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(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) Represents the average number of patients in the Company's hospital beds
each day.
(h) Represents the percentage of hospital licensed beds occupied by patients.
Both average daily census and occupancy rate provide measures of the
utilization of inpatient rooms.

Hospitals have experienced significant shifts from inpatient to outpatient
care as well as decreases in average lengths of inpatient stay, primarily as a
result of improvements in technology and clinical practices and hospital payment
changes by Medicare, insurance carriers, managed care programs and self-insured
employers. These changes generally encourage the utilization of outpatient,
rather than inpatient, services whenever possible, and shorter lengths of stay
for inpatient care.

COMPETITION

Generally, other hospitals in the local communities served by most of the
Company's hospitals provide services similar to those offered by the Company's
hospitals. Additionally, in the past several years the number of freestanding
outpatient surgery and diagnostic centers in the geographic areas in which the
Company operates has increased significantly. As a result, most of the Company's
hospitals operate in an increasingly competitive environment. The rates charged
by the Company's hospitals are intended to be competitive with those charged by
other local hospitals for similar services. In some cases, competing hospitals
are more established than the Company's hospitals. Some competing hospitals are
owned by tax-supported government agencies and many others by not-for-profit
entities which may be supported by endowments and charitable contributions and
are exempt from sales, property and income taxes. Such exemptions and support
are not available to the Company's hospitals. In addition, in certain localities
served by the Company there are large teaching hospitals which provide highly
specialized facilities, equipment and services which may not be available at
most of the Company's hospitals. Psychiatric hospitals frequently attract
patients from areas outside their immediate locale and, therefore, the Company's
psychiatric hospitals compete with both local and regional hospitals, including
the psychiatric units of general, acute care hospitals.

The Company believes that its hospitals compete within local communities on
the basis of many factors, including the quality of care, ability to attract and
retain quality physicians, location, breadth of services, technology offered and
prices charged. The competition among hospitals and other health care providers
has intensified in recent years as hospital occupancy rates have declined. The
Company's strategies are designed, and management believes that its hospitals
are positioned, to be competitive under these changing circumstances.

One of the most significant factors in the competitive position of a
hospital is the number and quality of physicians affiliated with the hospital.
Although physicians may at any time terminate their affiliation with a hospital
operated by the Company, the Company's hospitals seek to retain physicians of
varied specialties on the hospitals' medical staffs and to attract other
qualified physicians. The Company believes that physicians refer patients to a
hospital primarily on the basis of the quality of services it renders to
patients and physicians, the quality of other physicians on the medical staff,
the location of the hospital and the quality of the hospital's facilities,
equipment and employees. Accordingly, the Company strives to maintain high
ethical and professional standards and quality facilities, equipment, employees
and services for physicians and their patients.

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Another major factor in the competitive position of a hospital is
management's ability to negotiate service contracts with purchasers of group
health care services. HMOs and PPOs attempt to direct and control the use of
hospital services through managed care programs and to obtain discounts from
hospitals' established charges. In addition, employers and traditional health
insurers are increasingly interested in containing costs through negotiations
with hospitals for managed care programs and discounts from established charges.
Generally, hospitals compete for service contracts with group health care
services purchasers on the basis of price, market reputation, geographic
location, quality and range of services, quality of the medical staff and
convenience. The importance of obtaining contracts with managed care
organizations varies from community to community depending on the market
strength of such organizations.

State certificate of need ("CON") laws, which place limitations on a
hospital's ability to expand hospital services and add new equipment, may also
have the effect of restricting competition. The application process for approval
of covered services, facilities, changes in operations and capital expenditures
is, therefore, highly competitive. In those states which have no CON laws or
which set relatively high levels of expenditures before they become reviewable
by state authorities, competition in the form of new services, facilities and
capital spending is more prevalent. The Company has not experienced, and does
not expect to experience, any material adverse effects from state CON
requirements or from the imposition, elimination or relaxation of such
requirements. See "Regulation and Other Factors."

The Company, and the health care industry as a whole, face the challenge of
continuing to provide quality patient care while dealing with rising costs,
strong competition for patients and a general reduction of reimbursement rates
by both private and government payers. As both private and government payers
reduce the scope of what may be reimbursed and reduce reimbursement levels for
what is covered, Federal and state efforts to reform the United States health
care system may further impact reimbursement rates. Changes in medical
technology, existing and future legislation, regulations and interpretations and
competitive contracting for provider services by private and government payers
may require changes in the Company's facilities, equipment, personnel, rates
and/or services in the future.

The hospital industry and the Company's hospitals continue to have
significant unused capacity. Inpatient utilization, average lengths of stay and
average occupancy rates continue to be negatively affected by payer-required
pre-admission authorization, utilization review and by payer pressure to
maximize outpatient and alternative health care delivery services for less
acutely ill patients. Increased competition, admissions constraints and payer
pressures are expected to continue. To meet these challenges, the Company
expands many of its facilities to include outpatient centers, offers discounts
to private payer groups, upgrades facilities and equipment and offers new
programs and services.

REGULATION AND OTHER FACTORS

Licensure, Certification and Accreditation

Health care facility construction and operation is subject to Federal,
state and local regulations relating to the adequacy of medical care, equipment,
personnel, operating policies and procedures, fire prevention, rate-setting and
compliance with building codes and environmental protection laws. Facilities are
subject to periodic inspection by governmental and other authorities to assure
continued compliance with the various standards necessary for licensing and
accreditation. The Company's health care facilities are properly licensed under
appropriate state laws. Substantially all of the Company's general, acute care
hospitals are certified for participation in the Medicare program and are
accredited by the Joint Commission on Accreditation of Healthcare Organizations
("Joint Commission"). Certain of the Company's psychiatric hospitals do not
participate in these programs. Should any facility lose its Joint Commission
accreditation, or otherwise lose its certification under the Medicare program,
the facility would be unable to receive reimbursement from the Medicare and
Medicaid programs. Management believes that the Company's facilities are in
substantial compliance with current applicable Federal, state, local and
independent review body regulations and standards. The requirements for
licensure, certification and accreditation are subject to change and, in order
to remain qualified, it may be necessary for the Company to make changes in its
facilities, equipment, personnel and services.

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Certificates of Need

The construction of new facilities, the acquisition of existing facilities
and the addition of new beds or services may be subject to review by state
regulatory agencies under a CON program. The Company operates hospitals in some
states that require approval under a CON program. Such laws generally require
appropriate state agency determination of public need and approval prior to the
addition of beds or services or certain other capital expenditures. Failure to
obtain necessary state approval can result in the inability to expand
facilities, complete an acquisition or change ownership. Further, violation may
result in the imposition of civil or, in some cases, criminal sanctions, the
denial of Medicare or Medicaid reimbursement or the revocation of a facility's
license.

State Rate Review

Some states in which the Company owns hospitals have adopted legislation
mandating rate or budget review for hospitals or have adopted taxes on hospital
revenues, assessments or licensure fees to fund indigent health care within the
state.

In the aggregate, state rate or budget review and indigent tax provisions
have not materially adversely affected the Company's results of operations. The
Company is unable to predict whether any additional state rate or budget review
or indigent tax provisions will be adopted and, accordingly, is unable to assess
the effect thereof on its results of operations or financial condition.

Utilization Review

Federal law contains numerous provisions designed to ensure that services
rendered by hospitals to Medicare and Medicaid patients meet professionally
recognized standards, are medically necessary and that claims for reimbursement
are properly filed. These provisions include a requirement that a sampling of
admissions of Medicare and Medicaid patients must be reviewed by peer review
organizations ("PROs"), to assess the appropriateness of Medicare and Medicaid
patient admissions and discharges, the quality of care provided, the validity of
DRG classifications and the appropriateness of cases of extraordinary length of
stay or cost. PROs may deny payment for services provided, may assess fines and
also have the authority to recommend to the HHS that a provider which is in
substantial noncompliance with the standards of the PROs be excluded from
participating in the Medicare program. Utilization review is also a requirement
of most non-governmental managed care organizations.

Federal Health Care Program Regulations

Participation in the Medicare program is heavily regulated by Federal
statute and regulation. If a hospital provider fails substantially to comply
with the numerous conditions of participation in the Medicare program or
performs certain prohibited acts (e.g., (i) making false claims to Medicare for
services not rendered or misrepresenting actual services rendered in order to
obtain higher reimbursement; (ii) including improper costs in a cost report;
(iii) paying remuneration for Medicare referrals (so called "fraud and abuse"
which is prohibited by the "anti-kickback" provisions of the Social Security
Act, hereinafter the "Anti-Fraud Amendments"); (iv) failing to stabilize or
appropriately transfer all individuals who come to its emergency room who have
an "emergency medical condition" (whether or not any such individual is eligible
for Medicare), such hospital's participation in the Medicare program may be
terminated or civil or criminal penalties may be imposed upon such hospital
under certain provisions of the Social Security Act.

The provisions of the Anti-Fraud Amendments prohibit providers and others
from soliciting, receiving, offering or paying, directly or indirectly, any
remuneration in return for either making a referral for a service or item
covered by a Federal or state health care program, or ordering (or recommending
or arranging for the ordering of) any covered service or item. Courts have
interpreted these laws broadly so that many otherwise reasonable business
arrangements may implicate the Anti-Fraud Amendments or other Federal health
care laws. Violations of the Anti-Fraud Amendments may be punished by a criminal
fine of up to $50,000 or imprisonment for each violation, civil money penalties
("CMP") of $50,000 and damages of up to three times the total amount of the
remuneration, and exclusion from participation in Federal or state health care
programs.
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In 1976 Congress established the Office of Inspector General ("OIG") at HHS
to identify and eliminate fraud, abuse and waste in HHS programs and to promote
efficiency and economy in HHS departmental operations. The OIG carries out this
mission through a nationwide program of audits, investigations and inspections.
In order to provide guidance to health care providers on ways to engage in
legitimate business practices and avoid scrutiny under the Anti-Fraud
Amendments, the OIG has from time to time issued "fraud alerts" that do not have
the force of law, but identify features of transactions, which, if present, may
indicate that the transaction violates the Anti-Fraud Amendments or other
Federal health care laws. The OIG has identified the following incentive
arrangements as suspect practices: (a) payment of any sort of incentive by the
hospital each time a physician refers a patient to the hospital, (b) the use of
free or significantly discounted office space or equipment (in facilities
usually located close to the hospital), (c) provision of free or significantly
discounted billing, nursing or other staff services, (d) free training for a
physician's office staff in areas such as management techniques and laboratory
techniques, (e) guarantees which provide that, if the physician's income fails
to reach a predetermined level, the hospital will supplement the remainder up to
a certain amount, (f) low-interest or interest-free loans, or loans which may be
forgiven if a physician refers patients (or some number of patients) to the
hospital, (g) payment of the costs of a physician's travel and expenses for
conferences, (h) coverage on the hospital's group health insurance plans at an
inappropriately low cost to the physician, (i) payment for services (which may
include consultations at the hospital) which require few, if any, substantive
duties by the physician, or payment for services in excess of the fair market
value of services rendered or (j) "gainsharing," the practice of giving
physicians a percentage share of any reduction in a hospital's costs for patient
care attributable in part to the physician's efforts. The OIG has encouraged
persons having information about hospitals who offer the above types of
incentives to physicians to report such information to the OIG.

In addition, in July 1991, the OIG issued final regulations outlining
certain "safe harbors" for practices that potentially implicate the Antifraud
Amendments, but would not be subject to enforcement action under the Anti-Fraud
Amendments. The practices protected by the regulations include certain
investment interests, rental of space and equipment, personal services and
management contracts, sales of physician practices, referral services,
warranties, discounts, payments to employees, group purchasing organizations and
waivers of beneficiary deductibles and co-payments. These safe harbors were
updated and expanded in November 1999, and additional new safe harbors were
established for practioner recruitment, obstetrical malpractice insurance
subsidies, group practices, cooperative hospital service organizations,
ambulatory surgery centers, specialty referrals and certain managed care
arrangements. Certain of the Company's current arrangements with physicians,
including joint ventures, do not qualify for the current safe harbor protection.
The failure of these arrangements to satisfy all of the conditions of the
applicable safe harbor criteria does not mean that the arrangements are illegal;
rather, it may subject such arrangements to additional scrutiny by the OIG.
Certain of the Company's current financial arrangements with physicians,
including joint ventures, and the Company's future financial arrangements with
physicians, could be adversely affected by the failure of such arrangements to
comply with the safe harbor regulations, or the future adoption of other
legislation or regulation in these areas.

Section 1877 of the Social Security Act (commonly known as the "Stark Law")
prohibits referrals of Medicare and Medicaid patients by physicians to entities
with which the physician has a financial relationship for the provision of
certain "designated health services" which are reimbursable by Medicare or
Medicaid. "Designated health services" include among other things, clinical
laboratory services, physical and occupational therapy services, radiology
services, durable medical equipment, home health, and inpatient and outpatient
hospital services. Sanctions for violating the Stark Law include civil monetary
penalties up to $15,000 per prohibited service provided, assessments equal to
twice the dollar value of each such service provided and exclusion from the
Medicare and Medicaid programs. The statute also provides a penalty of up to
$100,000 for a circumvention scheme. There are exceptions to the self-referral
prohibition for certain financial relationships, including an exception if the
physician has an ownership interest in the entire hospital. Where a financial
relationship exists, the arrangement must meet a statutory exception or
referrals are prohibited. Proposed regulations implementing the Stark Law, as
amended, have not been implemented. The Company cannot predict the final form
that such regulations will take or the effect that the Stark Law or the
regulations promulgated thereunder will have on the Company.
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Many states in which the Company operates also have laws that prohibit
payments to physicians for patient referrals with statutory language similar to
the Anti-Fraud Amendments, but with broader effect since they apply regardless
of the source of payment for care. These statutes typically provide criminal and
civil penalties as well as loss of licensure. Many states also have passed
legislation similar to the Stark Law, but with broader effect, since the
legislation applies regardless of the source of payment for care. The scope of
these state laws is broad, and little precedent exists for their interpretation
or enforcement.

The Health Insurance Portability and Accountability Act of 1996 ("HIPAA"),
which became effective January 1, 1997, amends, among other things, Title XI (42
U.S.C. sec. 1301 et seq.), to broaden the scope of certain fraud and abuse laws
to include all health care services whether or not they are reimbursed under a
Federal program, and creates new enforcement mechanisms to combat fraud and
abuse, including an incentive program under which individuals can receive up to
$1,000 for providing information on Medicare fraud and abuse that leads to the
recovery of at least $100 of Medicare funds. Under HIPAA, health care fraud, now
defined as knowingly and willfully executing or attempting to execute a "scheme
or device" to defraud any health care benefit program, is made a Federal
criminal offense. In addition, Federal enforcement officials will have the
ability to exclude from Medicare and Medicaid any investors, officers and
managing employees associated with business entities that have committed health
care fraud, even if the officer or managing employee had no knowledge of the
fraud. HIPAA also establishes a new violation for the payment of inducements to
Medicare or Medicaid beneficiaries in order to influence those beneficiaries to
order or receive services from a particular provider or practitioner.

HIPAA was followed by BBA-97 which was enacted by Congress in August 1997.
BBA-97 contains a significant number of new fraud and abuse provisions. CMP may
now be imposed for violations of the anti-kickback provisions of the Medicare
and Medicaid statute (previously, exclusion or criminal prosecution were the
only actions under the anti-kickback statute) as well as contracting with an
individual or entity that the provider knows or should know is excluded from a
Federal health care program. BBA-97 provides for a CMP of $50,000 and damages of
not more than three times the amount of remuneration in the prohibited activity.
In addition, BBA-97 also has important discharge planning and reimbursement
provisions as well as surety bond requirements for home health agencies.

The Social Security Act also imposes criminal and civil penalties for
making false claims to Medicare and Medicaid. False claims include, but are not
limited to, billing for services not rendered or for misrepresenting actual
services rendered in order to obtain higher reimbursement and cost report fraud.
Like the Anti-Fraud Amendments, this statute is very broad. Careful and accurate
coding of claims for reimbursement, including cost reports, must be performed to
avoid liability under the false claims statutes.

Certain of the Company's current financial arrangements with physicians,
including joint ventures, and the Company's future development of joint ventures
and other financial arrangements with physicians, do not and will not meet all
of the requirements for safe harbor protection. The Company's operations could
be adversely affected by the failure of such arrangements to comply with the
Anti-Fraud Amendments, the Stark Law, current state laws or other legislation or
regulation in these areas adopted in the future. The Company is unable to
predict the effect of such regulations, whether other legislation or regulations
at the Federal or state level in any of these areas will be adopted, what form
such legislation or regulations may take or their impact on the Company. The
Company is continuing to enter into new financial arrangements with physicians
and other providers in a manner structured to comply in all material respects
with these laws. There can be no assurance, however, that (i) governmental
officials charged with the responsibility for enforcing these laws will not
assert that the Company is in violation thereof or (ii) such statutes will
ultimately be interpreted by the courts in a manner consistent with the
Company's interpretation.

Medicare Regulations and Fraud and Abuse are areas included in the
government investigation of the Company. See Item 3 -- "Legal Proceedings."

All the Company's hospitals are subject to the Emergency Treatment and
Active Labor Act ("EMTALA"), a Federal law that requires any hospital that
participates in the Medicare program to conduct an appropriate medical screening
examination of every person who presents to the hospital's emergency room to
determine if that person is suffering from an emergency medical condition and,
if the patient is suffering
14
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from an emergency medical condition, to either stabilize that condition or make
an appropriate transfer of the patient to a facility that can handle the
condition. The obligation to screen and stabilize emergency medical conditions
exists regardless of a patient's ability to pay for treatment. There are severe
penalties under EMTALA if a hospital refuses to screen or appropriately
stabilize or transfer a patient or if the hospital delays appropriate treatment
in order to first inquire about the patient's ability to pay. Penalties for
violation of EMTALA include fines and possibly the exclusion from participation
in the Medicare program. In addition, an injured patient or the patient's family
can bring a civil suit against the hospital.

The government has adopted a broad interpretation of EMTALA to cover
situations in which patients do not actually present to a hospital's emergency
room but present to a hospital-based clinic or are transported in a
hospital-owned ambulance. The government also has expressed its intent to
investigate and enforce EMTALA violations actively in the future. Moreover,
patients are increasingly including in malpractice lawsuits EMTALA violation
allegations.

Management believes the Company's hospitals operate in compliance with
EMTALA. However, there can be no assurance that the regulatory authorities
empowered to investigate a Company hospital will not conclude that it has
violated EMTALA, or that a patient will not sue a hospital alleging a violation
of EMTALA.

State Legislation

Some of the states in which the Company operates have laws that prohibit
corporations and other entities from employing physicians and practicing
medicine for a profit or that prohibit certain direct and indirect payments or
fee-splitting arrangements between health care providers that are designed to
induce or encourage the referral of patients to, or the recommendation of,
particular providers for medical products and services. In addition, some states
restrict certain business relationships between physicians and pharmacies.
Possible sanctions for violation of these restrictions include loss of license
and civil and criminal penalties. These statutes vary from state to state, are
often vague and have seldom been interpreted by the courts or regulatory
agencies. Although the Company exercises care in an effort to structure its
arrangements with health care providers to comply with the relevant state
statutes, and although management believes that the Company is in substantial
compliance with these laws, there can be no assurance that (i) governmental
officials charged with responsibility for enforcing these laws will not assert
that the Company or certain transactions in which it is involved are in
violation of such laws and (ii) such state laws will ultimately be interpreted
by the courts in a manner consistent with the practices of the Company.

Health Care Reform

Health care, as one of the largest industries in the United States,
continues to attract much legislative interest and public attention. In recent
years, an increasing number of legislative proposals have been introduced or
proposed in Congress and in some state legislatures that would effect major
changes in the health care system, either nationally or at the state level.
Among the proposals under consideration are cost controls on hospitals,
insurance market reforms to increase the availability of group health insurance
to small businesses, requirements that all businesses offer health insurance
coverage to their employees and the creation of a single government health
insurance plan that would cover all citizens. The costs of certain proposals
would be funded in significant part by reductions in payments by governmental
programs, including Medicare and Medicaid, to health care providers such as
hospitals. There can be no assurance that future health care legislation or
other changes in the administration or interpretation of governmental health
care programs will not have a material adverse effect on the Company's business,
financial condition or results of operations.

Conversion Legislation

Many states have enacted or are considering enacting laws affecting the
conversion or sale of not-for-profit hospitals. These laws, in general, include
provisions relating to attorney general approval, advance notification and
community involvement. In addition, state attorneys general in states without
specific

15
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conversion legislation may exercise authority over these transactions based upon
existing law. In many states there has been an increased interest in the
oversight of not-for-profit conversions. The adoption of conversion legislation
and the increased review of not-for-profit hospital conversions may limit the
Company's ability to grow through acquisitions of not-for-profit hospitals.

Revenue Ruling 98-15

In March 1998, the IRS issued guidance regarding the tax consequences of
joint ventures between for-profit and not-for-profit hospitals. As a result of
the tax ruling, the IRS may 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.
The Company 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 an appropriate course of
action. The tax ruling or any adverse determination by the IRS 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 "put agreements" (that require the Company to purchase
the partner's interest in the joint venture) by certain existing joint venture
partners.

ENVIRONMENTAL MATTERS

The Company is subject to various Federal, state and local statutes and
ordinances regulating the discharge of materials into the environment.
Management does not believe that the Company will be required to expend any
material amounts in order to comply with these laws and regulations or that
compliance will materially affect its capital expenditures, results of
operations or competitive position.

INSURANCE

As is typical in the health care industry, the Company is subject to claims
and legal actions by patients in the ordinary course of business. Through a
wholly-owned insurance subsidiary, the Company insures a substantial portion of
its professional and general liability risks. The Company's health care
facilities are insured by the insurance subsidiary for losses of up to $25
million per occurrence, a portion of which is reinsured with unrelated
commercial carriers. The Company also maintains professional and general
liability insurance with unrelated commercial carriers for losses in excess of
amounts insured by its insurance subsidiary.

The Company and its insurance subsidiary maintain allowances for loss for
professional and general liability risks which totalled $1.3 billion at December
31, 1999. Management considers such allowances, which are based on actuarially
determined estimates, to be adequate for such liability risks. Any losses
incurred in excess of the established allowances for loss will be reflected as a
charge to earnings of the Company. Any losses incurred in excess of amounts
funded and maintained with commercial excess liability insurance carriers will
be funded from the Company's working capital. While the Company's cash flow has
been adequate to provide for professional and general liability claims in the
past, there can be no assurance that such amounts will continue to be adequate.
If payments for professional and general liabilities exceed anticipated losses,
the results of operations and financial condition of the Company could be
adversely affected.

EMPLOYEES AND MEDICAL STAFFS

At December 31, 1999, the Company had approximately 168,000 employees,
including approximately 50,000 part-time employees. Employees at 7 hospitals are
represented by various labor unions. The Company considers its employee
relations to be satisfactory. While the Company's hospitals experience union
organizational activity from time to time, the Company does not expect such
efforts to materially affect its future operations. The Company's hospitals,
like most hospitals, have experienced labor costs rising faster than the general
inflation rate. In recent years, the Company generally has not experienced
material difficulty in

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recruiting and retaining employees, including nurses and professional staff
members, primarily as a result of staff retention programs and general economic
conditions. There can be no assurance as to future availability and cost of
qualified medical personnel. References herein to "employees" refer to employees
of affiliates of the Company.

The Company's hospitals are staffed by licensed physicians who have been
accepted to the medical staff of individual hospitals. With certain exceptions,
physicians generally are not employees of the Company's hospitals. However, some
physicians provide services in the Company's hospitals under contracts, which
generally describe a term of service, provide and establish the duties and
obligations of such physicians, require the maintenance of certain performance
criteria and fix compensation for such services. Any licensed physician may
apply to be accepted to the medical staff of any of the Company's hospitals, but
acceptance to the staff must be approved by the hospital's medical staff and the
appropriate governing board of the hospital in accordance with established
credentialling criteria. Members of the medical staffs of the Company's
hospitals often also serve on the medical staffs of other hospitals and may
terminate their affiliation with a hospital at any time.

EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers of the Company as of March 15, 2000, were as
follows:

<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
Thomas F. Frist, Jr., M.D............ 61 Chairman of the Board and Chief Executive Officer
Jack O. Bovender, Jr................. 54 President, Chief Operating Officer and Director
David G. Anderson.................... 52 Senior Vice President -- Finance and Treasurer
Richard M. Bracken................... 47 President -- Western Group
Victor L. Campbell................... 53 Senior Vice President
W. Leon Drennan...................... 44 President -- Physician Services
Rosalyn S. Elton..................... 38 Senior Vice President -- Operations Finance
James A. Fitzgerald, Jr.............. 45 Senior Vice President -- Contracts and Operations
Support
V. Carl George....................... 56 Senior Vice President -- Development
Jay Grinney.......................... 49 President -- Eastern Group
Samuel N. Hazen...................... 39 Chief Financial Officer -- Western Group
Frank M. Houser, M.D................. 59 Senior Vice President -- Quality and Medical
Director
R. Milton Johnson.................... 43 Senior Vice President and Controller
Patricia T. Lindler.................. 52 Senior Vice President -- Government Programs
A. Bruce Moore, Jr................... 40 Senior Vice President -- Operations Administration
Philip R. Patton..................... 47 Senior Vice President -- Human Resources
Gregory S. Roth...................... 43 President -- Ambulatory Surgery Group
William B. Rutherford................ 36 Chief Financial Officer -- Eastern Group
Joseph N. Steakley................... 45 Senior Vice President -- Internal Audit & Consulting
Services
Beverly B. Wallace................... 49 Senior Vice President -- Revenue Cycle Operations
Management
Robert A. Waterman................... 46 Senior Vice President and General Counsel
Noel Brown Williams.................. 45 Senior Vice President and Chief Information Officer
Alan R. Yuspeh....................... 50 Senior Vice President -- Ethics, Compliance and
Corporate Responsibility
</TABLE>

Thomas F. Frist, Jr., M.D. has served as Chairman of the Board and Chief
Executive Officer since July 1997. Previously, he served as Vice Chairman of the
Board of the Company from April 1995 until July 1997. From February 1994 to
April 1995, he was Chairman of the Board of the Company. Dr. Frist was Chairman
of the Board, President and Chief Executive Officer of HCA -- Hospital
Corporation of America ("HCA") from 1988 to February 1994.

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18

Jack O. Bovender, Jr. has served as President and Chief Operating Officer
of the Company since August 1997. Mr. Bovender was appointed as a Director of
the Company in July 1999. From April 1994 to August 1997, he was retired after
serving as Chief Operating Officer of HCA from 1992 until 1994. Prior to 1992,
Mr. Bovender held several senior level positions with HCA.

David G. Anderson has served as Senior Vice President -- Finance of the
Company since July 1999. Mr. Anderson served as Vice President -- Finance of the
Company from September 1993 to July 1999 and was elected to the additional
position of Treasurer in November 1996. From March 1993 until September 1993,
Mr. Anderson served as Vice President -- Finance and Treasurer of Galen Health
Care, Inc. From July 1988 to March 1993, Mr. Anderson served as Vice
President -- Finance and Treasurer of Humana Inc.

Richard M. Bracken has served as President -- Western Group of the Company
since August 1997. From January 1995 to August 1997, Mr. Bracken served as
President of the Pacific Division of the Company. From July 1993 to December
1994, he served as President of Nashville Healthcare Network, Inc. From December
1981 to June 1993, he served in various hospital Chief Executive Officer and
Administrator positions with HCA.

Victor L. Campbell has served as Senior Vice President of the Company since
February 1994. Prior to that time, Mr. Campbell served as HCA's Vice President
for Investor, Corporate and Government Relations. Mr. Campbell joined HCA in
1972. Mr. Campbell is currently a director of the Federation of American Health
Systems and serves on the operations committee of the American Hospital
Association.

W. Leon Drennan has served as President -- Physician Services for the
Company since January 1998. Mr. Drennan served as Senior Vice President from
February 1996 to December 1997. Mr. Drennan served as Senior Vice
President -- Internal Audit of the Company from January 1995 to February 1996.
From February 1994 to January 1995, Mr. Drennan served as Vice
President -- Internal Audit of the Company. Mr. Drennan served as Vice
President -- Internal Audit for HCA from 1987 until 1994.

Rosalyn S. Elton has served as Senior Vice President -- Operations Finance
of the Company since July 1999. Ms. Elton served as Vice President -- Operations
Finance of the Company from August 1993 to July 1999. From October 1990 to
August 1993, Ms. Elton served as Vice President -- Financial Planning and
Treasury for the Company.

James A. Fitzgerald, Jr. has served as Senior Vice President -- Contracts
and Operations Support of the Company since July 1999. Mr. Fitzgerald served as
Vice President -- Contracts and Operations Support of the Company from 1994 to
July 1999. From 1993 to 1994, he served as the Vice President of Operations
Support for HCA. From July 1981 to 1993, Mr. Fitzgerald served as Director of
Internal Audit for HCA.

V. Carl George has served as Senior Vice President -- Development of the
Company since July 1999. Mr. George served as Vice President -- Development of
the Company from April 1995 to July 1999. From September 1987 to April 1995, Mr.
George served as Director of Development for Healthtrust. Prior to working for
Healthtrust, Mr. George served with Hospital Corporation of America in various
positions.

Jay Grinney has served as President -- Eastern Group of the Company since
March 1996. From October 1993 to March 1996, Mr. Grinney served as President of
the Greater Houston Division of the Company. From November 1992 to October 1993,
Mr. Grinney served as Chief Operating Officer of the Houston Region of the
Company. From June 1990 to November 1992, Mr. Grinney served as President and
Chief Executive Officer of Rosewood Medical Center in Houston, Texas.

Samuel N. Hazen has served as Chief Financial Officer -- Western Group of
the Company since August 1995. Mr. Hazen served as Chief Financial
Officer -- North Texas Division of the Company from February 1994 to July 1995.
Prior to that time, Mr. Hazen served in various hospital and regional Chief
Financial Officer positions with Humana Inc. and Galen Health Care, Inc.

Frank M. Houser, M.D. has served as Senior Vice President -- Quality and
Medical Director of the Company since November 1997. Dr. Houser served as
President -- Physician Management Services of the Company from May 1996 to
November 1997. Dr. Houser served as President of the Georgia Division of the

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Company from December 1994 to May 1996. From May 1993 to December 1994, Dr.
Houser served as the Medical Director of External Operations at The Emory
Clinic, Inc. in Atlanta, Georgia. Dr. Houser served as State Public Health
Director, Georgia Department of Human Resources, from July 1991 to May 1993.

R. Milton Johnson has served as Senior Vice President and Controller of the
Company since July 1999. Mr. Johnson served as Vice President and Controller of
the Company from November 1998 to July 1999. Prior to that time, Mr. Johnson
served as Vice President -- Tax of the Company from April 1995 to October 1998.
Prior to that time, Mr. Johnson served as Director of Tax of Healthtrust from
September 1987 to April 1995.

Patricia T. Lindler has served as Senior Vice President -- Government
Programs of the Company since July 1999. Ms. Lindler served as Vice
President -- Reimbursement of the Company from September 1998 to July 1999.
Prior to that time, Ms. Lindler was the President of Health Financial
Directions, Inc. from March 1995 to November 1998. From September 1980 to
February 1995, Ms. Lindler served as Director of Reimbursement of the Company's
Florida Group.

A. Bruce Moore, Jr. has served as Senior Vice President -- Operations
Administration since July 1999. Mr. Moore served as Vice President -- Operations
Administration of the Company from September 1997 to July 1999. From October
1996 to September 1997, Mr. Moore served as Vice President -- Benefits of the
Company. Mr. Moore served as Vice President of Compensation of the Company from
March 1995 until October 1996. From February 1994 to March 1995, Mr. Moore
served as Director -- Compensation of the Company. Mr. Moore also served as
Director -- Compensation for HCA from November 1987 until February 1994.

Philip R. Patton has served as Senior Vice President -- Human Resources of
the Company since September 1998. Mr. Patton served as Vice President of Human
Resources of Quorum Health Group, Inc. from 1996 to August 1998. From 1994 to
1996, Mr. Patton served as a part-time consultant and community volunteer after
serving as Senior Vice President of Human Resources of HCA from 1979 to 1994.

Gregory S. Roth has served as President -- Ambulatory Surgery Group of
the Company since July 1998. From May 1997 to July 1998, Mr. Roth served as
Senior Vice President -- Ambulatory Surgery Division of the Company. Mr. Roth
served as Chief Financial Officer -- Ambulatory Surgery Division of the
Company from January 1995 to May 1997. Prior to that time, Mr. Roth held various
multi-facility and hospital chief financial officer positions with OrNda
HealthCorp and EPIC Healthcare Group, Inc.

William B. Rutherford has served as Chief Financial Officer -- Eastern
Group of the Company since January 1996. From 1994 to January 1996, Mr.
Rutherford served as Chief Financial Officer -- Georgia Division of the
Company. Prior to that time, Mr. Rutherford held several positions with Hospital
Corporation of America, including Director of Internal Audit and Director of
Operations Support.

Joseph N. Steakley has served as Senior Vice President -- Internal Audit
& Consulting Services of the Company since July 1999. Mr. Steakley served as
Vice President -- Internal Audit & Consulting Services from November 1997 to
July 1999. From December 1975 until October 1997, Mr. Steakley worked for Ernst
& Young LLP where he served as a partner from October 1989.

Beverly B. Wallace has served as Senior Vice President -- Revenue Cycle
Operations Management of the Company since July 1999. Ms. Wallace served as Vice
President -- Managed Care of the Company from July 1998 to July 1999. From
1997 to 1998, Ms. Wallace served as President -- Homecare Division of the
Company. From 1996 to 1997, Ms. Wallace served as Chief Financial
Officer -- Nashville Division of the Company. From 1994 to 1996, Ms. Wallace
served as Chief Financial Officer -- Mid-American Division of the Company.

Robert A. Waterman has served as Senior Vice President and General Counsel
of the Company since November 1997. Mr. Waterman served as a partner in the law
firm of Latham & Watkins from September 1993 to October 1997; he was also Chair
of the firm's healthcare group during 1997.

Noel Brown Williams has served as Senior Vice President and Chief
Information Officer of the Company since October 1997. From October 1996 to
September 1997, Ms. Williams served as Chief Information
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Officer for American Service Group/Prison Health Services, Inc. From September
1995 to September 1996, Ms. Williams worked as an independent consultant. From
June 1993 to June 1995, Ms. Williams served as Vice President, Information
Services for Columbia/HCA Information Services. From February 1979 to June 1993,
she held various positions with HCA Information Services.

Alan R. Yuspeh has served as Senior Vice President -- Ethics, Compliance
and Corporate Responsibility of the Company since October 1997. From September
1991 until October 1997, Mr. Yuspeh was a partner with the law firm of Howrey &
Simon. As a part of his law practice, Mr. Yuspeh served from 1987 to 1997 as
Coordinator of the Defense Industry Initiative on Business Ethics and Conduct.

ITEM 2. PROPERTIES

The following table lists, by state, the number of hospitals (general,
acute care and psychiatric), directly or indirectly, owned and operated by the
Company as of December 31, 1999:

<TABLE>
<CAPTION>
LICENSED
STATE HOSPITALS BEDS
- ----- --------- --------
<S> <C> <C>
Alaska...................................................... 1 254
California.................................................. 8 2,103
Colorado.................................................... 6 2,063
Florida..................................................... 46 11,096
Georgia..................................................... 18 2,999
Idaho....................................................... 2 462
Illinois.................................................... 3 563
Indiana..................................................... 2 460
Kansas...................................................... 1 760
Kentucky.................................................... 3 732
Louisiana................................................... 13 2,177
Mississippi................................................. 1 130
Nevada...................................................... 2 808
New Hampshire............................................... 2 295
North Carolina.............................................. 1 60
Oklahoma.................................................... 6 1,163
South Carolina.............................................. 4 950
Tennessee................................................... 13 2,547
Texas....................................................... 45 10,055
Utah........................................................ 6 879
Virginia.................................................... 12 3,048
Washington.................................................. 1 119
West Virginia............................................... 5 1,203
INTERNATIONAL
Switzerland................................................. 2 220
United Kingdom.............................................. 4 517
--- ------
207 45,663
=== ======
</TABLE>

In addition to the hospitals listed in the above table, the Company,
directly or indirectly operates 83 outpatient surgery centers. The Company also
operates medical office buildings in conjunction with its hospitals. These
office buildings are primarily occupied by physicians who practice at the
Company's hospitals.

The Company owns and maintains its headquarters in approximately 580,000
square feet of space in five office buildings in Nashville, Tennessee.

The Company's headquarters, hospitals and other facilities are suitable for
their respective uses and are, in general, adequate for the Company's present
needs.

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ITEM 3. LEGAL PROCEEDINGS

The Company is facing significant legal challenges. The Company is the
subject of various Federal and state investigations, qui tam actions,
shareholder derivative and class action suits filed in Federal court,
shareholder derivative actions filed in state courts, patient/payer actions and
general liability claims.

FEDERAL AND STATE INVESTIGATIONS

In March 1997, various facilities of the Company's El Paso, Texas
operations were searched by Federal authorities pursuant to search warrants, and
the government removed various records and documents. In February 1998, also in
El Paso, an additional warrant was executed and a single computer was seized.

In July 1997, various Company affiliated facilities and offices were
searched pursuant to search warrants issued by the United States District Court
in several states. During July, September and November 1997, the Company was
also served with subpoenas requesting records and documents related to
laboratory billing and DRG coding in various states and home health operations
in various jurisdictions, including, but not limited to, Florida. In January
1998, the Company received a subpoena which requested records and documents
relating to physician relationships. In June 1999, Columbia Home Care Group
received a subpoena seeking records related to home health operations. In March
2000, the Company received a subpoena that requested records relating to wound
care centers.

Also, in July 1997, the United States District Court for the Middle
District of Florida, in Fort Myers, issued an indictment against three employees
of a subsidiary of the Company. The indictment related to the alleged false
characterization of interest payments on certain debt resulting in Medicare and
Tricare (formerly CHAMPUS) overpayments since 1986 to Fawcett Memorial Hospital,
a Port Charlotte, Florida hospital that was acquired by the Company in 1992. The
Company has been served with subpoenas for various records and documents. A
fourth employee of a subsidiary of the Company was indicted in July 1998 by a
superseding indictment. The trial on this matter commenced on May 3, 1999. On
July 2, 1999, the jury returned a mixed verdict, finding two such employees
guilty and acquitting one. The jury was unable to reach a verdict as to the
fourth employee. The government and the fourth employee executed an agreement to
defer prosecution for 18 months after which charges will be dismissed. The two
convicted employees were sentenced in December 1999 and both have appealed to
the 11th Circuit.

Several hospital and other facilities affiliated with the Company in
various states have also received individual Federal and/or state government
inquiries, both informal and formal, requesting information related to
reimbursement from government programs.

In general, the Company believes that the United States Department of
Justice and other Federal and state governmental authorities are investigating
certain acts, practices or omissions alleged to have been engaged in by the
Company with respect to Medicare, Medicaid and Tricare patients regarding (a)
allegedly improper DRG coding (commonly referred to as "upcoding") relating to
bills submitted for medical services, (b) allegedly improper outpatient
laboratory billing (e.g., unbundling of services and medically unnecessary
tests), (c) inclusion of allegedly improper items in cost reports submitted as a
basis for reimbursement under Medicare, Medicaid and similar government
programs, (d) arrangements with physicians and other parties that allegedly
violate certain Federal and state laws governing fraud and abuse, anti-kickback
and "Stark" laws and (e) allegedly improper acquisitions of home health care
agencies and allegedly excessive billing for home health care services.

The Company is cooperating in these investigations and understands, through
written notice and other means, that it is a target in these investigations.
Given the scope of the ongoing investigations, the Company expects additional
subpoenas and other investigative and prosecutorial activity to occur in these
and other jurisdictions in the future.

In July 1999, Olsten Corporation and its subsidiary, Kimberly Home Health
(neither of which is affiliated with Columbia/HCA), announced that they will pay
$61 million to settle allegations that both companies defrauded the Medicare
program. Kimberly pled guilty to three separate felony charges filed by the U.S.
Attorneys in the Middle and Southern District of Florida and the Northern
District of Georgia, the three
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separate charges being conspiracy, mail fraud and violating the Medicare
anti-kickback statute. While Columbia/HCA was not specifically named in these
guilty pleas, the guilty pleas refer to the involvement of a "Company A" or a
"company not named as a defendant." The Company believes these references refer
to Columbia/HCA or its subsidiaries.

The Company is also the subject of a formal order of investigation by the
Securities and Exchange Commission. The Company understands that the
investigation relates to the anti-fraud, insider trading, periodic reporting and
internal accounting control provisions of the Federal securities laws.

While we remain unable to predict the outcome of any of the ongoing
investigations or the initiation of any additional investigations, were the
Company to be found in violation of Federal or state laws relating to Medicare,
Medicaid or similar programs, the Company could be subject to substantial
monetary fines, civil and criminal penalties and exclusion from participation in
the Medicare and Medicaid programs. Any such sanctions could have a material
adverse effect on the Company's financial position and results of operations.
(See Note 2 -- Investigations and Note 12 -- Contingencies in the Notes to
Consolidated Financial Statements.)

LAWSUITS

Qui Tam Actions

Several qui tam actions have been brought by private parties ("relators")
on behalf of the United States of America and have been unsealed and served on
the Company. With the exception of six cases discussed below, the government has
declined to intervene in the qui tam actions unsealed to date. To the best of
the Company's knowledge, the actions allege, in general, that the Company and
certain subsidiaries and/or affiliated partnerships violated the False Claims
Act, 31 U.S.C. sec. 3729 et seq., for improper claims submitted to the
government for reimbursement. The lawsuits generally seek damages of three times
the amount of all Medicare or Medicaid claims (involving false claims) presented
by the defendants to the Federal government, civil penalties of not less than
$5,000 nor more than $10,000 for each such Medicare or Medicaid claim,
attorneys' fees and costs. The Company is aware of additional qui tam actions
that remain under seal and believes that there are 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 Panel") seeking to transfer and
consolidate, pursuant to 28 U.S.C. sec. 1407, all 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 denied the Motion on procedural grounds. On August 12,
1999, the United States Government filed an Application to Conduct 28 U.S.C.
sec. 1407 Consolidated Proceedings under seal with the MDL Panel. The underlying
motion to consolidate the proceedings relates to the qui tam cases against the
Company, both sealed and unsealed.

On October 5, 1998, the matter of United States of America ex rel. James F.
Alderson v. Columbia/HCA Healthcare Corp., Healthtrust-The Hospital Company and
Quorum Health Group, et al., Case No. 97-2035-CIV-T-23E, in the Middle District
of Florida, Tampa Division, was unsealed. The government intervened in this
action on October 1, 1998. The Complaint was originally filed in Montana in 1993
but was later transferred to Florida. The Complaint alleges that defendants made
false statements in annual Medicare cost reports over a period of ten years. The
Complaint further alleges that defendants engaged in a scheme of filing improper
reimbursement claims while keeping a "secret" set of books which were known as
"reserve cost reports" and concealing these books from Medicare auditors. The
government filed and served an Amended Complaint against Quorum Health Group.
The government has not yet served an Amended Complaint on the Columbia/HCA
defendants.

The matter of United States of America ex rel. Sara Ortega v. Columbia/HCA
Healthcare Corp., et al., No. EP95-CA-259H, was unsealed on July 31, 1998 in the
Western District of Texas, El Paso Division. The Complaint alleges that
defendants submitted false statements to the Joint Commission on Accreditation
of Healthcare Organizations (JCAHO) in order to be eligible for Medicare
payments, thereby rendering false defendants' claims for Medicare reimbursement.
An Amended Complaint, which has not been served on the

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Company, also alleges that defendants engaged in fraudulent accounting
practices, paid kickbacks for patient referrals, upcoded claims for
reimbursement from Federal health care programs and shifted costs to its
Medicare cost reports. Defendants have moved to dismiss the Complaint, and that
motion is pending. Defendants have also moved to stay discovery while the motion
to dismiss is pending. The government announced that it intervened on all counts
of the Amended Complaint except for the count alleging false statements to
JCAHO.

The matter of United States of America, 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. Relator filed a motion for partial summary
judgment. The court ordered relator's motion for partial summary judgment
stricken. The relator did not file an amended motion for summary judgment and
the court's deadline for filing such a motion has passed. This action is
currently stayed.

In December 1998, the matter of United States of America ex rel. John W.
Schilling v. Columbia/HCA Healthcare Corporation, et al., Civil Action No.
96-1264-CIV-T-23B, in the Middle District of Florida, was unsealed. The
government has intervened in this action. The Complaint alleges that defendants
made false statements in annual Medicare cost reports. The Complaint further
alleges, as in Alderson (above), that the Company kept "reserve cost reports."
The government has not yet served the Complaint on Defendants, and the case is
currently stayed.

In June 1998, the case United States of America 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 Florida, Tampa
Division, was filed. This complaint was unsealed by the court on April 9, 1999.
The government has intervened in this lawsuit but has not yet served the
complaint on the Company. This qui tam 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 were excessive and not reasonable and that the claims for reimbursement
for these management fees violated the anti-kickback statutes.

A lawsuit captioned United States of America ex rel. James Thompson v.
Columbia/ HCA Healthcare Corporation, et al. was filed on March 10, 1995 in the
United States District Court for the Southern District of Texas, Corpus Christi
Division (Civil Action No. C-95-110). In general, the relator claims that the
defendants (the Company and certain subsidiaries and affiliated partnerships)
engaged in a widespread strategy to pay physicians money for referrals and
engaged in other conduct to induce referrals, such as: (i) offering physicians
equity interests in hospitals; (ii) offering loans to physicians; (iii) paying
money under the guise of "consultation fees" to physicians to guarantee their
capital investment; (iv) paying consultation fees, rent or other monies to
physicians; (v) providing office space for free or reduced rent; (vi) providing
free or reduced rate vacations and trips; (vii) providing free or reduced rate
opportunities for additional medical training; (viii) providing income
guarantees; and (ix) granting physicians exclusive rights to perform procedures
in particular fields of practice. 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. Although some discovery has
occurred, there is currently a stay of discovery.

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

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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 but has not served the Complaint.

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 charges and radiology
charges, improperly billed skilled nursing facility charges, improperly
accounted for discounts and rebates, improperly billed certified first
assistants in surgery, home health visits, senior health centers, diabetic
treatment and wound care centers. The government has not intervened in this
action. The parties have agreed to extend the time within which to respond to
the complaint.

On October 18, 1999, three subsidiaries of the Company received a qui tam
complaint from the relator, entitled United States ex rel. Dan R. Williams v.
West Regional Medical Center, West Florida Medical Center Clinic, West Florida
Behavioral Health, filed on May 28, 1999, in the U.S. District Court of the
Northern District of Florida, No. 3:99CV221LAC. The complaint alleges, in
general, that the defendants billed the Federal Employees Health Benefit Program
for a physician visit on days during relator's hospitalization when, according
to the relator, a physician visit had not occurred. The complaint alleges this
was a standard practice. The complaint also alleges that blood tests and
laboratory services submitted during relator's hospitalization were inaccurate,
and that the three defendants engaged in a system of self-referral designed to
increase usage of each others' services. The United States did not intervene in
this case. The case was dismissed with prejudice, the parties agreed to a mutual
release of claims and the Company paid no money on the claim other than the
plaintiff's filing fees.

On November 10, 1999, the Company was served with the case of United States
ex rel. Ronald L. Campbell and Daniel C. Rice v. Montgomery County Hospital
District, Montgomery County Health Care Foundation, and Conroe Hospital Corp.,
Case No. H-97-3502, in the Southern District of Texas. The complaint alleges
that the Company conspired with Montgomery County Hospital District ("MCHD") to
conceal the fact that MCHD knowingly overstated capital losses, resulting in the
avoidance of "recapture liability" on the cost reports. The court has stayed
this case. The government has not intervened in this case.

In February 2000, the matter of United States of America, ex rel. Michael
R. Marine v. Columbia Aventura Medical Center, Columbia Cedars Medical Center,
Columbia Hospital, Columbia/HCA Healthcare Corporation, Columbia JFK Medical
Center, Columbia Kendall Regional Medical Center, Columbia Miami Heart
Institute, Columbia Northwest Medical Center, Columbia University Hospital and
Medical Center, and Columbia Westside Regional Medical Center Case No. 97-4368
(S.D. Fla.) was unsealed. The government intervened on or about February 15,
2000. The complaint alleges that the Company submitted false claims pertaining
to the costs incurred by its nine south Florida hospitals for home health
services furnished to homebound patients. The Company has not been served with
the Complaint.

The Company intends to pursue the defense of the qui tam actions
vigorously.

Shareholder Derivative and Class Action Complaints Filed in the U.S. District
Courts

Since April 1997, numerous securities class action and derivative lawsuits
have been filed in the United States District Court for the Middle District of
Tennessee against 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 all of 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

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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 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. Plaintiffs filed their Motion for Class Certification in February
1998, and defendants filed responsive briefs. No ruling has been made on class
certification.

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 to improperly increase 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. These motions were referred to the Magistrate Judge for consideration.
In June 1998, the Magistrate Judge recommended that the court grant the motions
to dismiss in both cases. Plaintiffs in both cases filed objections to the
Magistrate's recommendations with the District Court, and defendants filed
responsive pleadings. In September 1999, the District Court entered an Order
granting the defendants' motion to dismiss McCall, H. Carl, as Comptroller of
the State of New York and as Trustee of the New York State Retirement Fund,
derivatively on behalf of Columbia/HCA Healthcare Corporation v. Richard L.
Scott, et al., No. 3-97-0838 with prejudice. The plaintiffs in the McCall
lawsuit have filed an appeal from that order. Defendants filed their brief in
opposition to the appeal in March 2000.

Shareholder Derivative Actions Filed in State Courts

Several derivative actions have been filed in state court 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. 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 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;
25
26

(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 lawsuit, 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.
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 have
filed an appeal from that order. Defendants filed their brief in opposition to
the appeal in March 2000.

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/or former officers and/or directors alleging, in 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 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
26
27

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 has not been
ruled on by the court. 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, which has not been ruled on by the court. The
parties are currently engaged in discovery pending a ruling by the court on
plaintiffs' motion.

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, above.)

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 Organization 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 misrepresentation. 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, above.)

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

27
28

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, above.)

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, above.)

The matter of The United Paper Workers 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
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 and it has been 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. (See In re:
Columbia/HCA Healthcare Corporation Billing Practices Litigation, above.)

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,
Harold 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.

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29

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 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 Medical Center. 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 Healthcare Corporation to file an amicus brief 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
diagnosis, 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 which has not been ruled on. 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.

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
29
30

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 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.

The matter of Johnson, Bruce A., et al. v. Plantation General Hospital,
Limited Partnership was filed on March 9, 1992 in the Circuit Court for the
Seventeenth Judicial Circuit, State of Florida, Broward County, Case No.
92-06823 Division 2. In general, the suit alleged that the hospital charged
excessive amounts for pharmaceuticals, medical supplies and laboratory tests.
The suit sought certification of a class. Count I sought a price reduction on
all outstanding bills in the amount of the allegedly excessive portion of the
charges. Counts II and III sought damages for patients who have paid bills
containing allegedly excessive amounts for the alleged unreasonable portion of
the charges. Plaintiff's Complaint also claimed the right to recover attorneys'
fees and costs. In September 1995, the trial court certified a class and the
Fourth District Court of Appeals affirmed. In October 1996, the hospital filed a
Motion for Summary Judgment on Counts II and III on the basis of the voluntary
payment defense. The court granted the motion in November 1997. In April 1998,
following the hospital's statement that it would deem the six to eleven year old
outstanding debt of class members to be fully satisfied, the court granted
defendant's motion for summary judgment on Count I on the ground of mootness. No
monetary judgment was recovered. In September 1998, the court entered an order
denying plaintiff's motion for attorneys' fees and granting their motion for
costs. Both parties have appealed the September 1998 orders. Those appeals are
pending. There have been no appeals of the final judgments.

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 Note
12 -- Contingencies in the Notes to Consolidated Financial Statements.

The Company is unable to measure the effect or predict the magnitude that
any of the above matters and the related media coverage could have on the
Company's future results of operations and financial position.

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
30
31

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.

A class action styled Mary Forsyth, et al. v. Humana, Inc., et al., Case
No. CV-S-89-249-DWH, was filed on March 2, 1989, in the United States District
Court for the District of Nevada. Plaintiffs are two classes of individuals who
paid for, or received coverage under, group insurance policies sold in the State
of Nevada by Humana Insurance. They allege violations of antitrust laws, ERISA
and RICO which arise from the sale of the policies and from incentives provided
under the policies for insureds to use Humana Sunrise Hospital in Las Vegas, a
facility now owned by the Company. The suit seeks attorneys' fees and costs, as
well as injunctive relief and insurance benefits for plaintiffs. In 1993, the
United States District Court granted summary judgment dismissing most of
plaintiffs' claims but granted plaintiffs judgment on one claim. Plaintiffs
appealed to the United States Court of Appeals for the Ninth Circuit which, in
May 1997, affirmed the judgment on the ERISA claims; reversed as to the
antitrust claims; and reversed in part as to the RICO claims, but affirmed the
District Court's grant of summary judgment limiting RICO damages to three times
the ERISA damages. In their current complaint, plaintiffs claim approximately
$133 million in antitrust damages that is subject to statutory trebling.
However, in their most recent expert report, plaintiffs' expert claims antitrust
damages of approximately $13-$21 million. Humana Inc. ("Humana") petitioned the
United States Supreme Court for a Writ of Certiorari on the RICO claims which
was granted. On January 20, 1999, the Supreme Court affirmed the Ninth Circuit's
decision that the plaintiffs could proceed with their RICO claims. The Supreme
Court did not address the amount of damages that plaintiffs could seek on their
claim. The entire case is now back in the Nevada district court, where Humana
has filed several motions seeking dismissal of the antitrust claims. A
settlement was negotiated and received final approval from the court on November
30, 1999.

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.

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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 has engaged in
discussions with these law firms, 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 7 -- Income Taxes in the Notes to
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 are usually not 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matters were submitted to a vote of security holders during the fourth
quarter of 1999.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's Common Stock is traded on the New York Stock Exchange, Inc.
(the "NYSE") (symbol "COL"). The table below sets forth, for the calendar
quarters indicated, the high and low sales prices per share reported on the NYSE
Composite Tape for the Company's Common Stock. The Company completed the
spin-offs of LifePoint and Triad through a distribution of one share of
LifePoint common stock and one share of Triad common stock for every 19 shares
of the Company's common stock outstanding. The sales prices for periods prior to
May 11, 1999 have been restated to reflect the effect of the spin-offs of
LifePoint and Triad.

<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1999
First Quarter............................................. $23.67 $16.38
Second Quarter............................................ 27.47 17.44
Third Quarter............................................. 25.63 20.19
Fourth Quarter............................................ 29.44 20.25
1998
First Quarter............................................. $30.86 $22.91
Second Quarter............................................ 32.88 26.34
Third Quarter............................................. 30.80 18.88
Fourth Quarter............................................ 25.88 16.14
</TABLE>

At the close of business on March 15, 2000, there were approximately 18,100
holders of record of the Company's Common Stock and one holder of record of the
Company's Nonvoting Common Stock.

The Company currently pays a regular quarterly dividend of $.02 per share.
While it is the present intention of the Company's Board of Directors to
continue paying a quarterly dividend of $.02 per share, the declaration and
payment of future dividends by the Company will depend upon many factors,
including the Company's earnings, financial condition, business needs, capital
and surplus and regulatory considerations.

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ITEM 6. SELECTED FINANCIAL DATA

COLUMBIA/HCA HEALTHCARE CORPORATION
SELECTED FINANCIAL DATA
AS OF AND FOR THE YEARS ENDED DECEMBER 31
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Revenues................................................... $ 16,657 $ 18,681 $ 18,819 $ 18,786 $ 17,132
Salaries and benefits...................................... 6,749 7,811 7,631 7,205 6,779
Supplies................................................... 2,645 2,901 2,722 2,655 2,536
Other operating expenses................................... 3,196 3,771 4,263 3,689 3,203
Provision for doubtful accounts............................ 1,269 1,442 1,420 1,196 994
Depreciation and amortization.............................. 1,094 1,247 1,238 1,143 976
Interest expense........................................... 471 561 493 488 458
Equity in earnings of affiliates........................... (90) (112) (68) (173) (28)
Gains on sales of facilities............................... (297) (744) -- -- --
Impairment of long-lived assets............................ 220 542 442 -- --
Restructuring of operations and investigation related
costs.................................................... 116 111 140 -- --
Merger, facility consolidation and other costs............. -- -- -- -- 387
---------- ---------- ---------- ---------- ----------
15,373 17,530 18,281 16,203 15,305
---------- ---------- ---------- ---------- ----------
Income from continuing operations before minority interests
and income taxes......................................... 1,284 1,151 538 2,583 1,827
Minority interests in earnings of consolidated entities.... 57 70 150 141 113
---------- ---------- ---------- ---------- ----------
Income from continuing operations before income taxes...... 1,227 1,081 388 2,442 1,714
Provision for income taxes................................. 570 549 206 981 689
---------- ---------- ---------- ---------- ----------
Income from continuing operations.......................... 657 532 182 1,461 1,025
Discontinued operations, net of income taxes:
Income (loss) from operations of discontinued
businesses............................................. -- (80) 12 44 39
Losses on disposals of discontinued businesses........... -- (73) (443) -- --
Extraordinary charges on debt extinguishments, net of
income taxes............................................. -- -- -- -- (103)
Cumulative effect of accounting change, net of income
taxes.................................................... -- -- (56) -- --
---------- ---------- ---------- ---------- ----------
Net income (loss).................................... $ 657 $ 379 $ (305) $ 1,505 $ 961
========== ========== ========== ========== ==========
Basic earnings (loss) per share:
Income from continuing operations........................ $ 1.12 $ .82 $ .28 $ 2.17 $ 1.54
Discontinued operations:
Income (loss) from operations of discontinued
businesses........................................... -- (.12) .02 .07 .06
Losses on disposals of discontinued businesses......... -- (.11) (.67) -- --
Extraordinary charges on debt extinguishments............ -- -- -- -- (.16)
Cumulative effect of accounting change................... -- -- (.09) -- --
---------- ---------- ---------- ---------- ----------
Net income (loss).................................... $ 1.12 $ .59 $ (.46) $ 2.24 $ 1.44
========== ========== ========== ========== ==========
Shares used in computing basic earnings (loss) per share
(in thousands)........................................... 585,216 643,719 657,931 670,774 665,407
Diluted earnings (loss) per share:
Income from continuing operations........................ $ 1.11 $ .82 $ .27 $ 2.15 $ 1.52
Discontinued operations:
Income (loss) from operations of discontinued
businesses........................................... -- (.12) .02 .07 .06
Losses on disposals of discontinued businesses......... -- (.11) (.67) -- --
Extraordinary charges on debt extinguishments............ -- -- -- -- (.15)
Cumulative effect of accounting change................... -- -- (.08) -- --
---------- ---------- ---------- ---------- ----------
Net income (loss).................................... $ 1.11 $ .59 $ (.46) $ 2.22 $ 1.43
========== ========== ========== ========== ==========
Shares used in computing diluted earnings (loss) per share
(in thousands)........................................... 591,029 646,649 663,090 677,886 673,071
Cash dividends per common share............................ $ .08 $ .08 $ .07 $ .08 $ .08
Redemption of preferred stock purchase rights.............. -- -- $ .01 -- --
</TABLE>

34
35
COLUMBIA/HCA HEALTHCARE CORPORATION
SELECTED FINANCIAL DATA
AS OF AND FOR THE YEARS ENDED DECEMBER 31 -- (CONTINUED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
FINANCIAL POSITION:
Assets................................................... $ 16,885 $ 19,429 $ 22,002 $ 21,116 $ 19,805
Working capital.......................................... 265 304 1,650 1,389 1,409
Net assets of discontinued operations.................... -- -- 841 212 142
Long-term debt, including amounts due within one year.... 6,444 6,753 9,408 6,982 7,380
Minority interests in equity of consolidated entities.... 763 765 836 836 722
Stockholders' equity..................................... 5,617 7,581 7,250 8,609 7,129
CASH FLOW DATA:
Cash provided by operating activities.................... $ 1,223 $ 1,916 $ 1,483 $ 2,589 $ 2,264
Cash provided by (used in) investing activities.......... 925 970 (2,746) (2,219) (3,610)
Cash provided by (used in) financing activities.......... (2,255) (2,699) 1,260 (489) 1,510
OPERATING DATA:
Number of hospitals at end of period(a).................. 195 281 309 319 319
Number of licensed beds at end of period(b).............. 42,484 53,693 60,643 61,931 61,347
Weighted average licensed beds(c)........................ 46,291 59,104 61,096 62,708 61,617
Admissions(d)............................................ 1,625,400 1,891,800 1,915,100 1,895,400 1,774,800
Equivalent admissions(e)................................. 2,425,100 2,875,600 2,901,400 2,826,000 2,598,300
Average length of stay (days)(f)......................... 4.9 5.0 5.0 5.1 5.3
Average daily census(g).................................. 22,002 25,719 26,006 26,538 25,917
Occupancy(h)............................................. 48% 44% 43% 42% 42%
</TABLE>

- ---------------

(a) Excludes 12 facilities in 1999, 24 facilities in 1998, 27 facilities in
1997, 22 facilities in 1996 and 19 facilities in 1995 that are not
consolidated (accounted for using the equity method) for financial reporting
purposes.
(b) Licensed beds are those beds for which a facility has been granted approval
to operate from the applicable state licensing agency.
(c) Weighted average licensed beds represents the average number of licensed
beds, weighted based on periods owned.
(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. Average length of stay has declined due to the
continuing pressures from managed care and other payers to restrict
admissions and reduce the number of days that are covered by the payers for
certain procedures, and by technological and pharmaceutical improvements.
(g) Represents the average number of patients in the Company's hospital beds
each day.
(h) Represents the percentage of hospital licensed beds occupied by patients.
Both average daily census and occupancy rate provide measures of the
utilization of inpatient rooms.

35
36

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

COLUMBIA/HCA HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

The Selected Financial Data and the accompanying consolidated financial
statements present certain information with respect to the financial position,
results of operations and cash flows of Columbia/HCA Healthcare Corporation
which should be read in conjunction with the following discussion and analysis.
The term the "Company" or "Columbia/HCA" as used herein refers to Columbia/HCA
Healthcare Corporation and its affiliates unless otherwise stated or indicated
by context. The term "affiliates" means direct and indirect subsidiaries of
Columbia/HCA Healthcare Corporation and partnerships and joint ventures in which
such subsidiaries are partners.

FORWARD-LOOKING STATEMENTS

This "Annual Report on Form 10-K" includes certain 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" 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 governmental investigations and litigation
involving the Company's business practices, (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 program that may further 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 physicians, (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, (xi) changes
in accounting practices, (xii) changes in general economic conditions, (xiii)
future divestitures which may result in additional charges, (xiv) the ability to
enter into 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 its shared services
strategy, and (xix) 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

The Company is currently the subject of several Federal investigations into
certain of its business practices, as well as governmental investigations by
various states. The Company is cooperating in these investigations and
understands, through written notice and other means, that it is a target in
these investigations. Given the breadth of the ongoing investigations, the
Company expects additional investigative and prosecutorial activity to occur in
these and other jurisdictions in the future. The Company is the subject of a
formal order of investigation by the Securities and Exchange Commission ("SEC").
The Company understands that the SEC investigation includes the anti-fraud,
insider trading, periodic reporting and internal accounting control provisions
of the Federal securities laws.

36
37
COLUMBIA/HCA HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- (CONTINUED)

INVESTIGATIONS (CONTINUED)
The Company cannot predict the outcome or quantify effects that the ongoing
investigations and the initiation of additional investigations, if any, will
have on the Company's financial condition or results of operations in future
periods. Were the Company to be found in violation of Federal or state laws
relating to Medicare, Medicaid or similar programs, the Company could be subject
to substantial monetary fines, civil and criminal penalties and exclusion from
participation in the Medicare and Medicaid programs. Any such sanctions could
have a material adverse effect on the Company's financial position and results
of operations. (See Note 12 -- Contingencies in the Notes to Consolidated
Financial Statements.)

BUSINESS STRATEGY

The Company's primary objective is to provide the communities it serves a
comprehensive array of quality health care services in the most cost effective
manner possible. The Company's general, acute care hospitals usually provide a
full range of services commonly available in hospitals to accommodate such
medical specialties as internal medicine, general surgery, cardiology, oncology,
neurosurgery, orthopedics and obstetrics, as well as diagnostic and emergency
services. Outpatient and ancillary health care services are provided by the
Company's general, acute care hospitals, and through the Company's freestanding
outpatient surgery and diagnostic centers and rehabilitation facilities. The
Company's psychiatric hospitals provide a full range of mental health care
services in inpatient, partial hospitalization and outpatient settings. The
Company also operates preferred provider organizations in 47 states and the
District of Columbia.

The Company maintains and replaces equipment, renovates and constructs
replacement facilities and adds new services to increase the attractiveness of
its hospitals and other facilities to patients and local physicians. The Company
believes that its ability to attract and serve patients and physicians is
enhanced by developing a comprehensive health care network with a broad range of
health care services located throughout a market area. The Company also believes
it is able to reduce operating costs by sharing certain services among several
facilities in the same area and is better positioned to work with health
maintenance organizations ("HMOs"), preferred provider organizations ("PPOs")
and employers.

In May 1999, the Company established LifePoint Hospitals, Inc.
("LifePoint") and Triad Hospitals, Inc. ("Triad"), as independent,
publicly-traded companies through tax-free spin-offs of these companies to the
Company's stockholders. During the third quarter of 1997, management implemented
plans to divest the Company's home health businesses and three of the four Value
Health business units (Value Health was a provider of specialty managed care
benefit programs). The divestitures of the three Value Health business units and
the home health operations were completed during 1998. The results of operations
of these divested businesses are reflected in the consolidated statements of
operations as discontinued operations.

The Company has substantially completed a restructuring of its operations,
in an effort to create a smaller and more focused company. The divestiture of
the home health operations and the Value Health business units, the spin-offs of
LifePoint and Triad and the sales of various other hospitals and surgery
centers, not located in the Company's strategic locations, allow the Company's
management to focus their efforts on the Company's core markets, which are
typically located in urban areas that are characterized by highly integrated
health care facility networks.

The Company and the health care industry are facing many challenges,
including the growing number of uninsured, reimbursement pressures from
government and non-government payers and the increasing costs of supplies,
pharmaceuticals and new technologies. As a response to these challenges, the
Company is implementing a shared services initiative. This initiative is a
company-wide program designed to reduce operating costs and provide additional
resources for patient care by consolidating hospitals' back-office functions
such as billing and collections and standardizing and upgrading financial
services. In addition, the

37
38
COLUMBIA/HCA HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- (CONTINUED)

BUSINESS STRATEGY (CONTINUED)
Company is implementing company-wide supply improvement and distribution
programs that will include consolidating purchasing and accounts payable
functions regionally, combining warehouses and developing division-based
procurement programs.

RESULTS OF OPERATIONS

Revenue/Volume Trends

The Company's revenues continue to be affected by an increasing proportion
of revenue being derived from fixed payment, higher discount sources, including
government payers, managed care providers and others. The Company expects
patient volumes from Medicare and Medicaid to continue to increase due to the
general aging of the population and expansion of state Medicaid programs.
However, under the Balanced Budget Act of 1997 ("BBA-97"), the Company's
reimbursement from the Medicare and Medicaid programs was reduced by significant
changes that were phased in through October 1, 1998, and will continue to be
reduced as certain changes continue to be phased in during 2000 and 2001. The
Company continues to experience a shift in its payer mix as patients move from
traditional indemnity insurance and Medicare coverage to medical coverage that
is provided under managed care plans. The Company generally receives lower
payments per patient under managed care plans than under traditional indemnity
insurance plans or traditional Medicare. With an increasing proportion of
services being reimbursed based upon fixed payment amounts (where the payment is
based upon the diagnosis, regardless of the cost incurred or level of service
provided), revenues, earnings and cash flows are being reduced. Revenues from
capitation arrangements (prepaid health service agreements) are less than 1% of
consolidated revenues. Admissions related to Medicare, Medicaid and managed care
plans and other discounted arrangements for the years ended December 31, 1999,
1998 and 1997 are set forth below.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Medicare................................................ 38% 39% 41%
Medicaid................................................ 11% 11% 12%
Managed care and other discounted....................... 41% 39% 35%
Other................................................... 10% 11% 12%
---- ---- ----
100% 100% 100%
==== ==== ====
</TABLE>

Reductions in the rate of increase in Medicare and Medicaid reimbursement,
and increasing percentages of patient volume being related to patients
participating in managed care plans are expected to present ongoing challenges
to the Company. The challenges presented by these trends are enhanced by the
fact that the Company does not have the ability to control these trends and the
associated risks. To maintain and improve its operating margins in future
periods, the Company must increase patient volumes while controlling the cost of
providing services. If the Company is not able to achieve reductions in the cost
of providing services through operational efficiencies, and the trend of
declining reimbursements and payments continue, results of operations and cash
flows will deteriorate.

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.

38
39
COLUMBIA/HCA HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- (CONTINUED)

RESULTS OF OPERATIONS (CONTINUED)

Revenue/Volume Trends (Continued)
The following are comparative summaries of results from continuing
operations for the years ended December 31, 1999, 1998 and 1997 (dollars in
millions, except per share amounts):

<TABLE>
<CAPTION>
1999 1998 1997
----------------- ----------------- ----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------- ------ -------- ------ -------- -----
<S> <C> <C> <C> <C> <C> <C>
Revenues.................................................... $16,657 100.0 $18,681 100.0 $18,819 100.0
Salaries and benefits....................................... 6,749 40.5 7,811 41.8 7,631 40.6
Supplies.................................................... 2,645 15.9 2,901 15.5 2,722 14.5
Other operating expenses.................................... 3,196 19.2 3,771 20.2 4,263 22.6
Provision for doubtful accounts............................. 1,269 7.6 1,442 7.7 1,420 7.5
Depreciation and amortization............................... 1,094 6.6 1,247 6.7 1,238 6.6
Interest expense............................................ 471 2.8 561 3.0 493 2.6
Equity in earnings of affiliates............................ (90) (0.5) (112) (0.6) (68) (0.4)
Gains on sales of facilities................................ (297) (1.8) (744) (4.0) -- --
Impairment of long-lived assets............................. 220 1.3 542 2.9 442 2.4
Restructuring of operations and investigation related
costs..................................................... 116 0.7 111 0.6 140 0.7
-------- ----- ------- ----- ------- -----
15,373 92.3 17,530 93.8 18,281 97.1
-------- ----- ------- ----- ------- -----
Income from continuing operations before minority interests
and income taxes.......................................... 1,284 7.7 1,151 6.2 538 2.9
Minority interests in earnings of consolidated entities..... 57 0.3 70 0.4 150 0.8
-------- ----- ------- ----- ------- -----
Income from continuing operations before income taxes....... 1,227 7.4 1,081 5.8 388 2.1
Provision for income taxes.................................. 570 3.5 549 3.0 206 1.1
-------- ----- ------- ----- ------- -----
Income from continuing operations........................... $ 657 3.9 $ 532 2.8 $ 182 1.0
======== ===== ======= ===== ======= =====
Basic earnings per share from continuing operations......... $ 1.12 $ .82 $ .28
Diluted earnings per share from continuing operations....... $ 1.11 $ .82 $ .27
% changes from prior year:
Revenues.................................................. (10.8)% (0.7)% 0.2%
Income from continuing operations before income taxes..... 13.5 178.8 (84.1)
Income from continuing operations......................... 23.6 191.2 (87.5)
Basic earnings per share from continuing operations....... 36.6 192.9 (87.1)
Diluted earnings per share from continuing operations..... 35.4 203.7 (87.4)
Admissions(a)............................................. (14.1) (1.4) 1.0
Equivalent admissions(b).................................. (15.7) (1.1) 2.7
Revenues per equivalent admission......................... 5.7 0.3 (2.4)
Same facility % changes from prior year(c):
Revenues.................................................. 5.3 (0.2) 1.1
Admissions(a)............................................. 2.7 0.4 1.7
Equivalent admissions(b).................................. 2.5 1.4 3.5
Revenues per equivalent admission......................... 2.7 (1.5) (2.3)
</TABLE>

- ---------------

(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 year.

39
40
COLUMBIA/HCA HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- (CONTINUED)

RESULTS OF OPERATIONS (CONTINUED)

Years Ended December 31, 1999 and 1998

Income from continuing operations before income taxes increased 13.5% to
$1.2 billion in 1999 from $1.1 billion in 1998 and pretax margins increased to
7.4% in 1999 from 5.8% in 1998. The increase in pretax income was primarily the
result of reductions from 1998 to 1999 in salaries and benefits and other
operating expenses, as a percentage of revenues.

Revenues decreased 10.8% to $16.7 billion in 1999 from $18.7 billion in
1998 due to the reduction from 281 hospitals at December 31, 1998 to 195
hospitals at December 31, 1999. During 1999, the Company accomplished a
restructuring of its operations by completing the spin-offs of LifePoint and
Triad and the sales of 24 hospital facilities. On a same facility basis, both
admissions and revenues per equivalent admission increased 2.7% from 1998 to
1999, resulting in a 5.3% increase in revenues. The increases in revenue per
equivalent admission of 5.7% on a consolidated basis and 2.7% on same facility
basis from 1998 to 1999, were primarily the result of successes achieved during
1999 in renegotiating and renewing certain managed care contracts on more
favorable terms to the Company. While the Company achieved some successes in
managed care pricing, attaining revenue increases continues to present a
challenge due to decreases in Medicare rates of reimbursement mandated by BBA-97
which became effective October 1, 1997 (lowered 1999 revenues by approximately
$124 million) and a continuing shift in revenues away from traditional Medicare
and indemnity payers to managed care (managed care as a percent of total
admissions increased to 41% in 1999 compared to 39% in 1998).

Salaries and benefits, as a percentage of revenues, decreased from 41.8% in
1998 to 40.5% in 1999. The increase in revenues per equivalent admission was a
primary factor for the decrease. In addition, the Company was more successful in
adjusting staffing levels to correspond with the equivalent admission growth
rates (man hours per equivalent admission decreased approximately 3% compared to
1998).

Supply costs increased as a percentage of revenues to 15.9% in 1999 from
15.5% in 1998 due to an increase in the cost of supplies per equivalent
admission related to the increasing costs of new technology and pharmaceuticals.

Other operating expenses (primarily consisting of contract services,
professional fees, repairs and maintenance, rents and leases, utilities,
insurance and non-income taxes) decreased as a percentage of revenues from 20.2%
to 19.2% due to certain fixed costs such as contract services, rents, leases,
and utilities remaining relatively flat while revenue per equivalent admission
was increasing. A decline in professional fees, due to the sales of certain
teaching facilities which had costs for medical directorships, also contributed
to the decrease.

Provision for doubtful accounts, as a percentage of revenues, decreased
slightly to 7.6% in 1999 from 7.7% in 1998. 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 payer mix shifts to
managed care plans (resulting in increased amounts of patient co-payments and
deductibles), 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 certain of the Company's facilities.

Depreciation and amortization remained relatively flat as a percentage of
revenues at 6.6% in 1999 versus 6.7% in 1998.

Interest expense decreased to $471 million in 1999 compared to $561 million
in 1998 primarily as a result of a decrease in average outstanding debt during
1999 compared to 1998. The spin-offs and facility sales discussed earlier
resulted in the receipt of cash proceeds in 1999 and in the third and fourth
quarters of 1998 which were used to pay down borrowings.
40
41
COLUMBIA/HCA HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- (CONTINUED)

RESULTS OF OPERATIONS (CONTINUED)

Years Ended December 31, 1999 and 1998 (Continued)
Equity in earnings of affiliates remained relatively flat as a percentage
of revenues at 0.5% in 1999 and 0.6% in 1998.

During 1999, the Company recognized a pretax gain of $297 million ($164
million after-tax) on the sale of three hospitals and certain related health
care facilities. Proceeds from the sales were used to repay bank borrowings.

During 1999, the Company also identified and initiated, or revised, plans
to divest or close during 1999 and 2000, 23 consolidating hospitals and 4
non-consolidating hospitals. The carrying value for the hospitals and other
assets expected to be sold was reduced to fair value based upon estimates of
sales values, for a total non-cash, pretax charge of approximately $220 million.
See Note 3 -- Restructuring of Operations in the Notes to Consolidated Financial
Statements.

During 1999 and 1998, respectively, the Company incurred $116 million and
$111 million of restructuring of operations and investigation related costs. In
1999, these costs included $77 million of professional fees (legal and
accounting) related to the governmental investigations, $5 million of severance
costs and $34 million of other costs. In 1998, restructuring of operations and
investigation related costs included $96 million of professional fees (legal and
accounting) related to the governmental investigations, $5 million of severance
costs and $10 million of other costs. See Note 4 -- Restructuring of Operations
and Investigation Related Costs in the Notes to Consolidated Financial
Statements.

Minority interests decreased slightly as a percentage of revenues to 0.3%
in 1999 from 0.4% in 1998.

The effective income tax rates were 46.5% in 1999 and 50.8% in 1998 due to
non-deductible intangible assets related to gains on sales of facilities and
impairments of long-lived assets. If the effect of the non-deductible intangible
assets and the related amortization were excluded, the effective income tax rate
would have been approximately 39% for both 1999 and 1998.

As previously discussed, the Company has substantially completed a
restructuring of its operations. See Note 3 -- Restructuring of Operations in
the Notes to Consolidated Financial Statements. Assuming the restructuring was
completed as of the beginning of the period, the Company's remaining core
facilities had combined net income from continuing operations of $669 million in
1999 versus $452 million in 1998, an increase of 48.1%. Excluding gains on sales
of facilities, impairment of long-lived assets and restructuring of operations
and investigation related costs, combined net income for the Company's remaining
core facilities increased 13.1% to $838 million in 1999 from $741 million in
1998.

Years Ended December 31, 1998 and 1997

Revenues decreased 0.7% to $18.7 billion in 1998 compared to $18.8 billion
in 1997, primarily as a result of the sales of facilities and declines in
volumes. Inpatient admissions decreased 1.4% from 1997 to 1998 and equivalent
admissions (adjusted to reflect combined inpatient and outpatient volume)
decreased 1.1%. The small decline in revenues, compared to the decline in
equivalent admissions resulted in a slight increase in revenues per equivalent
admission of 0.3%. On a same facility basis, revenues decreased 0.2%, admissions
increased 0.4% and equivalent admissions increased 1.4% from 1997 to 1998. On a
same facility basis, the decline in revenues combined with an increase in
equivalent admissions, resulted in a decline in revenues per equivalent
admission of 1.5%.

The decline in revenues was due to several factors, including decreases in
Medicare reimbursement rates mandated by BBA-97 which became effective October
1, 1997 (lowered 1998 revenues by approximately
41
42
COLUMBIA/HCA HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- (CONTINUED)

RESULTS OF OPERATIONS (CONTINUED)

Years Ended December 31, 1998 and 1997 (Continued)
$215 million), continued increases in discounts from the growing number of
managed care payers (managed care as a percentage of total admissions increased
to 39% in 1998 compared to 35% in 1997), and a net decrease in the number of
consolidating hospitals and surgery centers since 1997 due to the sales of
several facilities during 1998. There were 281 consolidating hospitals and 102
surgery centers at December 31, 1998 compared to 309 hospitals and 140 surgery
centers at December 31, 1997.

Income from continuing operations before income taxes increased 178.8% to
$1.1 billion in 1998 from $388 million in 1997. Pretax margins increased to 5.8%
in 1998 from 2.1% in 1997. The increase in pretax income was primarily
attributable to gains on the sales of facilities and a small increase in the
operating margin. Excluding the gains on sales of facilities, asset impairment
charges and restructuring of operations and investigation related costs, income
from continuing operations before income taxes increased 2.0% to $990 million in
1998 from $970 million in 1997 and the pretax margin increased to 5.3% in 1998
from 5.2% in 1997. These increases were primarily attributable to a decrease in
other operating expenses as a percentage of revenues.

Operating expenses increased as a percentage of revenues in almost every
expense category, except other operating expenses which declined 2.4% from 1997.
The increases were primarily attributable to the Company's inability to adjust
expenses in line with the decreases experienced in revenues and reimbursement
trends. Management's attention to the investigations, reactions by certain
physicians and patients to the negative media coverage and management changes at
several levels and locations throughout the Company contributed to the Company's
inability to implement changes to reduce operating expenses in response to the
revenue declines.

Salaries and benefits, as a percentage of revenues, increased to 41.8% in
1998 from 40.6% in 1997. The increase was due to a 3.4% increase in salaries and
benefits per equivalent admission, which can be attributed to a 2.7% increase in
labor cost per hour and a 0.5% increase in man-hours per equivalent admission.

Supply costs increased as a percentage of revenues to 15.5% in 1998 from
14.5% in 1997 due to a 7.7% increase in the cost of supplies per equivalent
admission, while revenues per equivalent admission increased only 0.3%.

Other operating expenses (which includes contract services, professional
fees, repairs and maintenance, rents and leases, utilities, insurance, marketing
and non-income taxes) decreased as a percentage of revenues to 20.2% in 1998
from 22.6% in 1997. The decrease was due to small decreases in several of these
expense categories as a percentage of revenues, including lower marketing costs
being incurred due to the cancellation of a national branding campaign.

Provision for doubtful accounts, as a percentage of revenues, increased to
7.7% in 1998 from 7.5% in 1997 due to internal factors such as computer
information system conversions (including patient accounting systems), which
diverted some of the business office employees time from their billing and
collecting functions to assist with the system conversions at certain facilities
and external factors such as payer mix shifts to managed care plans (resulting
in increased amounts of patient co-payments and deductibles) and increases in
claim audits and remittance denials from certain payers. Management is unable to
quantify the effects of each of these factors because the data to support the
classification of writeoffs to these categories is not accumulated due to
volume, standardization and cost constraints. The shift in payer mix is expected
to continue and the provision for doubtful accounts is likely to remain at
higher levels than in past years (1996 and prior).

42
43
COLUMBIA/HCA HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- (CONTINUED)

RESULTS OF OPERATIONS (CONTINUED)

Years Ended December 31, 1998 and 1997 (Continued)
Equity in earnings of affiliates increased slightly as a percentage of
revenues to 0.6% in 1998 from 0.4% in 1997.

Depreciation and amortization increased as a percentage of revenues to 6.7%
in 1998 from 6.6% in 1997, primarily due to the slowdown in revenue growth and
increased capital expenditures related to ancillary services (such as outpatient
services) and information systems. Capital expenditures in these areas generally
result in shorter depreciation and amortization lives for the assets acquired
than typical hospital acquisitions.

Interest expense increased to $561 million in 1998 compared to $493 million
in 1997. A primary reason for the increased interest expense is an increase in
the average interest rate on the Company's borrowings. The Company's credit
ratings were downgraded in both 1998 and 1997 and this caused a shift in credit
sources from the commercial paper market to bank debt.

During 1998, the Company recognized a pretax gain of $744 million ($365
million after-tax) on the sale of certain hospitals and surgery centers. The
gain includes a pretax gain of $570 million ($335 million after-tax) on the sale
of 21 hospitals to a consortium of not-for-profit entities, a pretax gain of
$203 million ($50 million after-tax) on the sale of 34 surgery centers, and a
loss of $29 million ($20 million after-tax) on the sale of 6 hospitals and other
facilities. See Note 3 -- Restructuring of Operations in the Notes to
Consolidated Financial Statements.

During 1998, management approved a plan to divest a group of the Company's
medical office buildings. The divestiture is expected to be completed through
the transfer of the medical office buildings to a joint venture in which the
Company will maintain a minority interest. The carrying value for these medical
office buildings, along with certain hospitals and other facilities expected to
be sold, was reduced to fair value, based upon estimates of sales values
resulting in a non-cash, pretax impairment charge of $542 million ($175 million
of the total impairment charge was related to the medical office buildings). See
Note 3 -- Restructuring of Operations in the Notes to Consolidated Financial
Statements.

During 1997, the Company recorded $442 million of asset impairment charges.
The charges primarily related to hospital and surgery center facilities to be
sold or closed ($402 million) and physician practices ($40 million) where
projected future cash flows were less than the carrying value of the related
assets.

The Company incurred $111 million and $140 million of costs during 1998 and
1997, respectively, of restructuring of operations and investigation related
costs. In 1998, these costs included $96 million of professional fees (legal and
accounting) related to the governmental investigations, $5 million of severance
costs and $10 million of other costs. In 1997, these costs included $61 million
of severance costs, $44 million of professional fees (legal and accounting)
related to the governmental investigations and $35 million of other costs. See
Note 4 -- Restructuring of Operations and Investigation Related Costs in the
Notes to Consolidated Financial Statements.

Minority interests decreased as a percentage of revenues to 0.4% in 1998
from 0.8% in 1997. The decrease in minority interest expense was attributable to
declines in profitability in certain operations that have minority ownership and
the sales during 1998 of certain minority owned operations (the majority of the
34 surgery centers that were sold during 1998 had minority owners).

Income from continuing operations increased 191.2% to $532 million ($.82
per diluted share) during 1998 compared to $182 million ($.27 per diluted share)
in 1997. Excluding the gains on sales of facilities, asset impairment charges,
and restructuring of operations and investigation related costs, income from

43
44
COLUMBIA/HCA HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- (CONTINUED)

RESULTS OF OPERATIONS (CONTINUED)

Years Ended December 31, 1998 and 1997 (Continued)
continuing operations increased 4.3% to $590 million ($.91 per diluted share) in
1998 from $565 million ($.85 per diluted share) in 1997.

As previously discussed, the Company substantially completed a
restructuring of its operations (including the spin-offs of LifePoint and Triad
and the divestiture of certain facilities). See Note 3 -- Restructuring of
Operations in the Notes to Consolidated Financial Statements. Assuming the
completion of the restructuring, as of the beginning of the period the Company's
remaining core facilities had combined net income from continuing operations
which increased 84.0% to $452 million in 1998 from $246 million in 1997.
Excluding gains on sales of facilities, impairment of long-lived assets and
restructuring of operations and investigation related costs, combined net income
for the Company's remaining core facilities increased 50.4% to $741 million in
1998 from $493 million in 1997.

Liquidity

Cash provided by continuing operating activities totaled $1.2 billion in
1999 compared to $1.9 billion in 1998 and $1.5 billion in 1997. The decrease in
cash provided by continuing operating activities during 1999 was primarily due
to an increase in tax payments and increases in accounts receivables and other
current assets. During 1998, the Company applied for and received a refund of
approximately $350 million resulting from excess estimated tax payments made in
1997 which were based upon more profitable prior periods. The increase from 1997
to 1998, was primarily due to the loss incurred from continuing operations
during 1997.

Cash provided by investing activities was approximately $0.9 billion in
1999 and approximately $1.0 billion in 1998, compared to cash used in investing
activities of $2.7 billion in 1997. The Company's restructuring of operations,
discussed earlier, resulted in the receipt of cash proceeds of approximately
$1.8 billion in 1999 and $2.8 billion in 1998. In 1997, the Company used $1.2
billion of cash to complete the Value Health acquisition.

Cash flows used in financing activities totaled approximately $2.3 billion
in 1999 and $2.7 billion during 1998, compared to cash provided by financing
activities of $1.3 billion in 1997. The cash flows provided by continuing
operating activities and investing activities were primarily used to repurchase
approximately 82 million shares of the Company's common stock in 1999 and to pay
down debt during 1998. During 1997, the Company used approximately $1 billion of
cash to repurchase approximately 29 million shares of its common stock. The
repurchase in 1997 was funded by the issuance of long-term debt, commercial
paper and bank borrowings.

Working capital totaled $265 million at December 31, 1999 and $304 million
at December 31, 1998. At December 31, 1999 current liabilities included $500
million outstanding under the Company's senior interim term loan (the "1999 Term
Loan"). In March 2000, the Company repaid the $500 million using proceeds from a
new $1.2 billion senior term loan (the "2000 Term Loan"). At December 31, 1998
current liabilities included $741 million outstanding under the Company's former
364-day revolving credit facility which was converted to a one-year term loan.
The Company repaid the one-year term loan in February 1999. Management believes
that cash flows from operations, amounts available under the Company's revolving
credit facility (the "Credit Facility"), proceeds from the 2000 Term Loan and
the Company's access to debt markets are sufficient to meet expected liquidity
needs during 2000.

Investments of the Company's professional liability insurance subsidiary to
maintain statutory equity and pay claims totaled $1.7 billion and $1.8 billion
at December 31, 1999 and 1998, respectively.

44
45
COLUMBIA/HCA HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- (CONTINUED)

RESULTS OF OPERATIONS (CONTINUED)

Liquidity (Continued)
During 1997, the Company announced both the cessation of sales of interests
in its hospitals to physicians and its intention to repurchase physician
ownership interests in the Company's hospitals. The Company paid approximately
$8 million and $41 million to repurchase certain physician interests in 1999 and
1998, respectively.

The Company 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 the Company, within specific periods at fixed prices or prices based on
certain formulas. The combined put price under all such agreements was
approximately $500 million at December 31, 1999. No put options were exercised
between December 31, 1998 and December 31, 1999, however the Company did sell or
spin-off the Company's interest in four joint ventures during 1999. One
additional joint venture was dissolved during 1999, with each partner resuming
the operation of the facilities they had previously contributed to the joint
venture. During April 1998, the partner in the Memorial Healthcare Group, Inc.
joint venture exercised its put option whereby the Company purchased the
partner's interest in the joint venture for approximately $40 million. The
Company cannot predict if, or when, other joint venture partners will exercise
such options.

During the first quarter of 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
may 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. The Company 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. The tax ruling or any adverse determination by the IRS 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.

In November 1999, the Company announced that its Board of Directors had
authorized the repurchase of up to $1 billion of its common stock. Approximately
34.4 million shares were purchased by certain financial organizations through a
series of forward purchase contracts at an average cost of approximately $29 per
share. In accordance with the terms of the forward purchase contracts, the
shares purchased remain outstanding until the forward purchase contracts are
settled by the Company. The Company expects to settle the forward purchase
contracts during 2000. In March 2000, the Company announced that its Board of
Directors authorized the repurchase of up to $1 billion of additional common
stock. The Company expects to repurchase such stock through open market
purchases, privately negotiated transactions or through a series of forward
purchase contracts.

In 1999, the Company expended approximately $1.9 billion ($98 million was
paid during 1998 to repurchase approximately 4.1 million shares) to complete the
repurchase of approximately 81.9 million of its shares through open market
purchases and the settlement of accelerated and forward purchase contracts.

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 Company and the government
acknowledge that the amount of the letters of credit agreement is not based upon
the amount, or expected

45
46
COLUMBIA/HCA HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- (CONTINUED)

RESULTS OF OPERATIONS (CONTINUED)

Liquidity (Continued)
amount, of any potential settlement of the ongoing government investigation, and
the agreement does not constitute an admission of liability by the Company.

The resolution of the government investigations and the various 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 contingences could have a material adverse
effect on the Company's results of operations, financial position and liquidity.

Capital Resources

Excluding acquisitions, capital expenditures were $1.3 billion in both 1999
and 1998 and $1.4 billion in 1997. Planned capital expenditures in 2000 are
expected to approximate $1.3 billion. Management believes that its capital
expenditure program is adequate to expand, improve and equip its existing health
care facilities.

The Company expended $215 million and $440 million (excluding discontinued
operations) for acquisitions and investments in and advances to affiliates
(generally interests in joint ventures that are accounted for using the equity
method) during 1998 and 1997, respectively. Changes in management and business
strategy have resulted in declines in the Company's acquisition plans compared
to prior years.

The Company expects to finance capital expenditures with internally
generated and borrowed funds. Available sources of capital include public or
private debt markets, amounts available under the Credit Facility (approximately
$587 million as of February 29, 2000) and equity markets. At December 31, 1999,
there were projects under construction which had an estimated additional cost to
complete and equip of approximately $845 million.

During March 1999, the Company entered into the 1999 Term Loan. Borrowings
under this loan were used during the second quarter to fund the $1.0 billion
share repurchase program approved in February 1999 See Note 13 -- Capital Stock
and Stock Repurchases in the Notes to Consolidated Financial Statements. In July
1999, the Company filed a "shelf" registration statement and prospectus with the
Securities and Exchange Commission relating to $1.5 billion in debt securities.
No debt securities have been issued pursuant to the July 1999 shelf registration
through February 2000. During 1998, the Company entered into a $1.0 billion term
loan agreement (the "1998 Term Loan") with several banks which matures February
2002.

In March 2000, the Company entered into the $1.2 billion 2000 Term Loan.
Proceeds from the 2000 Term Loan were used in the first quarter of 2000 to
retire the outstanding balance under the 1999 Term Loan and to reduce
outstanding loans under the Credit Facility.

The Credit Facility, the 2000 Term Loan, the 1999 Term Loan and the 1998
Term Loan 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. The 1999
Term Loan also provided for the mandatory prepayment of loans thereunder in the
case of certain debt or equity issuances. The Company is currently in compliance
with all such covenants.

In February 1998, Moody's Investors Service downgraded the Company's senior
debt rating to Ba2. At the same time, Fitch IBCA downgraded the Company's senior
debt rating to BBB-. In February 1999, Standard & Poor's downgraded the
Company's senior debt rating to BB+.

46
47
COLUMBIA/HCA HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- (CONTINUED)

IMPACT OF YEAR 2000 COMPUTER ISSUES

The Company experienced no material adverse effect on its results of
operations, financial condition or ability to provide for its patients' safety
and health as a result of the Year 2000 date conversion in its or third party
computer systems and programs.

While the Company still may experience certain Year 2000 problems with its
computer systems or programs, vendor-supplied products or equipment, other
medical devices used in its business, accounts receivable vendors or third party
payers, or other suppliers or vendors of products or services, the Company does
not believe that any such potential problems will materially adversely affect
its results of operations, financial condition or ability to provide for its
patients' safety and health. However, contingency plans have been developed by
the Company for any such circumstances should they occur.

Cumulatively through December 31, 1999, the Company had incurred expenses
of $81 million related to its Year 2000 compliance project, including $26
million incurred in 1999. These amounts do not include certain internal employee
payroll costs because these costs are not separately tracked by the Company. As
of December 31, 1999, the Company did not expect to incur material, additional
expenses related to Year 2000 compliance matters. In addition to the Company's
expenses incurred for its Year 2000 project, the Company incurred approximately
$83 million of capitalized costs for the remediation, upgrade and replacement of
its Year 2000 impacted non-IT infrastructure systems and equipment. All of these
costs were funded through operating cash flows. As of December 31, 1999, the
Company did not expect to incur material, additional capitalized costs related
to its impacted non-IT infrastructure systems and equipment.

EFFECTS OF INFLATION AND CHANGING PRICES

Various Federal, state and local laws have been enacted that, in certain
cases, limit the Company's ability to increase prices. Revenues for acute care
hospital services rendered to Medicare patients are established under the
federal government's prospective payment system. Total Medicare revenues
approximated 29% in 1999, 30% in 1998 and 34% in 1997 of the Company's total
revenues.

Management believes that hospital industry operating margins have been, and
may continue to be, under significant pressure because of changes in payer mix
and growth in operating expenses in excess of the increase in prospective
payments under the Medicare program. Management expects that the average rate of
adjustment for inpatient hospital services Medicare prospective payments will
range from (0.3%) to 0.0% in 2000. In addition, as a result of increasing
regulatory and competitive pressures, the Company's ability to maintain
operating margins through price increases to non-Medicare patients is limited.

HEALTH CARE REFORM

In recent years, an increasing number of legislative proposals have been
introduced or proposed to Congress and in some state legislatures that would
significantly affect health care systems in the Company's markets. The cost of
certain proposals would be funded in significant part by reduction in payments
by government programs, including Medicare and Medicaid, to health care
providers (similar to the reductions incurred as part of BBA-97 as previously
discussed). While the Company is unable to predict which, if any, proposals for
health care reform will be adopted, there can be no assurance that proposals
adverse to the business of the Company will not be adopted.

IRS DISPUTES

The Company is contesting income taxes and related interest proposed by the
IRS for prior years aggregating approximately $181 million as of December 31,
1999. Management believes that final resolution of these disputes will not have
a material adverse effect on the results of operations or liquidity of the

47
48
COLUMBIA/HCA HEALTHCARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- (CONTINUED)

IRS DISPUTES (CONTINUED)
Company. (See Note 7 -- Income Taxes in the Notes to Consolidated Financial
Statements for a description of the pending IRS disputes.)

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 classification of a current liability for tax and interest
(through December 31, 1999) of $152 million and had no impact on the Company's
results of operations.

48
49

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk related to changes in interest rates
and market values of securities. The Company currently does not use derivative
instruments to offset the market risk exposure of the investments in debt or
equity securities of the Company's wholly-owned insurance subsidiary or to alter
the interest rate characteristics of the Company's debt instruments.

The Company's investments in debt and equity securities were $1.2 billion
and $506 million, respectively, at December 31, 1999. These investments are
carried at fair value with changes in unrealized gains and losses being recorded
as adjustments to stockholders' equity. 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
$2.1 billion of long-term debt at December 31, 1999 is subject to variable rates
of interest, while the remaining balance in long-term debt of $4.3 billion at
December 31, 1999 is 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 is comprised of
the Company's Credit Facility of which interest is payable generally at LIBOR
plus 0.45% to 1.5% (depending on the Company's credit ratings), and bank term
loans of which interest is payable generally at LIBOR plus 0.75% to 2.5%. During
1999, due to increases in LIBOR and the Prime lending rate, the rates for the
Company's Credit Facility increased from 6.4% at December 31, 1998 to 7.4% at
December 31, 1999, and the rate for the Company's term loans increased from 6.8%
at December 31, 1998 to 7.9% at December 31, 1999. The estimated fair value of
the Company's total long-term debt was $6.1 billion at December 31, 1999. 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. Based on a
hypothetical 1% increase in interest rates, the potential annualized losses in
future pretax earnings would be approximately $21 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 currently does not and has not during 1999 participated in any interest
rate swap agreements. See Note 11 -- Long-Term Debt in the Notes to Consolidated
Financial Statements.

Foreign operations and the related market risks associated with foreign
currency are currently insignificant to the Company's results of operations and
financial position.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Information with respect to this Item is contained in the Company's
consolidated financial statements indicated in the Index on Page F-1 of this
Annual Report on Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

49
50

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this Item is set forth under the heading
"Election of Directors" in the definitive proxy materials of the Company to be
filed in connection with its 2000 Annual Meeting of Stockholders, except for the
information regarding executive officers of the Company, which is contained in
Item 1 of Part I of this Annual Report on Form 10-K. The information required by
this Item contained in such definitive proxy materials is incorporated herein by
reference.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item is set forth under the heading
"Executive Compensation" in the definitive proxy materials of the Company to be
filed in connection with its 2000 Annual Meeting of Stockholders, which
information is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item is set forth under the heading "Stock
Ownership" in the definitive proxy materials of the Company to be filed in
connection with its 2000 Annual Meeting of Stockholders, which information is
incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item is set forth under the heading
"Executive Compensation" in the definitive proxy materials of the Company to be
filed in connection with its 2000 Annual Meeting of Stockholders, which
information is incorporated herein by reference.

50
51

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a) Documents filed as part of the report:

1. Financial Statements The accompanying index to financial statements on
page F-1 of this Annual Report on Form 10-K is provided in response to this
item.

2. List of Financial Statement Schedules All schedules are omitted because
the required information is not present, not present in material amounts or
presented within the financial statements.

3. List of Exhibits

<TABLE>
<S> <C> <C>
3.1(a) -- Restated Certificate of Incorporation of the Company (filed
as Exhibit 3(a) to the Company's Current Report on Form 8-K
dated February 11, 1994, and incorporated herein by
reference).
3.1(b) -- Amendment to the Restated Certificate of Incorporation of
the Company (filed as Exhibit 3(a) to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1998, and incorporated herein by reference).
3.2 -- Amended and Restated By-laws of the Company (filed as
Exhibit 3 to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1999, and incorporated
herein by reference).
4.1 -- Specimen Certificate for shares of Common Stock, par value
$.01 per share, of the Company (filed as Exhibit 4.1 to the
Company's Form SE to Form 10-K for the fiscal year ended
December 31, 1993, and incorporated herein by reference).
4.2 -- Registration Rights Agreement between the Company and The
1818 Fund, L.P. dated March 18, 1991 (filed as Exhibit 4.5
to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1990, and incorporated herein by
reference).
4.3 -- Securities Purchase Agreement by and between the Company and
The 1818 Fund, L.P. dated as of March 18, 1991 (filed as
Exhibit 4.6 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1990, and incorporated
herein by reference).
4.4 -- Warrant to purchase shares of Common Stock, par value $.01
per share, of the Company (filed as Exhibit 4.7 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1990, and incorporated herein by
reference).
4.5 -- Registration Rights Agreement dated as of March 16, 1989, by
and among HCA-Hospital Corporation of America and the
persons listed on the signature pages thereto (filed as
Exhibit (g)(24) to Amendment No. 3 to the Schedule 13E-3
filed by HCA-Hospital Corporation of America, Hospital
Corporation of America and The HCA Profit Sharing Plan on
March 22, 1989, and incorporated herein by reference).
4.6 -- Assignment and Assumption Agreement dated as of February 10,
1994, between HCA-Hospital Corporation of America and the
Company relating to the Registration Rights Agreement, as
amended (filed as Exhibit 4.7 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993,
and incorporated herein by reference).
4.7(a) -- $2 Billion Credit Agreement dated as of February 10, 1994
(the "Credit Facility"), among the Company, the Several
Banks and Other Financial Institutions, and Chemical Bank as
Agent and as CAF Loan Agent (filed as Exhibit 4.10 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993, and incorporated herein by
reference).
4.7(b) -- Agreement and Amendment to the Credit Facility dated as of
September 26, 1994 (filed as Exhibit 4.10 to the Company's
Registration Statement on Form S-4(File No. 33-56803), and
incorporated herein by reference).
4.7(c) -- Agreement and Amendment to the Credit Facility dated as of
February 28, 1996 (filed as Exhibit 4.10(c) to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, and incorporated herein by reference).
4.7(d) -- Agreement and Amendment to the Credit Facility dated as of
February 26, 1997 (filed as Exhibit 4.10(d) to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, and incorporated herein by reference).
</TABLE>

51
52
<TABLE>
<S> <C> <C>
4.7(e) -- Agreement and Amendment to the Credit Facility dated as of
June 17, 1997 (filed as Exhibit 10(d) to the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997, and incorporated herein by reference).
4.7(f) -- Second Amendment to the Credit Facility, dated as of
February 3, 1998 (filed as Exhibit 4.10(f) to the Company's
Annual Report on Form 10-K for the year ended December 31,
1997, and incorporated herein by reference).
4.7(g) -- Third Amendment to the Credit Facility, dated as of March
26, 1998 (filed as Exhibit 4.10(g) to the Company's Annual
Report on Form 10-K for the year ended December 31, 1997,
and incorporated herein by reference).
4.7(h) -- Fourth Amendment to the Credit Facility, dated as of July
10, 1998 (filed as Exhibit 10(b) to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1998, and incorporated herein by reference).
4.7(i) -- Fifth Amendment to the Credit Facility, dated as of March
30, 1999 (filed as Exhibit 10(c) to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1999,
and incorporated herein by reference).
4.8 -- Indenture dated as of December 15, 1993 between the Company
and The First National Bank of Chicago, as Trustee (filed as
Exhibit 4.11 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993, and incorporated
herein by reference).
4.9(a) -- $1 Billion Credit Agreement dated as of July 10, 1998 among
the Registrant, The Several Banks and other Financial
Institutions and NationsBank, N.A. as Documentation Agent,
The Bank of Nova Scotia and Deutsche Bank Securities, as
Co-Syndication Agents and The Chase Manhattan Bank, as Agent
(filed as Exhibit 10(c) to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1998, and
incorporated herein by reference).
4.9(b) -- First Amendment to the July 1998 $1 Billion Agreement dated
as of March 30, 1999 (filed as Exhibit 10(b) to the
Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1999, and incorporated herein by reference).
4.10 -- $1 Billion Credit Agreement dated as of March 30, 1999 among
the Company, The Several Banks and Other Financial
Institutions, Chase Securities Inc., as Lead Arranger and
Sole Book Manager, NationsBank, N.A., as Documentation
Agent, The Bank of New York, The Bank of Nova Scotia, and
Toronto-Dominion (Texas), Inc., as Co-Syndication Agents,
Deutsche Bank AG New York Branch and/or Cayman Islands
Branch and Fleet National Bank, as Co-Agents, SunTrust Bank,
Nashville, N.A. and Wachovia Bank, N.A., as Lead Managers
and The Chase Manhattan Bank, as Administrative Agent (filed
as Exhibit 10(a) to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1999, and incorporated
herein by reference).
4.11 -- $1.2 Billion Credit Agreement dated as of March 13, 2000
among the Company, The Several Banks and other Financial
Institutions, Chase Securities Inc., as Lead Arranger and
Sole Book Manager, Bank of America, N.A., as Documentation
Agent and Co-Arranger, The Bank of Nova Scotia, as
Syndication Agent and Co-Arranger, Deutsche Bank AG New York
and/or Cayman Islands Branches, as Syndication Agent and
Co-Arranger, The Bank of New York, as Co-Arranger, The
Industrial Bank of Japan, Limited, as Co-Arranger, Citicorp
USA, as Lead Manager, SunTrust Bank, as Lead Manager,
Wachovia Bank, N.A., as Lead Manager and The Chase Manhattan
Bank, as Administrative Agent (which agreement is filed
herewith).
4.12 -- Distribution Agreement dated as of May 11, 1999 by and among
the Company, LifePoint Hospitals, Inc. and Triad Hospitals,
Inc. (filed as Exhibit 99 to the Company's Current Report on
Form 8-K dated May 11, 1999, and incorporated herein by
reference).
10.1 -- Agreement and Plan of Merger among the Company, COL
Acquisition Corporation and Healthtrust, Inc.--The Hospital
Company dated as of October 4, 1994 (filed as Exhibit 2 to
the Company's Registration Statement on Form S-4 (File No.
33-56803), and incorporated herein by reference).
</TABLE>

52
53
<TABLE>
<S> <C> <C>
10.2 -- Agreement and Plan of Merger among the Company, CHOS
Acquisition Corporation and HCA-Hospital Corporation of
America dated as of October 2, 1993 (filed as Exhibit 2 to
the Company's Registration Statement on Form S-4 (File No.
33-50735), and incorporated herein by reference).
10.3 -- Agreement and Plan of Merger between Galen Health Care, and
the Company dated as of June 10, 1993 (filed as Exhibit 2 to
the Company's Registration Statement on Form S-4 (File No.
33-49773), and incorporated herein by reference).
10.4 -- Agreement and Plan of Merger among Hospital Corporation of
America, HCA-Hospital Corporation of America and TF
Acquisition, Inc. dated November 21, 1988 plus a list
identifying the contents of all omitted exhibits to the
Agreement and Plan of Merger plus an agreement of Hospital
Corporation of America to furnish supplementally to the
Securities and Exchange Commission upon request a copy of
all omitted exhibits (filed as Exhibit 2 to Hospital
Corporation of America's Current Report on Form 8-K dated
November 21, 1988, and incorporated herein by reference).
10.5 -- Amendment No. 1 to Agreement and Plan of Merger dated as of
February 7, 1989, among Hospital Corporation of America,
HCA-Hospital Corporation of America and TF Acquisition, Inc.
(filed as Exhibit 2(b) to Hospital Corporation of America's
Annual Report on Form 10-K for the year ended December 31,
1988, and incorporated herein by reference).
10.6 -- Columbia Hospital Corporation Stock Option Plan (filed as
Exhibit 10.13 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1990, and
incorporated herein by reference).*
10.7(a) -- Amended and Restated Columbia/HCA Healthcare Corporation
1992 Stock and Incentive Plan (filed as Exhibit 10.7(b) to
the Company's Annual Report on From 10-K for the fiscal year
ended December 31, 1998, and incorporated herein by
reference).*
10.7(b) -- First Amendment to Amended and Restated Columbia/HCA
Healthcare Corporation 1992 Stock and Incentive Plan (filed
as Exhibit 10.2 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1999, and
incorporated herein by reference).*
10.8 -- Columbia Hospital Corporation Outside Directors Nonqualified
Stock Option Plan (filed as Exhibit 28.1 to the Company's
Registration Statement on Form S-8 (File No. 33-55272), and
incorporated herein by reference).*
10.9 -- HCA-Hospital Corporation of America 1989 Nonqualified Stock
Option Plan, as amended through December 16, 1991 (filed as
Exhibit 10(g) to HCA-Hospital Corporation of America's
Registration Statement on Form S-1 (File No. 33-44906), and
incorporated herein by reference).*
10.10 -- Form of Stock Option Agreement under the HCA-Hospital
Corporation of America 1989 Nonqualified Stock Option Plan
(filed as Exhibit 10(j) to HCA-Hospital Corporation of
America's Annual Report on Form 10-K for the year ended
December 31, 1989, and incorporated herein by reference).*
10.11 -- HCA-Hospital Corporation of America Nonqualified Initial
Option Plan (filed as Exhibit 4.6 to the Company's
Registration Statement on Form S-3 (File No. 33-52379), and
incorporated herein by reference).*
10.12 -- Form of Indemnity Agreement with certain officers and
directors (filed as Exhibit 10(kk) to Galen Health Care,
Inc.'s Registration Statement on Form 10, as amended, and
incorporated herein by reference).
10.13 -- Form of Severance Pay Agreement between Galen Health Care,
Inc. and certain executives (filed as Exhibit 10(jj) to
Galen Health Care, Inc.'s Registration Statement on Form 10,
as amended, and incorporated herein by reference).*
10.14 -- Form of Severance Agreement between HCA-Hospital Corporation
of America and certain executives dated as of November 1,
1993 (filed as Exhibit 10.15 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993,
and incorporated herein by reference).*
</TABLE>

53
54
<TABLE>
<S> <C> <C>
10.15 -- Assumption Agreement among the Company, CHOS Acquisition
Corporation and HCA-Hospital Corporation of America dated as
of February 10, 1994, relating to the Severance Agreements
(filed as Exhibit 10.16 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993, and
incorporated herein by reference).*
10.16 -- Form of Severance Pay Agreement between the Company and
certain executives dated as of June 10, 1993 (filed as
Exhibit 10.17 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993, and
incorporated herein by reference).*
10.17 -- Form of Galen Health Care, Inc. 1993 Adjustment Plan (filed
as Exhibit 4.15 to the Company's Registration Statement on
Form S-8 (File No. 33-50147), and incorporated herein by
reference).*
10.18 -- Columbia/HCA Healthcare Corporation 1997 Annual Incentive
Plan (filed as Exhibit 10.19 to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1996,
and incorporated herein by reference).*
10.19 -- Columbia/HCA Healthcare Corporation Directors' Retirement
Policy (filed as Exhibit 10.20 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31,
1993, and incorporated herein by reference).*
10.20 -- HCA-Hospital Corporation of America 1992 Stock Compensation
Plan (filed as Exhibit 10(t) to HCA-Hospital Corporation of
America's Registration Statement on Form S-1 (File No.
33-44906), and incorporated herein by reference).*
10.21 -- Columbia/HCA Healthcare Corporation 1995 Management Stock
Purchase Plan (filed as Exhibit 10.22 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, and incorporated herein by reference).*
10.22 -- Employment Agreement, dated April 24, 1995 by and between
the Company and R. Clayton McWhorter (filed as Exhibit 10.24
to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996, and incorporated herein by
reference).*
10.23 -- Amended and Restated Agreement and Plan of Merger among the
Company, CVH Acquisition Corporation and Value Health, Inc.
dated as of April 14, 1997 (filed as Exhibit 2 to the
Company's Current Report on Form 8-K dated April 22, 1997,
and incorporated herein by reference).
10.24 -- Separation Agreement between the Company and Richard L.
Scott dated July 25, 1997 (filed as Exhibit 10(a) to the
Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997, and incorporated herein by
reference).*
10.25 -- Separation Agreement between the Company and David T.
Vandewater dated July 25, 1997 (filed as Exhibit 10(b) to
the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997, and incorporated herein by
reference).*
10.26 -- Columbia/HCA Healthcare Corporation Directors
Fees/Compensation Policy as revised May 14, 1998 (filed as
Exhibit 10.26 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998, and
incorporated herein by reference).*
10.27 -- Columbia/HCA Healthcare Corporation Outside Directors Stock
and Incentive Compensation Plan, as amended and restated
(filed as Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1999, and
incorporated herein by reference).*
10.28 -- Columbia/HCA Healthcare Corporation Amended and Restated
1995 Management Stock Purchase Plan (filed as Exhibit 10.30
to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997, and incorporated herein by
reference).*
10.29 -- Columbia/HCA Healthcare Corporation Performance Equity
Incentive Plan (filed as Exhibit 10.31 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, and incorporated herein by reference).*
10.30 -- Separation Agreement between the Company and Don Steen dated
October 17, 1997 (filed as Exhibit 10.32 to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, and incorporated herein by reference).*
10.31 -- Separation Agreement between the Company and Dan Moen dated
July 1, 1998 (filed as Exhibit 10.31 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31,
1998, and incorporated herein by reference).*
</TABLE>

54
55

<TABLE>
<S> <C> <C>
10.32 -- Separation Agreement between the Company and David White dated September 11, 1998 (filed as Exhibit
10.32 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and
incorporated herein by reference).*
10.33 -- Letter Agreement between the Company and Robert Waterman dated October 31, 1997 (filed as Exhibit
10.33 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and
incorporated herein by reference).*
10.34 -- Letter Agreement between the Company and R. Clayton McWhorter dated January 18, 1999 (filed as
Exhibit 10.34 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1998, and incorporated herein by reference).*
10.35 -- Form of Restricted Stock Purchase Agreement between BNA Associates, Inc. and individuals listed on
Schedule A (which agreement is filed herewith).
10.36 -- Columbia/HCA Healthcare Corporation 1999 Performance Equity Incentive Plan (filed as Exhibit 10.35
to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and
incorporated herein by reference).*
10.37 -- Columbia/HCA Healthcare Corporation Severance Policy for America and Pacific Groups (filed as
Exhibit 10.36 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1998, and incorporated herein by reference).*
10.38 -- Letter of Credit Agreement dated February 11, 1999 between the Company and the United States of
America (filed as Exhibit 99 to the Company's Current Report on Form 8-K dated February 23, 1999,
and incorporated herein by reference).
12 -- Statement re Computation of Ratio of Earnings to Fixed Charges.
21 -- List of Subsidiaries.
23 -- Consent of Ernst & Young LLP.
27 -- Financial Data Schedule for 1999 year-end information (for SEC use only).
</TABLE>

- ------------------------

* Management compensatory plan or arrangement.

(b) Reports on Form 8-K.

On October 27, 1999, the Company filed a report on Form 8-K which announced
the Company's operating results for the third quarter and nine months ended
September 30, 1999.

55
56

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

COLUMBIA/HCA HEALTHCARE CORPORATION

By: /s/ THOMAS F. FRIST, JR., M.D.
-------------------------------------
Thomas F. Frist, Jr., M.D.
Chairman and Chief Executive Officer
Dated: March 29, 2000

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>

/s/ THOMAS F. FRIST, JR., M.D. Chairman of the Board and Chief March 29, 2000
- ----------------------------------------------------- Executive Officer
Thomas F. Frist, Jr., M.D.

/s/ JACK O. BOVENDER, JR. President, Chief Operating March 28, 2000
- ----------------------------------------------------- Officer, and Director
Jack O. Bovender, Jr.

/s/ R. MILTON JOHNSON Senior Vice President and March 29, 2000
- ----------------------------------------------------- Controller (Principal
R. Milton Johnson Accounting Officer)

/s/ MAGDALENA H. AVERHOFF, M.D. Director March 28, 2000
- -----------------------------------------------------
Magdalena H. Averhoff, M.D.

/s/ ELAINE L. CHAO Director March 28, 2000
- -----------------------------------------------------
Elaine L. Chao

/s/ J. MICHAEL COOK Director March 28, 2000
- -----------------------------------------------------
J. Michael Cook

/s/ MARTIN FELDSTEIN Director March 28, 2000
- -----------------------------------------------------
Martin Feldstein

/s/ FREDERICK W. GLUCK Director March 28, 2000
- -----------------------------------------------------
Frederick W. Gluck

/s/ GLENDA A. HATCHETT Director March 28, 2000
- -----------------------------------------------------
Glenda A. Hatchett

/s/ T. MICHAEL LONG Director March 28, 2000
- -----------------------------------------------------
T. Michael Long

/s/ R. CLAYTON MCWHORTER Director March 28, 2000
- -----------------------------------------------------
R. Clayton McWhorter

/s/ JOHN H. MCARTHUR Director March 28, 2000
- -----------------------------------------------------
John H. McArthur
</TABLE>

56
57

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ THOMAS S. MURPHY Director March 28, 2000
- -----------------------------------------------------
Thomas S. Murphy

/s/ KENT C. NELSON Director March 28, 2000
- -----------------------------------------------------
Kent C. Nelson

/s/ CARL E. REICHARDT Director March 28, 2000
- -----------------------------------------------------
Carl E. Reichardt

/s/ FRANK S. ROYAL, M.D. Director March 28, 2000
- -----------------------------------------------------
Frank S. Royal, M.D.
</TABLE>

57
58

COLUMBIA/HCA HEALTHCARE CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-2
Consolidated Financial Statements:
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997....................... F-3
Consolidated Balance Sheets, December 31, 1999 and 1998... F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1999, 1998 and 1997........... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997....................... F-6
Notes to Consolidated Financial Statements................ F-7
Quarterly Consolidated Financial Information
(Unaudited)............................................ F-30
</TABLE>

F-1
59

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders
Columbia/HCA Healthcare Corporation

We have audited the accompanying consolidated balance sheets of
Columbia/HCA Healthcare Corporation as of December 31, 1999 and 1998 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Columbia/HCA
Healthcare Corporation at December 31, 1999 and 1998, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States.

As explained in Note 8 to the Consolidated Financial Statements, effective
January 1, 1997, the Company changed its method of accounting for start-up
costs.

ERNST & YOUNG LLP

Nashville, Tennessee
February 11, 2000

F-2
60

COLUMBIA/HCA HEALTHCARE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Revenues.................................................... $16,657 $18,681 $18,819
Salaries and benefits....................................... 6,749 7,811 7,631
Supplies.................................................... 2,645 2,901 2,722
Other operating expenses.................................... 3,196 3,771 4,263
Provision for doubtful accounts............................. 1,269 1,442 1,420
Depreciation and amortization............................... 1,094 1,247 1,238
Interest expense............................................ 471 561 493
Equity in earnings of affiliates............................ (90) (112) (68)
Gains on sales of facilities................................ (297) (744) --
Impairment of long-lived assets............................. 220 542 442
Restructuring of operations and investigation related
costs..................................................... 116 111 140
------- ------- -------
15,373 17,530 18,281
------- ------- -------
Income from continuing operations before minority interests
and income taxes.......................................... 1,284 1,151 538
Minority interests in earnings of consolidated entities..... 57 70 150
------- ------- -------
Income from continuing operations before income taxes....... 1,227 1,081 388
Provision for income taxes.................................. 570 549 206
------- ------- -------
Income from continuing operations........................... 657 532 182
Discontinued operations:
Income (loss) from operations of discontinued businesses,
net of income taxes (benefits) of ($26) in 1998 and $18
in 1997................................................ -- (80) 12
Losses on disposals of discontinued businesses, net of
income tax benefit of $124 in 1997..................... -- (73) (443)
Cumulative effect of accounting change, net of income tax
benefit of $36............................................ -- -- (56)
------- ------- -------
Net income (loss)................................. $ 657 $ 379 $ (305)
======= ======= =======
Basic earnings (loss) per share:
Income from continuing operations......................... $ 1.12 $ .82 $ .28
Discontinued operations:
Income (loss) from operations of discontinued
businesses........................................... -- (.12) .02
Losses on disposals of discontinued businesses......... -- (.11) (.67)
Cumulative effect of accounting change.................... -- -- (.09)
------- ------- -------
Net income (loss)................................. $ 1.12 $ .59 $ (.46)
======= ======= =======
Diluted earnings (loss) per share:
Income from continuing operations......................... $ 1.11 $ .82 $ .27
Discontinued operations:
Income (loss) from operations of discontinued
businesses........................................... -- (.12) .02
Losses on disposals of discontinued businesses......... -- (.11) (.67)
Cumulative effect of accounting change.................... -- -- (.08)
------- ------- -------
Net income (loss)................................. $ 1.11 $ .59 $ (.46)
======= ======= =======
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-3
61

COLUMBIA/HCA HEALTHCARE CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 190 $ 297
Accounts receivable, less allowances for doubtful accounts
of $1,567 and $1,645................................... 1,873 2,096
Inventories............................................... 383 434
Income taxes receivable................................... 178 149
Other..................................................... 973 887
------- -------
3,597 3,863
Property and equipment, at cost:
Land...................................................... 813 925
Buildings................................................. 6,108 6,708
Equipment................................................. 6,721 7,449
Construction in progress.................................. 442 562
------- -------
14,084 15,644
Accumulated depreciation.................................. (5,594) (6,195)
------- -------
8,490 9,449
Investments of insurance subsidiary......................... 1,457 1,614
Investments in and advances to affiliates................... 654 1,275
Intangible assets, net of accumulated amortization of $644
and $596.................................................. 2,319 2,910
Other....................................................... 368 318
------- -------
$16,885 $19,429
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 657 $ 784
Accrued salaries.......................................... 403 425
Other accrued expenses.................................... 1,112 1,282
Long-term debt due within one year........................ 1,160 1,068
------- -------
3,332 3,559
Long-term debt.............................................. 5,284 5,685
Professional liability risks, deferred taxes and other
liabilities............................................... 1,889 1,839
Minority interests in equity of consolidated entities....... 763 765
Stockholders' equity:
Common stock $.01 par; authorized 1,600,000,000 voting
shares and 50,000,000 nonvoting shares; outstanding
543,272,900 voting shares and 21,000,000 nonvoting
shares -- 1999 and 621,578,300 voting shares and
21,000,000 nonvoting shares -- 1998.................... 6 6
Capital in excess of par value............................ 951 3,498
Other..................................................... 8 11
Accumulated other comprehensive income.................... 53 80
Retained earnings......................................... 4,599 3,986
------- -------
5,617 7,581
------- -------
$16,885 $19,429
======= =======
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-4
62

COLUMBIA/HCA HEALTHCARE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN MILLIONS)

<TABLE>
<CAPTION>
COMMON STOCK CAPITAL IN ACCUMULATED
---------------- EXCESS OF OTHER
SHARES PAR PAR COMPREHENSIVE RETAINED
(000) VALUE VALUE OTHER INCOME EARNINGS TOTAL
-------- ----- ---------- ----- ------------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1996.................. 671,499 $ 7 $4,519 $14 $52 $4,017 $8,609
Comprehensive loss:
Net loss................................. (305) (305)
Other comprehensive income:
Net unrealized gains on investment
securities.......................... 38 38
Foreign currency translation
adjustments......................... 2 2
--- ------ ------
Total comprehensive loss............ 40 (305) (265)
Cash dividends............................. (53) (53)
Stock repurchases.......................... (37,895) (1) (1,272) (1,273)
Stock options exercised, net............... 4,108 100 (4) 96
Employee benefit plan issuances............ 3,740 108 108
Other...................................... 25 3 28
-------- --- ------ --- --- ------ ------
Balances, December 31, 1997.................. 641,452 6 3,480 13 92 3,659 7,250
Comprehensive income:
Net income............................... 379 379
Other comprehensive income (loss):
Net unrealized losses on investment
securities.......................... (13) (13)
Foreign currency translation
adjustments......................... 1 1
--- ------ ------
Total comprehensive income.......... (12) 379 367
Cash dividends............................. (52) (52)
Stock repurchases.......................... (4,076) (98) (98)
Stock options exercised, net............... 1,623 37 37
Employee benefit plan issuances............ 2,983 71 71
Other...................................... 596 8 (2) 6
-------- --- ------ --- --- ------ ------
Balances, December 31, 1998.................. 642,578 6 3,498 11 80 3,986 7,581
Comprehensive income:
Net income............................... 657 657
------ ------
Other comprehensive loss:................
Net unrealized losses on investment
securities.......................... (18) (18)
Foreign currency translation
adjustments......................... (9) (9)
--- ------ ------
Total comprehensive income.......... (27) 657 630
Cash dividends............................. (44) (44)
Stock repurchases.......................... (81,855) (1,930) (1,930)
Stock options exercised, net............... 719 15 (1) 14
Employee benefit plan issuances............ 2,840 56 56
Spin-offs of LifePoint and Triad........... (687) (687)
Other...................................... (9) (1) (2) (3)
-------- --- ------ --- --- ------ ------

Balances, December 31, 1999.................. 564,273 $ 6 $ 951 $ 8 $53 $4,599 $5,617
======== === ====== === === ====== ======
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-5
63

COLUMBIA/HCA HEALTHCARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN MILLIONS)

<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Cash flows from continuing operating activities:
Net income (loss)......................................... $ 657 $ 379 $ (305)
Adjustments to reconcile net income (loss) to net cash
provided by continuing operating activities:
Provision for doubtful accounts...................... 1,269 1,442 1,420
Depreciation and amortization........................ 1,094 1,247 1,238
Income taxes......................................... (66) 351 (782)
Gains on sales of facilities......................... (297) (744) --
Impairment of long-lived assets...................... 220 542 442
Loss from discontinued operations.................... -- 153 431
Increase (decrease) in cash from operating assets and
liabilities:
Accounts receivable............................... (1,463) (1,229) (1,167)
Inventories and other assets...................... (119) (39) 25
Accounts payable and accrued expenses............. (110) (177) 121
Other................................................ 38 (9) 60
------- ------- -------
Net cash provided by continuing operating
activities...................................... 1,223 1,916 1,483
------- ------- -------
Cash flows from investing activities:
Purchase of property and equipment........................ (1,287) (1,255) (1,422)
Acquisition of hospitals and health care entities......... -- (215) (411)
Spin-off of facilities to stockholders.................... 886 -- --
Disposal of hospitals and health care entities............ 805 2,060 212
Change in investments..................................... 565 (294) (74)
Investment in discontinued operations, net................ -- 677 (1,060)
Other..................................................... (44) (3) 9
------- ------- -------
Net cash provided by (used in) investing
activities...................................... 925 970 (2,746)
------- ------- -------
Cash flows from financing activities:
Issuance of long-term debt................................ 1,037 3 249
Net change in commercial paper and revolving bank
credit................................................. 200 (2,514) 2,453
Repayment of long-term debt............................... (1,572) (147) (318)
Issuances (repurchases) of common stock, net.............. (1,884) 8 (1,082)
Payment of cash dividends and redemption of preferred
stock purchase rights.................................. (44) (52) (53)
Other..................................................... 8 3 11
------- ------- -------
Net cash provided by (used in) financing
activities...................................... (2,255) (2,699) 1,260
------- ------- -------
Change in cash and cash equivalents......................... (107) 187 (3)
Cash and cash equivalents at beginning of period............ 297 110 113
------- ------- -------
Cash and cash equivalents at end of period.................. $ 190 $ 297 $ 110
======= ======= =======
Interest payments........................................... $ 475 $ 566 $ 471
Income tax payments, net of refunds......................... $ 634 $ (139) $ 1,168
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

F-6
64

COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- ACCOUNTING POLICIES

Reporting Entity

Columbia/HCA Healthcare Corporation is a holding company whose affiliates
own and operate hospitals and related health care entities. The term
"affiliates" includes direct and indirect subsidiaries of Columbia/HCA
Healthcare Corporation and partnerships and joint ventures in which such
subsidiaries are partners. At December 31, 1999, these affiliates owned and
operated 195 hospitals, 80 freestanding surgery centers and provided extensive
outpatient and ancillary services. Affiliates of Columbia/HCA are also partners
in several joint ventures that own and operate 12 hospitals and 3 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
"Columbia/HCA" or the "Company" as used in this annual report on Form 10-K refer
to Columbia/HCA Healthcare Corporation and its affiliates unless otherwise
stated or indicated by content.

Basis of Presentation

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

The consolidated financial statements include all subsidiaries and entities
controlled by the Company. "Control" is generally defined by the Company as
ownership of a majority of the voting interest of an entity. Significant
intercompany transactions have been eliminated. Investments in entities which
the Company does not control, but in which it has a substantial ownership
interest and can exercise significant influence, are accounted for using the
equity method.

The Company has completed various acquisitions and joint venture
transactions that have been recorded under the purchase method of accounting.
Accordingly, the accounts of these entities have been consolidated with those of
the Company for periods subsequent to the acquisition of controlling interests.

Revenues

The Company's health care facilities have entered into agreements with
third-party payers, including government programs and managed care health plans,
under which the facilities are paid based upon established charges, the cost of
providing services, predetermined rates per diagnosis, fixed per diem rates or
discounts from established charges.

Revenues are recorded at estimated amounts due from patients and
third-party payers for the health care services provided. Settlements under
reimbursement agreements with third-party payers are estimated and recorded in
the period the related services are rendered. The estimated reimbursement
amounts are adjusted in subsequent periods as cost reports are prepared and
filed and as final settlements are determined (in relation to certain government
programs, primarily Medicare, this is generally referred to as the "cost report"
filing and settlement process). The adjustments to estimated reimbursement
amounts resulted in increases to revenues of $94 million, $37 million and $43
million in 1999, 1998 and 1997, respectively. In association with the ongoing
Federal investigations into certain of the Company's business practices, the
applicable governmental agencies have substantially ceased the processing of
final settlements of the Company's cost reports. Since the cost reports are not
being settled, the Company is not receiving the updated information which has
historically been the basis used by the Company to adjust estimated settlement
amounts. At this time, the Company cannot predict when, or if, the historical
cost report settlement process will be resumed. Management believes that
adequate provisions have been made for adjustments that may result from final
determination of amounts earned under these programs.

F-7
65
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 1 -- ACCOUNTING POLICIES (CONTINUED)

Revenues (Continued)
The Company provides care without charge to patients who are financially
unable to pay for the health care services they receive. Because the Company
does not pursue collection of amounts determined to qualify as charity care,
they are not reported in revenues.

Cash and Cash Equivalents

Cash and cash equivalents include highly liquid investments with a maturity
of three months or less when purchased. Carrying values of cash and cash
equivalents approximate fair value due to the short-term nature of these
instruments.

Accounts Receivable

The Company receives payments for services rendered from Federal and state
agencies (under the Medicare, Medicaid and Tricare programs), managed care
health plans, commercial insurance companies, employers and patients. During the
years ended December 31, 1999 and 1998, approximately 29% and 30%, respectively,
of the Company's revenues related to patients participating in the Medicare
program. The Company recognizes that revenues and receivables from government
agencies are significant to its operations, but does not believe that there are
significant credit risks associated with these government agencies. The Company
does not believe that there are any other significant concentrations of revenues
from any particular payer that would subject it to any significant credit risks
in the collection of its accounts receivable.

Additions to the allowance for doubtful accounts are made by means of the
provision for doubtful accounts. Accounts written off as uncollectible are
deducted from the allowance and subsequent recoveries are added.

The amount of the provision for doubtful accounts is based upon
management's assessment of historical and expected net collections, business and
economic conditions, trends in Federal and state governmental health care
coverage and other collection indicators. The primary tool used in management's
assessment is an annual, detailed review of historical collections and
write-offs at facilities that represent a majority of the Company's revenues and
accounts receivable. The results of the detailed review of collections
experience are compared to the allowance amount at the beginning of the review
period and the allowance amount for the current period is evaluated based upon
the historical experience, adjusted for changes in trends and conditions.

Inventories

Inventories are stated at the lower of cost (first-in, first-out) or
market.

Long-lived Assets

(a) Property and Equipment

Depreciation expense, computed using the straight-line method, was $976
million in 1999, $1.1 billion in 1998 and $1.1 billion in 1997. Buildings and
improvements are depreciated over estimated useful lives ranging generally from
10 to 40 years. Estimated useful lives of equipment vary generally from 3 to 10
years.

(b) Intangible Assets

Intangible assets consist primarily of costs in excess of the fair value of
identifiable net assets of acquired entities and are amortized using the
straight-line method, generally over periods ranging from 30 to 40 years for
hospital acquisitions and periods ranging from 5 to 20 years for physician
practice, clinic and other

F-8
66
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 1 -- ACCOUNTING POLICIES (CONTINUED)

Long-lived Assets (Continued)
acquisitions. Noncompete agreements and debt issuance costs are amortized based
upon the lives of the respective contracts or loans.

When events, circumstances and operating results indicate that the carrying
values of certain long-lived assets and the related identifiable intangible
assets might be impaired, the Company prepares projections of the undiscounted
future cash flows expected to result from the use of the assets and their
eventual disposition. If the projections indicate that the recorded amounts are
not expected to be recoverable, such amounts are reduced to estimated fair
value. Fair value is estimated based upon internal evaluations of each market
that include quantitative analyses of net revenue and cash flows, reviews of
recent sales of similar facilities and market responses based upon discussions
with and offers received from potential buyers. The market responses are usually
considered to provide the most reliable estimates of fair value.

Professional Liability Insurance Claims

A substantial portion of the Company's professional liability risks is
insured through a wholly-owned insurance subsidiary of the Company, which is
funded annually. Allowances for professional liability risks were $1.5 billion
and $1.4 billion at December 31, 1999 and 1998, respectively. Provisions for
losses related to professional liability risks are based upon actuarially
determined estimates. Loss and loss expense allowances represent the estimated
ultimate net cost of all reported and unreported losses incurred through the
respective balance sheet dates. The allowances for unpaid losses and loss
expenses are estimated using individual case-basis valuations and statistical
analyses. Those estimates are subject to the effects of trends in loss severity
and frequency. Although considerable variability is inherent in such estimates,
management believes that the allowances for losses and loss expenses are
adequate. The estimates are continually reviewed and adjusted as necessary, as
experience develops or new information becomes known and such adjustments are
included in current operating results.

The Company's wholly owned insurance subsidiary has entered into certain
reinsurance contracts. The obligations covered by the reinsurance contracts
remain on the balance sheet as the Company remains liable to the extent that the
reinsurers do not meet their obligations under the reinsurance contracts. The
unamortized balance of the amounts paid for the reinsurance contracts ($215
million at December 31, 1999) is included in other assets.

Investments of Insurance Subsidiary

At December 31, 1999 and 1998, all of the investments of the Company's
wholly-owned insurance subsidiary were classified as "available for sale" as
defined in Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" ("SFAS 115").

Minority Interests in Consolidated Entities

The consolidated financial statements include all assets, liabilities,
revenues and expenses of less than 100% owned entities controlled by the
Company. Accordingly, management has recorded minority interests in the earnings
and equity of such entities.

The Company is a party to several partnership agreements which include
provisions for the redemption of minority interests using specified valuation
techniques.

F-9
67
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 1 -- ACCOUNTING POLICIES (CONTINUED)
Stock Based Compensation

The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB 25") and related interpretations in
accounting for its employee stock benefit plans. Accordingly, no compensation
cost has been recognized for the Company's employee stock benefit plans.

Disclosures about Segments of an Enterprise

During 1998, the Company adopted Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 131 establishes standards for the way public
business enterprises report information about operating segments in annual
financial statements and requires those enterprises to report selected
information about operating segments in interim financial reports. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers.

Recent Pronouncements

During June 1999, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 137, "Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the Effective Date
of FASB Statement No. 133". SFAS 137 defers the effective date of SFAS 133 to
years beginning after June 15, 2000. SFAS 133 will require the Company to
recognize all derivatives on the balance sheet at fair value. Management is
evaluating SFAS 133 and, due to the Company's minimal use of derivatives, does
not believe that the adoption of SFAS 133 will have a material impact on its
financial statements.

Reclassifications

Certain prior year amounts have been reclassified to conform to the 1999
presentation.

NOTE 2 -- INVESTIGATIONS

The Company is currently the subject of several Federal investigations into
its business practices, as well as governmental investigations by various
states. The Company is cooperating in these investigations and understands,
through written notice and other means, that it is a target in these
investigations. Given the breadth of the ongoing investigations, the Company
expects additional investigative and prosecutorial activity to occur in these
and other jurisdictions in the future. The Company is a defendant in several qui
tam actions brought by private parties on behalf of the United States of
America, which have been unsealed and served on the Company. The actions allege,
in general, that the Company and certain subsidiaries and/or affiliated
partnerships violated the False Claims Act for improper claims submitted to the
government for reimbursement. The lawsuits seek damages of three times the
amount of all Medicare or Medicaid claims (involving false claims) presented by
the defendants to the Federal government, civil penalties of not less than
$5,000 nor more than $10,000 for each such Medicare or Medicaid claim,
attorney's fees and costs. The government has intervened in six unsealed qui tam
actions. The Company is aware of additional qui tam actions that remain under
seal and believes that there are other sealed qui tam cases of which it is
unaware.

The Company is 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.

Management remains unable to predict the outcome or effect of the ongoing
investigations or qui tam and other actions. If the Company is found to have
violated Federal or state laws relating to Medicare, Medicaid or

F-10
68
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 2 -- INVESTIGATIONS (CONTINUED)
similar programs, the Company could be subject to substantial monetary fines,
civil and criminal penalties and exclusion from participation in the Medicare
and Medicaid programs. Similarly, the amounts claimed in the qui tam and other
actions are substantial, and the Company could be subject to substantial costs
resulting from an adverse outcome of one or more such actions. Any such
sanctions or losses could have a material adverse effect on the Company's
financial position and results of operations. (See Note 12 -- Contingencies and
Part I, Item 3: Legal Proceedings.)

NOTE 3 -- RESTRUCTURING OF OPERATIONS

The Company has substantially completed a restructuring of its operations
in an effort to create a smaller and more focused company. The restructuring
included the divestitures of certain hospitals, surgery centers and related
facilities, the spin-offs of LifePoint Hospitals, Inc. ("LifePoint") and Triad
Hospitals, Inc. ("Triad") and the divestitures of the Company's home health and
certain other businesses, as described in Note 5 -- Discontinued Operations.

Divestiture of Certain Hospitals and Surgery Centers

During 1999, the Company recognized a net pretax gain of $297 million ($164
million after-tax) on the sale of three hospitals and certain related health
care facilities. Proceeds from the sales were used to repay bank borrowings.

During 1999, the Company also identified and initiated, or revised, plans
to divest or close during 1999 and 2000, 23 consolidating hospitals and 4
non-consolidating hospitals. The carrying value for the hospitals and other
assets expected to be sold was reduced to fair value of approximately $217
million, based upon estimates of sales values, for a total non-cash, pretax
charge of approximately $220 million. The hospitals and other assets for which
the impairment charge was recorded had net revenues of approximately $580
million (through the date of sale or closure), $795 million and $888 million for
the years ended December 31, 1999, 1998 and 1997, respectively. These facilities
incurred losses from continuing operations before the pretax charge and income
tax benefits of approximately $57 million (through the date of sale or closure),
$86 million and $23 million for the years ended December 31, 1999, 1998 and
1997, respectively. During 1999, the Company completed the sales of 10
consolidating hospitals and the 4 non-consolidating hospitals that had been
identified for divestiture. The facilities spun-off to Triad included 4 of the
consolidating hospitals on which impairment charges had been recorded. The
Company completed the sale of one additional consolidating hospital in January
2000. The proceeds from the completed sales approximated the carrying values and
were used to repay bank borrowings. It is anticipated that proceeds from the
expected divestitures in 2000 will be used to repay bank borrowings.

During 1998, Columbia/HCA recognized a net pretax gain of $744 million
($365 million after-tax) on the sale of certain hospitals and surgery centers.
The gain includes the sale of 20 consolidating hospitals and one
non-consolidating hospital to a consortium of not-for-profit entities for gross
proceeds of approximately $1.2 billion, resulting in a pretax gain of $570
million ($335 million after-tax). The $744 million net gain also includes the
completed sale of 34 ambulatory surgery centers for proceeds of approximately
$550 million. The sale of these surgery centers resulted in a pretax gain of
$203 million ($50 million after-tax). The high effective tax rate of 73% on the
gain was due to significant amounts of non-deductible goodwill related to the
surgery centers sold. Also included in the $744 million net gain was a pretax
loss of $29 million ($20 million after-tax) on the sales of 6 consolidating
hospitals for gross proceeds of approximately $108 million. Proceeds from these
sales were used to repay bank borrowings.

During September 1998, management approved a plan to divest a group of the
Company's medical office buildings. The divestiture is expected to be completed
during 2000, through the transfer of the medical office

F-11
69
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 3 -- RESTRUCTURING OF OPERATIONS (CONTINUED)

Divestiture of Certain Hospitals and Surgery Centers (Continued)
buildings to a joint venture in which the Company will maintain a minority
interest. The carrying value for the medical office buildings was reduced to
fair value of approximately $317 million, based on estimates of sales values,
resulting in a non-cash, pretax charge of approximately $175 million. For the
years ended December 31, 1999, 1998 and 1997, respectively, these medical office
buildings to be divested had net revenues of approximately $76 million, $68
million and $59 million and incurred losses from continuing operations before
the pretax charge and income tax benefits of approximately $82 million, $66
million and $64 million. Proceeds from the medical office buildings divestiture
are expected to be used to repay bank borrowings.

During 1998, management identified and initiated plans to sell or close
during 1999, 23 consolidating hospitals and one non-consolidating hospital. The
carrying value for certain of the hospitals and other assets expected to be sold
was reduced to fair value of approximately $422 million based on estimates of
sales values, resulting in a non-cash, pretax charge of approximately $367
million. For the years ended December 31, 1999, 1998 and 1997, respectively, the
hospitals and other assets for which the impairment charge was recorded had net
revenues of approximately $566 million (through the date of sale or closure),
$896 million and $954 million and incurred income (losses) from continuing
operations before the pretax charge and income taxes (benefits) of approximately
$(64) million (through the date of sale or closure), $(77) million and $6
million. During 1999, the sales of 9 consolidating hospitals and one
non-consolidating hospital that had been identified for divestiture were
completed for gross proceeds of approximately $580 million. During 1999, it was
determined that one consolidating hospital on which the 1998 impairment charge
was taken would not be sold. Proceeds (which approximated the carrying values)
from the completed divestitures were, and from the expected remaining
divestitures will be, used to repay bank borrowings.

During 1997, management identified and initiated plans to close or sell 20
consolidating hospital facilities and 15 surgery centers (primarily optical
surgery centers) that were identified as not compatible with the Company's
operating plans. The carrying value of these facilities was reduced to fair
value of approximately $226 million, based on estimates of sales values, for a
total non-cash charge, pretax of $402 million. As of December 31, 1998, the
Company had completed the sales or closures of 18 hospitals and 9 surgery
centers. During 1999, the Company completed the sales of the remaining 2
hospitals and 6 surgery centers. Proceeds (which approximated the carrying
values) were used to repay bank borrowings.

During the fourth quarter of 1997, the Company also recorded a non-cash,
pretax charge of approximately $40 million related to the impairment of
intangibles and other long-lived assets of certain physician practices where the
recorded asset values were not deemed to be fully recoverable based upon the
operating results trends and projected future cash flows. These assets are now
recorded at estimated fair value.

Management's estimates of sales values are generally based upon internal
evaluations of each market that include quantitative analyses of net revenues
and cash flows, reviews of recent sales of similar facilities and market
responses based upon discussions with and offers received from potential buyers.
The market responses are usually considered to provide the most reliable
estimates of fair value.

The asset impairment charges did not have a significant impact on the
Company's cash flows and are not expected to significantly impact cash flows for
future periods. The impaired facilities are classified as "held for use" because
economic and operational considerations justify operating the facilities and
marketing them as operating enterprises, therefore depreciation has not been
suspended. As a result of the write-downs, depreciation and amortization expense
related to these assets will decrease in future periods. In the aggregate, the
net effect of the change in depreciation and amortization expense is not
expected to have a material effect on operating results for future periods.

F-12
70
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 3 -- RESTRUCTURING OF OPERATIONS (CONTINUED)
The impairment charges affected the Company's asset categories, as follows
(dollars in millions):

<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Property and equipment...................................... $122 $401 $319
Intangible assets........................................... 82 90 123
Investments in and advances to affiliates................... 16 51 --
---- ---- ----
$220 $542 $442
==== ==== ====
</TABLE>

The impairment charges affected the Company's operating segments, as
follows (dollars in millions):

<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Eastern Group............................................... $ 57 $ 82 $106
Western Group............................................... 15 43 102
Corporate and other......................................... 18 188 27
Spin-offs................................................... 34 81 14
National Group.............................................. 96 148 193
---- ---- ----
$220 $542 $442
==== ==== ====
</TABLE>

Spin-Offs

On May 11, 1999, the Company completed the spin-offs of LifePoint and Triad
through a distribution of one share of LifePoint common stock and one share of
Triad common stock for every 19 shares of the Company's common stock outstanding
on April 30, 1999. Triad was comprised of 34 consolidating hospitals and
LifePoint was comprised of 23 consolidating hospitals. The Company's capital in
excess of par value was reduced by approximately $687 million related to the
spin-offs of LifePoint and Triad.

For the years ended December 31, 1999 (through May 11, 1999), 1998 and
1997, respectively, the LifePoint and Triad facilities had $666 million, $2.1
billion and $2.1 billion in revenues. Income (loss) from continuing operations
for the LifePoint and Triad facilities was $(26) million, $(67) million, and $16
million for the years ended December 31, 1999 (through May 11, 1999), 1998 and
1997, respectively.

NOTE 4 -- RESTRUCTURING OF OPERATIONS AND INVESTIGATION RELATED COSTS

During 1999, 1998 and 1997, the Company recorded the following pretax
charges in connection with the restructuring of operations and investigation
related costs as discussed in Note 2 -- Investigations and Note 3
- -- Restructuring of Operations (in millions):

<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Professional fees related to investigations................. $ 77 $ 96 $ 44
Severance costs............................................. 5 5 61
Other....................................................... 34 10 35
---- ---- ----
Total............................................. $116 $111 $140
==== ==== ====
</TABLE>

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 severance amounts in 1999 and 1998 related primarily to a
small group of executives associated with operations or functions that were
ceased or divested during these periods. The $61 million expense in 1997 was
primarily due to the severance for eight senior corporate executives (including
the CEO, COO and CFO) of approximately $29 million and severance for
approximately 180 corporate employees (primarily in the management training and
consulting, develop-

F-13
71
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 4 -- RESTRUCTURING OF OPERATIONS AND INVESTIGATION RELATED COSTS
(CONTINUED)
ment, marketing and product lines areas) of approximately $32 million.
Approximately $51 million (of the $61 million 1997 expense) was paid during
1997. Exit costs of approximately $10 million were accrued for lease commitments
related to several division office locations that were closed during 1997. A
liability balance of approximately $20 million at December 31, 1997
(approximately $10 million for employee benefits and approximately $10 million
for lease commitments) has been reduced by payments of approximately $7 million
and $6 million made during 1998 and 1999. In 1999, the Company accrued
approximately $6 million for lease commitments related to the closure of a
leased hospital in the Company's Eastern Group. The liability balance for
accrued severance and lease commitments was approximately $13 million at
December 31, 1999.

NOTE 5 -- DISCONTINUED OPERATIONS

Discontinued operations included three of the four business units acquired
in the August 1997 merger with Value Health, Inc. ("Value Health") and the
Company's home health care businesses. During 1997, the Company implemented
plans to dispose of these businesses. During the second and third quarters of
1998, the Company completed the sales of the three Value Health units for
proceeds totaling $662 million. The proceeds from the sales were used to repay
bank borrowings. The Company recorded a $73 million loss upon completion of
these sales in 1998, representing an adjustment to the tax benefit related to
the estimated $443 million after-tax loss on disposal of discontinued operations
recorded in the fourth quarter of 1997.

During the third and fourth quarters of 1998, the Company completed five
separate sales transactions that included substantially all of the Company's
home health care operations and received approximately $90 million in proceeds.
The proceeds from the sales were used to repay bank borrowings.

Revenues of the discontinued businesses totaled $1.0 billion and $2.0
billion for the years ended December 31, 1998 and 1997, respectively.

NOTE 6 -- ACQUISITIONS

During 1998 and 1997, the Company acquired various hospitals and related
health care entities (or controlling interests in such entities), all of which
were recorded using the purchase method. The aggregate purchase price of these
transactions was allocated to the assets acquired and liabilities assumed based
upon their respective fair values. The consolidated financial statements include
the accounts and operations of acquired entities for periods subsequent to the
respective acquisition dates.

F-14
72
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 6 -- ACQUISITIONS (CONTINUED)
The following is a summary of hospitals and other health care entities
acquired during 1998 and 1997 (excluding the 1997 acquisition of Value Health)
(dollars in millions):

<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Number of hospitals......................................... 6 5
Number of licensed beds..................................... 852 974
Purchase price information:
Hospitals:
Fair value of assets acquired.......................... $205 $162
Liabilities assumed.................................... (39) (39)
---- ----
Net assets acquired.................................. 166 123
Contributions from minority partners................... (54) (24)
---- ----
112 99
Other health care entities acquired....................... 103 312
---- ----
Net cash paid........................................ $215 $411
==== ====
</TABLE>

The purchase price paid in excess of the fair value of identifiable net
assets of acquired entities aggregated $86 million in 1998 and $221 million in
1997.

The pro forma effect of these acquisitions on the Company's results of
operations for the periods prior to the respective acquisition dates was not
significant.

NOTE 7 -- INCOME TAXES

The provision for income taxes on income from continuing operations
consists of the following (dollars in millions):

<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current:
Federal................................................... $517 $637 $313
State..................................................... 90 116 56
Foreign................................................... 3 -- --
Deferred:
Federal................................................... (37) (169) (134)
State..................................................... (6) (35) (29)
Foreign................................................... 3 -- --
---- ---- ----
$570 $549 $206
==== ==== ====
</TABLE>

A reconciliation of the federal statutory rate to the effective income tax
rate follows:

<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate...................................... 35.0% 35.0% 35.0%
State income taxes, net of federal income tax benefit....... 4.5 4.9 4.6
Non-deductible intangible assets............................ 7.5 11.4 12.7
Other items, net............................................ (0.5) (0.5) 0.6
---- ---- ----
Effective income tax rate................................... 46.5% 50.8% 52.9%
==== ==== ====
</TABLE>

F-15
73
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 7 -- INCOME TAXES (CONTINUED)
A summary of the items comprising the deferred tax assets and liabilities
at December 31 follows (dollars in millions):

<TABLE>
<CAPTION>
1999 1998
-------------------- --------------------
ASSETS LIABILITIES ASSETS LIABILITIES
------ ----------- ------ -----------
<S> <C> <C> <C> <C>
Depreciation and fixed asset basis differences....... $ -- $342 $ -- $407
Allowances for professional and general liability
and other risks.................................... 296 -- 351 --
Doubtful accounts.................................... 359 -- 316 --
Compensation......................................... 160 -- 98 --
Other................................................ 140 285 182 281
---- ---- ---- ----
$955 $627 $947 $688
==== ==== ==== ====
</TABLE>

Deferred income taxes of $571 million and $486 million at December 31, 1999
and 1998, respectively, are included in other current assets. Noncurrent
deferred income tax liabilities totaled $243 and $227 million at December 31,
1999 and 1998, respectively.

At December 31, 1999, state net operating loss carryforwards (expiring in
years 2000 through 2004) available to offset future taxable income approximated
$381 million. Utilization of net operating loss carryforwards in any one year
may be limited and, in certain cases, result in a reduction of intangible
assets. Net deferred tax assets related to such carryforwards are not
significant.

IRS Disputes

The Company 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 Federal income tax return, Columbia
Healthcare Corporation's ("CHC") 1993 and 1994 Federal income tax returns,
HCA-Hospital Corporation of America, Inc.'s ("HCA") 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
Company anticipates filing a petition with the Tax Court contesting certain
claimed deficiences and adjustments proposed by the IRS in connection with its
examination of the Company's 1995 through 1996 Federal income tax returns during
the second quarter of 2000. 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 $181 million in income taxes
and interest through December 31, 1999.

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 classification of a current liability for tax and interest
(through December 31, 1999) of $152 million and had no impact on the Company's
results of operations.

Tax Court decisions received in 1996 and 1997, related to the IRS'
examination of HCA'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 2000. 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.

F-16
74
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 7 -- INCOME TAXES (CONTINUED)
During the first quarter of 2000, the IRS began an examination of the
Company's 1997 through 1998 Federal income tax returns. The Company is presently
unable to estimate the amount of any additional income tax and interest which
the IRS may claim upon completion of this examination.

Management believes that adequate provisions have been recorded to satisfy
final resolution of the disputed issues. Management believes that the Company,
CHC, HCA and Healthtrust properly reported taxable income and paid taxes in
accordance with applicable laws and agreements established with the IRS during
previous examinations and that final resolution of these disputes will not have
a material adverse effect on the results of operations or financial position of
the Company.

NOTE 8 -- ACCOUNTING CHANGE

In the fourth quarter of 1997, the Company changed its method of accounting
for start-up costs. The change involved expensing these costs as incurred rather
than capitalizing and subsequently amortizing such costs. The change in
accounting principle resulted in the write-off of the costs capitalized as of
January 1, 1997. The cumulative effect of the write-off, $56 million (net of tax
benefit), was expensed in the 1997 statement of operations.

NOTE 9 -- 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 from continuing operations (dollars in millions, except per
share amounts and shares in thousands):

<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Income from continuing operations.................. $ 657 $ 532 $ 182
======== ======== ========
Weighted average common shares outstanding......... 585,216 643,719 657,931
Effect of dilutive securities:
Stock options................................. 3,865 2,310 4,407
Warrants and other............................ 1,948 620 752
-------- -------- --------
Shares used for diluted earnings per share......... 591,029 646,649 663,090
======== ======== ========
Earnings per share:
Basic earnings per share from continuing
operations.................................... $ 1.12 $ .82 $ .28
======== ======== ========
Diluted earnings per share from continuing
operations.................................... $ 1.11 $ .82 $ .27
======== ======== ========
</TABLE>

F-17
75
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 10 -- INVESTMENTS OF INSURANCE SUBSIDIARY

A summary of the insurance subsidiary's investments at December 31 follows
(dollars in millions):

<TABLE>
<CAPTION>
1999
--------------------------------------
UNREALIZED
AMOUNTS
AMORTIZED --------------- FAIR
COST GAINS LOSSES VALUE
--------- ----- ------ ------
<S> <C> <C> <C> <C>
Debt securities:
United States Government....................... $ 4 $ -- $ -- $ 4
States and municipalities...................... 873 5 (15) 863
Mortgage-backed securities..................... 74 1 (1) 74
Corporate and other............................ 107 -- (3) 104
Money market funds............................. 59 -- -- 59
Redeemable preferred stocks.................... 47 -- -- 47
------ ---- ---- ------
1,164 6 (19) 1,151
------ ---- ---- ------
Equity securities:
Perpetual preferred stocks..................... 13 -- (1) 12
Common stocks.................................. 388 138 (32) 494
------ ---- ---- ------
401 138 (33) 506
------ ---- ---- ------
$1,565 $144 $(52) 1,657
====== ==== ====
Amounts classified as current assets............. (200)
------
Investment carrying value........................ $1,457
======
</TABLE>

<TABLE>
<CAPTION>
1998
--------------------------------------
UNREALIZED
AMOUNTS
AMORTIZED --------------- FAIR
COST GAINS LOSSES VALUE
--------- ----- ------ ------
<S> <C> <C> <C> <C>
Debt securities:
United States Government....................... $ 119 $ -- $ -- $ 119
States and municipalities...................... 886 32 -- 918
Mortgage-backed securities..................... 78 1 -- 79
Corporate and other............................ 173 2 (1) 174
Money market funds............................. 27 -- -- 27
Redeemable preferred stocks.................... 52 1 -- 53
------ ---- ---- ------
1,335 36 (1) 1,370
------ ---- ---- ------
Equity securities:
Perpetual preferred stocks..................... 21 1 -- 22
Common stocks.................................. 287 126 (41) 372
------ ---- ---- ------
308 127 (41) 394
------ ---- ---- ------
$1,643 $163 $(42) 1,764
====== ==== ====
Amounts classified as current assets............. (150)
------
Investment carrying value........................ $1,614
======
</TABLE>

The fair value of investment securities is generally based on quoted market
prices.

F-18
76
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 10 -- INVESTMENTS OF INSURANCE SUBSIDIARY (CONTINUED)
Scheduled maturities of investments in debt securities at December 31, 1999
were as follows (dollars in millions):

<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
--------- ------
<S> <C> <C>
Due in one year or less..................................... $ 100 $ 100
Due after one year through five years....................... 270 269
Due after five years through ten years...................... 432 428
Due after ten years......................................... 288 280
------ ------
1,090 1,077
Mortgage-backed securities.................................. 74 74
------ ------
$1,164 $1,151
====== ======
</TABLE>

The average expected maturity of the investments in debt securities listed
above approximated 4.5 years at December 31, 1999. Expected and scheduled
maturities may differ because the issuers of certain securities may have the
right to call, prepay or otherwise redeem such obligations.

The tax equivalent yield on investments (including common stocks) averaged
9% for 1999, 10% for 1998 and 12% for 1997. Tax equivalent yield is the rate
earned on invested assets, excluding unrealized gains and losses, adjusted for
the benefit of certain investment income not being subject to taxation.

The cost of securities sold is based on the specific identification method.
Sales of securities for the years ended December 31 are summarized below
(dollars in millions):

<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Debt securities:
Cash proceeds............................................. $514 $341 $364
Gross realized gains...................................... 2 3 3
Gross realized losses..................................... 5 1 1
Equity securities:
Cash proceeds............................................. $200 $308 $249
Gross realized gains...................................... 109 77 76
Gross realized losses..................................... 51 30 10
</TABLE>

F-19
77
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 11 -- LONG-TERM DEBT

A summary of long-term debt at December 31 (including related interest
rates at December 31, 1999) follows (dollars in millions):

<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Senior collateralized debt (rates generally fixed, averaging
9.5%) payable in periodic installments through 2034....... $ 211 $ 196
Senior debt (rates generally fixed, averaging 7.7%) payable
in periodic installments through 2095..................... 4,009 4,193
Bank term loans (floating rates, averaging 7.9%)............ 1,400 1,741
Bank credit agreements (floating rates, averaging 7.4%)..... 700 500
Subordinated debt (rates generally fixed, averaging 6.9%)
payable in periodic installments through 2015............. 124 123
------ ------
Total debt, average life of ten years (rates averaging
7.8%)..................................................... 6,444 6,753
Less amounts due within one year............................ 1,160 1,068
------ ------
$5,284 $5,685
====== ======
</TABLE>

Credit Facility

The Company's revolving credit facility (the "Credit Facility") is a $2.0
billion, five-year revolving credit agreement expiring February 2002. As of
December 31, 1999, the Company had $700 million outstanding under the Credit
Facility.

As of February 2000, interest is payable generally at either LIBOR plus
0.45% to 1.50% (depending on the Company's credit ratings), the prime lending
rate or a competitive bid rate. The Credit Facility contains customary covenants
which include (i) a limitation on debt levels, (ii) a limitation on sales of
assets, mergers and changes of ownership and (iii) maintenance of minimum
interest coverage ratios. The Company is currently in compliance with all such
covenants.

Significant Financing Activities

1999

In March 1999, the Company entered into a $1.0 billion interim term loan
agreement (the "1999 Term Loan") with several banks. The Company repaid $500
million on 1999 Term Loan in September 1999. Proceeds from the $1.0 billion 1999
Term Loan were used during the second quarter to fund the $1.0 billion share
repurchase program approved in February 1999. In March 2000, the Company entered
into a $1.2 billion term loan agreement (the "2000 Term Loan") with several
banks. Proceeds from the 2000 Term Loan were used in the first quarter of 2000
to retire the outstanding balance under the 1999 Term Loan and to reduce
outstanding loans under the Credit Facility.

In February 1999, Standard & Poor's ("S&P") downgraded the Company's senior
debt rating from BBB to BB+.

1998

During June 1998, the Company's 364-day credit facility was converted into
a one-year term loan maturing in June 1999. The one year term loan, which had a
balance of $741 million at December 31, 1998, was paid off in its entirety in
February 1999.

F-20
78
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 11 -- LONG-TERM DEBT (CONTINUED)

Significant Financing Activities (Continued)
In July 1998, the Company entered into a $1.0 billion term loan agreement
(the "1998 Term Loan") with several banks which matures in February 2002. The
balance of the 1998 Term Loan at December 31, 1999 was $900 million. Proceeds
from the 1998 Term Loan were used to reduce other borrowings.

In February 1998, the Company's senior debt rating was downgraded from Baa2
to Ba2 and from BBB+ to BBB- by Moody's Investors Service ("Moody's") and Fitch
IBCA, respectively.

1997

During 1997, the Company's senior debt ratings were downgraded from A2 to
Baa2 and from A- to BBB by Moody's and S&P, respectively. The Company's
commercial paper ratings were downgraded from P-1 to P-3 and from A-2 to A-3 by
Moody's and S&P, respectively. The decline in the Company's commercial paper
ratings significantly limited access to this financing source. As such, during
the third quarter of 1997, the Company began replacing amounts outstanding under
its commercial paper programs with borrowings under its bank credit facilities.

In June 1997, Columbia/HCA issued $200 million of 7.00% notes due 2007.

General Information

Maturities of long-term debt in years 2001 through 2004 (excluding
borrowings under the Credit Facility) are $630 million, $514 million, $339
million and $312 million, respectively.

The estimated fair value of the Company's long-term debt was $6.1 billion
and $6.7 billion at December 31, 1999 and 1998, respectively, compared to
carrying amounts aggregating $6.4 billion and $6.8 billion, respectively. 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.

NOTE 12 -- CONTINGENCIES

Significant Legal Proceedings

Various lawsuits, claims and legal proceedings (see Note
2 -- Investigations and Part I, Item 3: 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 are usually
not covered by

F-21
79
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 12 -- CONTINGENCIES (CONTINUED)

General Liability Claims (Continued)
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 13 -- CAPITAL STOCK AND STOCK REPURCHASES

Capital Stock

The terms and conditions associated with each class of the Company's common
stock are substantially identical except for voting rights. All nonvoting common
stockholders may convert their shares on a one-for-one basis into voting common
stock, subject to certain limitations. In addition, certain voting common
stockholders may convert their shares on a one-for-one basis into nonvoting
common stock.

On May 15, 1997, the Board of Directors of the Company authorized the
redemption of all outstanding preferred stock purchase rights. The redemption
price of $.01 per share was paid on September 1, 1997 and was distributed to
stockholders along with the quarterly dividend.

Stock Repurchase Program

In November 1999, the Company announced that its Board of Directors had
authorized the repurchase of up to $1 billion of its common stock. Approximately
34 million shares have been purchased by certain financial organizations through
a series of forward purchase contracts, at an average cost of approximately $29
per share. In accordance with the terms of the forward purchase contracts, the
shares purchased remain outstanding until the forward purchase contracts are
settled by the Company. The Company expects the forward purchase contracts will
be settled during 2000. In March 2000, the Company announced that its Board of
Directors authorized the repurchase of up to an additional $1 billion of its
common stock. The Company expects to repurchase its shares through open market
purchases, privately negotiated transactions or through forward purchase
contracts.

In February 1999, the Company's Board of Directors authorized the
repurchase of up to $1 billion of the Company's common stock, which the Company
completed through open market purchases and accelerated purchase contracts.
During 1999, through open market purchases, the Company repurchased 13.7 million
shares of its common stock for approximately $300 million. Also during 1999, the
Company, through accelerated purchase agreements, repurchased 28.1 million
shares of its common stock for approximately $700 million.

In July 1998, the Company announced a stock repurchase program under which
$1 billion of the Company's common stock was repurchased. The majority of these
shares were purchased by certain financial organizations through a series of
forward purchase contracts. During 1999, the Company settled forward purchase
contracts representing 39.5 million shares at a cost of approximately $889
million. The Company, through open market purchases, repurchased 4.1 million
shares for $98 million during the fourth quarter of 1998 and 0.6 million shares
for $14 million during 1999.

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 36 basis points to LIBOR plus 125 basis points), (2) the contracts
generally have a stated term of two years, 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 two methods: (a)
physical settlement -- where the Company would pay cash in exchange for the
shares or (b) net share settlement -- where the Company
F-22
80
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 13 -- CAPITAL STOCK AND STOCK REPURCHASES (CONTINUED)

Stock Repurchase Program (Continued)
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 and the
counterparties' cost to acquire the shares plus the specified rate of return.

During 1999, the share repurchase transactions reduced capital in excess of
par value by approximately $1.9 billion.

During the first quarter of 1999, 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
agreement also provided that the Company's share repurchase program announced in
February 1999 could be completed, at the Company's discretion, through open
market purchases, privately negotiated transactions or through accelerated or
forward purchase contracts. The Company and the government acknowledge that the
amount of the letters of credit is not based upon the amount or expected amount
of any potential settlement of the ongoing government investigation, and the
agreement does not constitute an admission of liability by the Company.

The Company announced in April 1997 that the Company's Board of Directors
authorized the repurchase of up to $1 billion of the Company's common stock. At
December 31, 1997, the Company had completed the repurchase program by acquiring
approximately 29.4 million shares through open market purchases.

Other Stock Repurchases

The Board of Directors has authorized the Company to repurchase shares to
be used for stock issuances related to the Company's employee stock benefit
plans. During 1997, the Company repurchased approximately 8.5 million shares (at
a cost of approximately $273 million) to fund employee stock benefit plan
issuances.

NOTE 14 -- STOCK BENEFIT PLANS

The Amended and Restated Columbia/HCA Healthcare Corporation 1992 Stock and
Incentive Plan (the "1992 Plan") is the primary plan under which options to
purchase common stock may be granted to officers, employees and directors. The
number of options or shares authorized under the 1992 Plan is 60,000,000 of
which 8,393,000 are available for grant at December 31, 1999. Under the 1992
Plan, options are generally granted at no less than market price on the date of
grant. Options are exercisable in whole or in part beginning one to five years
after the grant and ending ten years after the grant.

In October 1997, the Compensation Committee of the Company's Board of
Directors modified and amended the 1992 Plan agreements to provide for immediate
and 100% vesting upon a "change of control" (as defined in the amendment) of the
Company. The amendment is applicable for all options available for grant as well
as all options previously issued under the 1992 Plan.

In the past, the Company has had various other plans under which options to
purchase common stock have been granted to officers, employees and directors.
Generally, options have been granted with exercise prices no less than the
market price on the date of grant. Exercise provisions vary, but most options
are exercisable in whole or in part beginning two to four years after the grant
date and ending four to fifteen years after the grant date.

F-23
81
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 14 -- STOCK BENEFIT PLANS (CONTINUED)
On May 11, 1999 the Company completed the spin-offs of LifePoint and Triad.
Accordingly, adjustments were made to the Columbia/HCA stock options
outstanding. Nonvested Columbia/HCA stock options held by individuals who became
employees of LifePoint or Triad were cancelled and those employees were granted
options by LifePoint or Triad. The number of Columbia/HCA options was increased,
Columbia/HCA exercise prices were decreased and/or new options were granted by
LifePoint and Triad to preserve the economic value that existed just prior to
the spin-offs for the holders of nonvested options by those Columbia/HCA
employees who remained Columbia/HCA employees and for all holders of vested
Columbia/HCA stock options.

Information regarding these option plans for 1999, 1998 and 1997 is
summarized below (share amounts in thousands):

<TABLE>
<CAPTION>
STOCK OPTION PRICE PER WEIGHTED AVERAGE
OPTIONS SHARE EXERCISE PRICE
------- --------------------- ----------------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1996.............. 29,467 $ 0.14 to $37.00 $24.94
Granted................................ 23,111 25.12 to 41.36 32.03
Conversion of Value Health Stock
Options............................. 3,189 6.76 to 59.64 31.31
Exercised.............................. (4,138) 0.14 to 35.25 15.90
Cancelled.............................. (6,614) 0.38 to 38.11 32.04
------
Balances, December 31, 1997.............. 45,015 0.14 to 59.64 28.70
Granted................................ 7,092 21.16 to 32.27 25.27
Exercised.............................. (1,629) 0.38 to 30.90 17.68
Cancelled.............................. (9,819) 0.14 to 59.64 31.26
------
Balances, December 31, 1998.............. 40,659 0.14 to 41.13 27.92
Granted................................ 18,847 17.12 to 25.75 17.29
Adjustment due to spin-offs............ 406 0.38 to 41.13 27.19
Exercised.............................. (726) 0.14 to 26.62 14.17
Cancelled.............................. (7,279) 0.14 to 37.92 29.27
------
Balances, December 31, 1999.............. 51,907 0.14 to 41.13 24.05
======
</TABLE>

<TABLE>
<CAPTION>
1999 1998 1997
---------- ------- --------
<S> <C> <C> <C> <C> <C>
Weighted average fair value for options granted
during the year................................. $ 8.01 $ 8.81 $ 11.98
Options exercisable............................. 18,304 10,757 8,892
Options available for grant..................... 8,478 19,323 18,436
</TABLE>

F-24
82
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 14 -- STOCK BENEFIT PLANS (CONTINUED)
The following table summarizes information regarding the options
outstanding at December 31, 1999 (share amounts in thousands):

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ ----------------------
WEIGHTED
AVERAGE WEIGHTED NUMBER WEIGHTED
NUMBER REMAINING AVERAGE EXERCISABLE AVERAGE
RANGE OF OUTSTANDING CONTRACTUAL EXERCISE AT EXERCISE
EXERCISE PRICES AT 12/31/99 LIFE PRICE 12/31/99 PRICE
--------------- ----------- ----------- -------- ----------- --------
<C> <S> <C> <C> <C> <C> <C>
$11.99 to $14.81....................... 48 1 year $13.24 48 $13.24
27.10 to 33.52........................ 12 1 year 29.61 12 29.61
18.07 ................................ 4 2 years 18.07 4 18.07
35.30 ................................ 8 2 years 35.30 8 35.30
7.35 to 10.99........................ 257 3 years 10.79 257 10.79
11.26 to 13.24........................ 1,145 3 years 11.80 1,145 11.80
23.85 ................................ 5 3 years 23.85 5 23.85
0.14 ................................ 340 4 years 0.14 340 0.14
0.38 ................................ 635 4 years 0.38 635 0.38
11.47 to 17.11........................ 160 4 years 15.99 160 15.99
24.09 to 27.50........................ 2,239 4 years 24.52 2,235 24.52
25.21 to 30.90........................ 3,579 5 years 26.10 2,766 26.12
29.22 to 36.58........................ 5,669 6 years 34.54 3,455 34.09
31.38 to 41.13........................ 5,438 7 years 37.39 1,676 37.35
12.23 ................................ 120 8 years 12.23 120 12.23
21.16 to 30.93........................ 13,665 8 years 26.13 3,126 26.73
32.27 ................................ 147 8 years 32.27 59 32.27
17.12 to 24.49........................ 18,320 9 years 17.29 2,152 18.08
25.75 to 29.06........................ 15 9 years 26.41 -- --
0.14 ................................ 101 14 years 0.14 101 0.14
------ ------
51,907 18,304
====== ======
</TABLE>

The Company has an Employee Stock Purchase Plan ("ESPP") which provides an
opportunity to purchase shares of its common stock at a discount (through
payroll deductions over six month intervals) to substantially all employees. At
December 31, 1999, 2,550,000 shares of common stock were reserved for the
Company's employee stock purchase plan.

F-25
83
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 14 -- STOCK BENEFIT PLANS (CONTINUED)
The Company applies the provisions of APB 25 in accounting for its stock
options and stock purchase plans, and accordingly, compensation cost is not
recognized in the consolidated statements of operations. As required by
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), the Company has determined the pro forma net income
(loss) and earnings (loss) per share as if compensation cost for the Company's
employee stock option and stock purchase plans had been determined based upon
their fair value at the grant date. These pro forma amounts are as follows
(dollars in millions, except per share amounts):

<TABLE>
<CAPTION>
1999 1998 1997
----- ---- -----
<S> <C> <C> <C>
Net income (loss):
As reported............................................... $ 657 $379 $(305)
Pro forma................................................. 609 346 (344)
Basic earnings (loss) per share:
As reported............................................... $1.12 $.59 $(.46)
Pro forma................................................. 1.04 .54 (.52)
Diluted earnings (loss) per share:
As reported............................................... $1.11 $.59 $(.46)
Pro forma................................................. 1.03 .54 (.52)
</TABLE>

The pro forma impact only takes into account employee stock options granted
since January 1, 1995 and is likely to increase in future years as additional
options are granted and the related compensation expense is amortized ratably
over the vesting periods.

For SFAS 123 purposes, the weighted average fair values of the Company's
stock options granted in 1999, 1998 and 1997 were $8.01, $8.81 and $11.98 per
share, respectively. The fair values were estimated using the Black-Scholes
option valuation model with the following weighted average assumptions:

<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Risk-free interest rate..................................... 6.53% 4.75% 5.61%
Expected volatility......................................... .38 .24 .24
Expected life, in years..................................... 6 6 6
Expected dividend yield..................................... .35% .30% .23%
</TABLE>

The pro forma compensation cost related to the shares of common stock
issued under the ESPP was $9 million, $13 million and $14 million for the years
1999, 1998 and 1997, respectively. These pro forma costs were estimated based on
the difference between the price paid and the fair market value of the stock on
the last day of each subscription period.

NOTE 15 -- EMPLOYEE BENEFIT PLANS

The Company maintains noncontributory, defined contribution retirement
plans covering substantially all employees. Benefits are determined as a
percentage of a participant's salary and are vested over specified periods of
employee service. Retirement plan expense was $151 million for 1999, $170
million for 1998 and $194 million for 1997. Amounts approximately equal to
retirement plan expense are funded annually.

The Company maintains various contributory benefit plans which are
available to employees who meet certain minimum requirements. Certain of the
plans require that the Company match an amount ranging from 25% to 100% of a
participant's contribution up to certain maximum levels. The cost of these plans
totaled $17 million for 1999, $21 million for 1998 and $19 million for 1997. The
Company's contributions are funded periodically during each year.

F-26
84
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 16 -- SEGMENT AND GEOGRAPHIC INFORMATION

The Company operates in one line of business which is operating hospitals
and related health care entities. During the years ended December 31, 1999, 1998
and 1997, approximately 29%, 30% and 34%, respectively, of the Company's
revenues related to patients participating in the Medicare program.

The Company's operations are structured in two geographically organized
groups: the Eastern Group comprised of 103 consolidating hospitals located in
the Eastern United States and the Western Group comprised of 82 consolidating
hospitals located in the Western United States. These two groups represent the
Company's core operations and are typically located in urban areas that are
characterized by highly integrated facility networks. An additional group, the
National Group, includes 8 consolidating hospitals which are located in the
United States, but are not located in the Company's core markets and are
currently held for sale. During 1999, the Company moved 11 consolidating
hospitals, 7 of which were sold during 1999, from the Eastern and Western Groups
to the National Group. One hospital which had been previously been identified to
be sold was moved to the Eastern Group since it is no longer being marketed for
sale. The Company also operates 2 consolidating hospitals in Switzerland.

The Company completed the spin-offs of LifePoint and Triad (the
"Spin-offs") during the second quarter of 1999. At April 30, 1999, LifePoint
included 23 consolidating hospitals which are located in non-urban areas where,
in almost every case the hospital is the only hospital in the community. At
April 30, 1999, Triad included 34 consolidating hospitals, approximately
three-quarters of which are located in small cities, generally in the Southern,
Western and Southwestern United States where the hospital is usually the only
hospital or one of two hospitals in the community, and the remainder of Triad's
facilities are located in larger urban areas typically characterized by a high
rate of population growth. See Note 3 -- Restructuring of Operations.

The chief operating decision maker reviews geographic distributions of the
Company's revenues, EBITDA, depreciation and amortization and assets. EBITDA is
defined as income from continuing operations before depreciation and
amortization, interest expense, gains on sales of facilities, impairment of
long-lived assets, restructuring of operations and investigation related costs,
minority interests and income taxes. The Company's Chief Operating Officer, who
is the Company's chief operating decision maker, 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 of
the Company's revenues, EBITDA, depreciation and amortization and assets are
summarized in the following table (dollars in millions):

<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Revenues:
Eastern Group....................................... $ 8,064 $ 7,677 $ 7,585
Western Group....................................... 7,050 6,521 6,250
Corporate and other (a)............................. 302 283 232
National Group...................................... 575 2,113 2,655
Spin-offs........................................... 666 2,087 2,097
------- ------- -------
$16,657 $18,681 $18,819
======= ======= =======
</TABLE>

F-27
85
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 16 -- SEGMENT AND GEOGRAPHIC INFORMATION (CONTINUED)

<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
EBITDA:
Eastern Group....................................... $ 1,745 $ 1,582 $ 1,469
Western Group....................................... 1,167 982 998
Corporate and other(a).............................. (68) 8 (149)
National Group...................................... (39) 90 263
Spin-offs........................................... 83 206 270
------- ------- -------
$ 2,888 $ 2,868 $ 2,851
======= ======= =======
Depreciation and amortization:
Eastern Group....................................... $ 474 $ 465 $ 452
Western Group....................................... 437 406 402
Corporate and other(a).............................. 98 92 87
National Group...................................... 38 146 167
Spin-offs........................................... 47 138 $ 130
------- ------- -------
$ 1,094 $ 1,247 $ 1,238
======= ======= =======
Assets:
Eastern Group....................................... $ 6,915 $ 6,950 $ 6,891
Western Group....................................... 6,586 6,846 6,467
Corporate and other(a).............................. 3,144 2,884 4,445
National Group...................................... 240 1,023 2,390
Spin-offs........................................... -- 1,726 1,809
------- ------- -------
$16,885 $19,429 $22,002
======= ======= =======
</TABLE>

- ---------------

(a) Includes the Company's 2 consolidating hospitals located in Switzerland.

NOTE 17 -- OTHER COMPREHENSIVE INCOME

The following table sets forth the components of other comprehensive
income, along with their respective income taxes (benefits) and the
reclassification adjustments needed to exclude the portion of other
comprehensive income already included in net income (loss), (dollars in
millions):

<TABLE>
<CAPTION>
INCOME
PRETAX TAXES AFTER-TAX
AMOUNT (BENEFITS) AMOUNT
------ ---------- ---------
<S> <C> <C> <C>
1999
Unrealized gains (losses) on securities:
Unrealized holding gains arising during the
period.......................................... $ 26 $ 9 $ 17
Less: reclassification adjustment for gains
realized in net income.......................... (55) (20) (35)
---- ---- ----
Net unrealized losses............................. (29) (11) (18)
Foreign currency translation adjustments............. (13) (4) (9)
---- ---- ----
Other comprehensive loss..................... $(42) $(15) $(27)
==== ==== ====
</TABLE>

F-28
86
COLUMBIA/HCA HEALTHCARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 17 -- OTHER COMPREHENSIVE INCOME (CONTINUED)

<TABLE>
<CAPTION>
INCOME
PRETAX TAXES AFTER-TAX
AMOUNT (BENEFITS) AMOUNT
------ ---------- ---------
<S> <C> <C> <C>
1998
Unrealized gains (losses) on securities:
Unrealized holding gains arising during the
period.......................................... $ 45 $ 17 $ 28
Less: reclassification adjustment for gains
realized in net income.......................... (64) (23) (41)
---- ---- ----
Net unrealized losses............................. (19) (6) (13)
Foreign currency translation adjustments............. 1 -- 1
---- ---- ----
Other comprehensive loss..................... $(18) $ (6) $(12)
==== ==== ====
</TABLE>

<TABLE>
<CAPTION>
INCOME
PRETAX TAXES AFTER-TAX
AMOUNT (BENEFITS) AMOUNT
------ ---------- ---------
<S> <C> <C> <C>
1997
Unrealized gains on securities:
Unrealized holding gains arising during the
period.......................................... $147 $ 51 $ 96
Less: reclassification adjustment for gains
realized in net income.......................... (91) (33) (58)
---- ---- ----
Net unrealized gains.............................. 56 18 38
Foreign currency translation adjustments:
Unrealized translation adjustments arising during
the period...................................... 16 6 10
Less: reclassification adjustment for gains
realized in net income.......................... (13) (5) (8)
---- ---- ----
Net unrealized translation adjustments............ 3 1 2
---- ---- ----
Other comprehensive income................... $ 59 $ 19 $ 40
==== ==== ====
</TABLE>

NOTE 18 -- ACCRUED EXPENSES AND ALLOWANCES FOR DOUBTFUL ACCOUNTS

A summary of other accrued expenses at December 31 follows (in millions):

<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Employee benefit plans...................................... $ 176 $ 211
Workers compensation........................................ 55 63
Taxes other than income..................................... 164 182
Professional liability risks................................ 210 200
Interest.................................................... 279 229
Other....................................................... 228 397
------ ------
$1,112 $1,282
====== ======
</TABLE>

A summary of activity in the Company's allowances for doubtful accounts
follows (in millions):

<TABLE>
<CAPTION>
PROVISION ACCOUNTS
BALANCES AT FOR WRITTEN OFF, BALANCES
BEGINNING DOUBTFUL NET OF AT END
OF YEAR ACCOUNTS RECOVERIES OF YEAR
----------- --------- ------------ --------
<S> <C> <C> <C> <C>
Allowances for doubtful accounts:
Year-ended December 31, 1997................. $1,380 $1,420 $(1,139) $1,661
Year-ended December 31, 1998................. 1,661 1,442 (1,458) 1,645
Year-ended December 31, 1999................. 1,645 1,269 (1,347) 1,567
</TABLE>

F-29
87

COLUMBIA/HCA HEALTHCARE CORPORATION
QUARTERLY CONSOLIDATED FINANCIAL INFORMATION
(UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
1999
---------------------------------------
FIRST SECOND THIRD FOURTH
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues............................................... $4,655 $4,161 $3,899 $3,942
Net income............................................. $ 322(a) $ 106(b) $ 138 $ 91(c)
Basic earnings per share............................... $ .50 $ .18 $ .25 $ .16
Diluted earnings per share............................. $ .50 $ .18 $ .24 $ .16
Cash dividends......................................... $ .02 $ .02 $ .02 $ .02
Market prices(g):
High................................................. $23.67 $27.47 $25.63 $29.44
Low.................................................. 16.38 17.44 20.19 20.25
</TABLE>

<TABLE>
<CAPTION>
1998
---------------------------------------
FIRST SECOND THIRD FOURTH
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues............................................... $4,901 $4,781 $4,579 $4,420
Net income (loss):
Income (loss) from continuing operations............. $ 219 $ 173 $ 163(e) $ (23)(f)
Loss from discontinued operations.................... (22) (95)(d) (17) (19)
------ ------ ------ ------
Net income (loss).................................. $ 197 $ 78 $ 146 $ (42)
====== ====== ====== ======
Basic earnings (loss) per share:
Income (loss) from continuing operations............. $ .34 $ .27 $ .25 $ (.04)
Loss from discontinued operations.................... (.03) (.15) (.03) (.02)
------ ------ ------ ------
Net income (loss).................................. $ .31 $ .12 $ .22 $ (.06)
====== ====== ====== ======
Diluted (loss) earnings per share:
Income (loss) from continuing operations............. $ .34 $ .27 $ .25 $ (.04)
Loss from discontinued operations.................... (.03) (.15) (.03) (.02)
------ ------ ------ ------
Net income (loss).................................. $ .31 $ .12 $ .22 $ (.06)
====== ====== ====== ======
Cash dividends......................................... $ .02 $ .02 $ .02 $ .02
Market prices(g):
High................................................. $30.86 $32.88 $30.80 $25.88
Low.................................................. 22.91 26.34 18.88 16.14
</TABLE>

- ---------------

(a) First quarter results include $151 million ($.24 per basic and diluted
share) of gains on sales of facilities and $80 million ($.13 per basic and
diluted share) of charges related to the impairment of long-lived assets
(see NOTE 3 of the Notes to Consolidated Financial Statements).
(b) Second quarter results include $51 million ($.09 per basic and diluted
share) of charges related to the impairment of long-lived assets (see NOTE 3
of the Notes to Consolidated Financial Statements).
(c) Fourth quarter results include $13 million ($.02 per basic and diluted
share) of gains on sales of facilities and $63 million ($.11 per basic and
diluted share) of charges related to the impairment of long-lived assets
(see NOTE 3 of the Notes to Consolidated Financial Statements).
(d) Second quarter loss from discontinued operations includes a $73 million
($.11 per basic and diluted share) adjustment to the tax benefit on the loss
incurred upon completion of the disposal of discontinued operations (see
NOTE 5 of the Notes to Consolidated Financial Statements).
(e) Third quarter results include $242 million ($.38 per basic and diluted
share) of gains on sales of facilities and $197 million ($.31 per basic and
diluted share) of charges related to the impairment of long-lived assets
(see NOTE 3 of the Notes to Consolidated Financial Statements).
(f) Fourth quarter results include $123 million ($.19 per basic and diluted
share) of gains on sales of facilities and $152 million ($.23 per basic and
diluted share) of charges related to the impairment of long-lived assets
(see NOTE 3 of the Notes to Consolidated Financial Statements).
(g) Represents high and low sales prices of the Company's common stock which is
traded on the New York Stock Exchange (ticker symbol COL). The historical
sales prices for periods prior to May 11, 1999 have been restated to reflect
the effect of the spin-offs of LifePoint and Triad.

F-30