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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

(615) 372-8500
(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

     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 o

     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]

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [X] No o

     The aggregate market value of the shares of Common Stock of LifePoint Hospitals, Inc. held by non-affiliates as of June 30, 2003, was approximately $651.6 million.

     As of March 1, 2004, the number of outstanding shares of Common Stock of LifePoint Hospitals, Inc. was 38,030,598.

DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the definitive proxy statement for our annual meeting of stockholders to be held on June 15, 2004 are incorporated by reference into Part III of this report.

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PART I

Item 1. Business

General

     We operate 29 general, acute care hospitals with an aggregate of 2,737 licensed beds in non-urban communities. In all but one of our communities, our hospital is the only provider of acute care hospital services. Our hospitals are located in Alabama, Florida, Kansas, Kentucky, Louisiana, Tennessee, Utah, West Virginia and Wyoming. We generated $907.1 million in revenues during 2003.

     We were formed as a division of HCA Inc. (“HCA”) in November 1997 to operate general, acute care hospitals in non-urban communities. We became an independent, publicly traded company on May 11, 1999 when HCA distributed all outstanding shares of our common stock to its stockholders.

The Non-Urban Healthcare Market

     We believe that non-urban healthcare markets are attractive because of the following factors:

	•		Less Competition. Non-urban communities have smaller populations with fewer hospitals and other healthcare service providers. We believe that the smaller populations and relative significance of the hospital in these markets may lessen the likelihood of the entry of alternate non-hospital providers, including outpatient surgery centers, rehabilitation centers and diagnostic imaging centers.
	•		Community Focus. We believe that non-urban areas generally view the local hospital as an integral part of the community. Therefore, we believe patients and physicians tend to be more loyal to the hospital.
	•		Acquisition Opportunities. Currently, not-for-profit and governmental entities own most non-urban hospitals. These entities often have limited access to the capital needed to keep pace with advances in medical technology. In addition, these entities sometimes lack the management resources necessary to control hospital expenses, recruit and retain physicians, expand healthcare services and comply with increasingly complex reimbursement and managed care requirements. As a result, patients may migrate to, may be referred by local physicians to, or may be encouraged by managed care plans to travel to, hospitals in larger, urban markets. We believe that, as a result of these pressures, many not-for-profit and governmental owners of non-urban hospitals who wish to preserve the local availability of quality healthcare services are interested in selling or leasing these hospitals to companies, like ours, that are committed to the local delivery of healthcare and that have greater access to capital and management resources.

Operating Philosophy

     We are committed to operating general, acute care hospitals in growing, non-urban markets. As a result, we adhere to an operating philosophy that is focused on the unique patient and provider needs and opportunities in these communities. This philosophy includes a commitment to:

	•		improving and increasing the scope of available healthcare services;
	•		providing physicians a positive environment in which to practice medicine, with access to necessary equipment, office space and resources;
	•		providing an outstanding work environment for employees;
	•		recognizing and expanding the hospital’s role as a community asset; and
	•		continuing to improve each hospital’s financial performance.

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Business Strategy

     We manage our hospitals in accordance with our operating philosophy and have developed the following strategies tailored for each of our markets:

•

Expand Breadth of Services and Attract Community Patients. We strive to increase revenues by improving and broadening the scope of healthcare services available at our facilities, and to recruit physicians with a broader range of specialties. We believe that our expansion of available treatments and our community focus will encourage residents in the non-urban markets we serve to seek care locally at our facilities rather than at facilities outside the area. We have undertaken projects in a majority of our hospitals that are targeted at expanding specialty services. Capital expenditures related to these projects are as follows (dollars in millions):

•		Strengthen Physician Recruiting and Retention. We believe that recruiting physicians in local communities is critical to increasing the quality of healthcare and the breadth of available services at our facilities. Our physician recruitment program is currently focused on recruiting additional specialty care physicians and primary care physicians. Our management is focused on working more effectively with individual physicians and physician practices. We believe that expansion of the range of available treatments at our hospitals should also assist in physician recruiting and contribute to the sense that our hospitals are community assets.
•		Improve Expense Management. We seek to control costs by, among other things, attempting to reduce labor costs by improving labor productivity and attempting to decrease the use of contract labor, when appropriate, controlling supply expenses through the use of a group purchasing organization and reducing uncollectible revenues. We have implemented cost control initiatives that include appropriately adjusting staffing levels according to patient volumes, modifying supply purchases according to usage patterns and providing support to hospital staff in more efficient billing and collection processes. We believe that as our company grows, we should benefit from our ability to spread fixed administrative costs over a larger base of operations.
•		Retain and Develop Stable Management. We seek to retain the executive teams at our hospitals to enhance medical staff relations and maintain continuity of relationships within the community. We make a commitment to the rural communities we serve by focusing our recruitment of managers and healthcare professionals to those who wish to live and practice in the communities in which our hospitals are located. In addition, these hospital leaders may participate in our stock incentive plans.
•		Improve Managed Care Position. We continue to strive to improve our revenues from managed care plans by negotiating facility-specific contracts with these payors on terms appropriate for smaller, non-urban markets.
•		Acquire Other Hospitals. We continue to pursue a disciplined acquisition strategy and seek to identify and acquire hospitals in non-urban markets that are the sole or significant market provider of healthcare services in the community. In the fourth quarter of 2003, we acquired Spring View Hospital in Lebanon, Kentucky. In the fourth quarter of 2002, we acquired five hospitals, Russellville Hospital in Russellville, Alabama, Northwest Medical Center in Winfield, Alabama, Lakeland Community Hospital in Haleyville, Alabama, and Logan

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Regional Medical Center and Guyan Valley Hospital, both of which are in Logan, West Virginia. Each of these hospitals is located in areas where patients often travel outside of the community for healthcare services. By implementing our operating strategies, we believe that we may attract many of these patients that historically have sought care elsewhere.

	We believe that our strategic goals align our interests with those of the local communities served by our hospitals. We believe that the following qualities enable us to successfully compete for acquisitions:

	•		our commitment to maintaining the local availability of healthcare services;
	•		our reputation for providing market-specific, broader-based healthcare;
	•		our focus on physician recruiting and retention;
	•		our management’s operating experience;
	•		our access to financing and our liquidity; and
	•		our ability to provide the necessary equipment and resources for physicians.

Operations

     Our general, acute care hospitals usually provide the range of medical and surgical services commonly available in hospitals in non-urban markets. Services provided by our hospitals also include diagnostic and emergency services, as well as outpatient and ancillary services including outpatient surgery, laboratory, rehabilitation, radiology, respiratory therapy and physical therapy.

     Each of our hospitals has a local board of trustees that includes members of the hospital’s medical staff as well as community leaders. The board establishes policies concerning medical, professional and ethical practices, monitors these practices, and is responsible for ensuring that these practices conform to established standards. We maintain quality assurance programs to support and monitor quality of care standards and to meet accreditation and regulatory requirements. We also monitor patient care evaluations and other quality of care assessment activities on a regular basis.

     Like most hospitals located in non-urban areas, our hospitals do not engage in extensive medical research and medical education programs. However, ten of our hospitals have an affiliation with medical schools, including the clinical rotation of medical students.

     In addition to providing capital resources, we make available a variety of management services to our healthcare facilities. These services include, among other things:

	•		information and clinical systems;
	•		accounting, financial, tax, managed care and reimbursement support;
	•		legal support;
	•		human resources support;
	•		risk management;
	•		corporate compliance;
	•		clinical support;
	•		physician recruiting;

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	•		education and training;
	•		HIPAA compliance;
	•		construction oversight and management;
	•		internal auditing; and
	•		materials management.

     We participate along with other healthcare companies in a group purchasing organization, HealthTrust Purchasing Group, which makes certain national supply and equipment contracts available to our facilities. We own approximately a 2% equity interest in this group purchasing organization.

Properties

     The following table lists the hospitals owned by us, except as otherwise indicated, as of January 31, 2004:

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		(b) We lease Bluegrass Community Hospital from Woodford Healthcare, Inc., a Kentucky not-for-profit corporation, pursuant to a lease agreement that expires on December 31, 2004.
		(c) We lease the real estate associated with Emerald-Hodgson Hospital from the University of the South, a Tennessee corporation, pursuant to a lease agreement that expires on May 7, 2020.
		(d) We lease the real estate associated with Lander Valley Medical Center from the City of Lander, Wyoming pursuant to a ground lease that expires on December 31, 2073.
		(e) Critical-access hospitals.

     We operate medical office buildings in conjunction with many of our hospitals. These office buildings are primarily occupied by physicians who practice at our hospitals.

     Our corporate headquarters are located in approximately 34,600 square feet of leased space in one office building in Brentwood, Tennessee. Our corporate headquarters, hospitals and other facilities are suitable for their respective uses and are, in general, adequate for our present needs. Our obligations under our bank credit facilities are secured by a pledge of substantially all of our assets, including first priority mortgages on most of our hospitals.

Services and Utilization

     We believe that important factors relating to the overall utilization of a hospital are the breadth of services, market position of the hospital and the number, quality and specialties of physicians providing patient care within the facility. Generally, we believe that the ability of a hospital to meet the healthcare needs of its community is determined by the following:

	•		breadth of services;
	•		level of technology; and
	•		emphasis on patient care and convenience for patients and physicians.

Other factors which impact utilization include:

	•		the size of and growth in local population;
	•		local economic conditions;
	•		physician availability and expertise;
	•		the availability of reimbursement programs such as Medicare and Medicaid;
	•		the ability to negotiate contracts with managed care organizations that are appropriate for non-urban markets;
	•		necessary medical equipment to perform clinical procedures; and
	•		improved treatment protocols as a result of advances in medical technology and pharmacology.

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     The following table contains operating statistics for our hospitals for each of the past five years ended December 31. Our operations are subject to seasonal fluctuations, including decreases in patient utilization during holiday periods and harsh weather conditions, and increases in patient utilization during the cold weather months.

     Our hospitals have experienced long-term growth in outpatient care services. We believe outpatient services provided at our hospitals have increased for three primary reasons. First, because of our ongoing recruiting efforts, new physicians tend to provide primarily outpatient care services until they become established in the community and develop a patient base. Second, hospital payment changes by Medicare, Medicaid, insurance companies and self-insured employers have also resulted in increased outpatient care services relative to inpatient care services. These hospital payment changes generally encourage the utilization of outpatient, rather than inpatient, services whenever possible, and shortened lengths of stay for inpatient care. Third, outpatient services continue to grow because of improvements in technology and clinical practices.

     In response to this increasing demand for outpatient care, we are reconfiguring some of our hospitals to more effectively accommodate outpatient services and restructuring existing surgical capacity in some of our hospitals to permit additional outpatient volume and a greater variety of outpatient services.

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Sources of Revenue

     Our hospitals receive payment for patient services from the federal government primarily under the Medicare program, state governments under their respective Medicaid programs, health maintenance organizations (“HMOs”), preferred provider organizations (“PPOs”), and other private insurers, as well as directly from patients. The approximate percentages of total revenues of our facilities from these sources during the years specified below were as follows:

     Our historical sources of revenues table in prior Form 10-K and Form 10-Q reports required certain reclassifications. Specifically, contractual discounts relating to certain Medicaid state managed care programs were historically classified incorrectly against the HMOs, PPOs and other private insurers revenue line as opposed to the Medicaid revenue line. This change produced no impact on our historical results of operations. Generally, these reclassifications reduced Medicaid as a percentage of total revenues and increased HMOs, PPOs and other private insurers as a percentage of total revenues.

     Patients are generally not responsible for any difference between customary hospital charges and amounts reimbursed for the services under Medicare, Medicaid, some private insurance plans, HMOs or PPOs, but are responsible for services not covered by these plans, exclusions, deductibles or co-insurance features of their coverage. The amount of exclusions, deductibles and co-insurance has generally been increasing each year as employers have been shifting a higher percentage of healthcare costs to employees.

Medicare

     Medicare provides hospital and medical insurance benefits to persons age 65 and over, some disabled persons and persons with end-stage renal disease. Every year, changes are made to the Medicare program and, in 2003, additional changes occurred when the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (“MMA”) was signed into law on December 8, 2003. This legislation offers a prescription drug benefit for Medicare beneficiaries and also provides a number of benefits to hospitals, particularly rural hospitals. All of our hospitals are certified as providers of Medicare services. Amounts received under the Medicare program are generally significantly less than the hospital’s customary charges for the services provided. As of December 31, 2003, we operated five inpatient psychiatric units, seven inpatient rehabilitation units, six hospital-based skilled nursing facility units, three rural health clinics, four home health agencies, one comprehensive outpatient rehabilitation facility and 19 hospitals utilizing swing beds. The major hospital provisions of MMA are discussed in the subsections below.

     Diagnosis Related Group Payments. Payments from Medicare for inpatient hospital services are generally made under the prospective payment system, commonly known as “PPS.” Under PPS, our hospitals are paid a prospectively determined amount for each hospital discharge based on the patient’s diagnosis. Specifically, each diagnosis is assigned a diagnosis related group, commonly known as a “DRG”. Each DRG is assigned a payment rate that is prospectively set using national average costs per case for treating a patient for a particular diagnosis. DRG payments do not consider the actual costs incurred by a hospital in providing a particular inpatient service. This DRG assignment also affects the prospectively determined capital rate paid with each DRG. DRG and capital payments are adjusted by a predetermined geographic adjustment factor assigned to the geographic area in which the hospital is located.

     The DRG rates are adjusted by an update factor each federal fiscal year, which begins on October 1. The index used to adjust the DRG rates, known as the “hospital market basket index,” gives consideration to the inflation experienced by hospitals in purchasing goods and services. Generally, however, the percentage increases in the

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DRG payments have been lower than the projected increase in the costs of goods and services purchased by hospitals. Historical DRG rate increases were as follows:

     MMA allows hospitals to receive full market basket updates for federal fiscal years 2005, 2006 and 2007 if hospitals provide the Centers for Medicare and Medicaid Services (“CMS”) specific data relating to the quality of services provided. We intend to comply with this requirement.

     MMA also made a permanent increase in the base DRG payment rate (1.6%) for rural hospitals and urban hospitals in smaller metropolitan areas. In addition, MMA provides for payment relief to the wage index component of the base DRG rate. Effective October 1, 2004, MMA lowers the percentage of the DRG subject to a wage adjustment from 71% to 62% for hospitals in areas with a wage index below the national average. A majority of our hospitals will benefit from the MMA provisions adjusting the DRG payment rates.

     Outlier and Disproportionate Share Payments. In addition to DRG and capital payments, hospitals may qualify for “outlier” payments when a Medicare patient’s treatment costs exceed a specified threshold. Our outlier payments have been decreasing in recent years as a result of substantial increases in the outlier threshold. We anticipate outlier payments to remain relatively stable in 2004 as a result of a modest reduction in the outlier threshold from $33,560 to $31,000.

     Hospitals qualify for disproportionate share payments when their percentage of low-income patients exceeds 15%. Under the Medicare, Medicaid and SCHIP Benefits Improvement and Protection Act of 2000 (“BIPA”), a majority of our hospitals qualify to receive disproportionate share payments. Effective April 1, 2004, MMA raises the cap on the disproportionate share payment adjustment percentage from 5.25% to 12.0% for rural and small urban hospitals and specified that payments to all hospitals will be based on the same conversion factor, regardless of geographic location. A majority of our hospitals will benefit from these provisions. The following table lists our historical disproportionate share payments and outlier payments from Medicare:

     Outpatient Payments. The Balanced Budget Refinement Act of 1999 (“BBRA”) established a PPS for outpatient hospital services that commenced on August 1, 2000. Outpatient services are assigned ambulatory payment classifications, which are readjusted no less than annually. Prior to August 1, 2000, outpatient services were paid at the lower of customary charges or on a reasonable cost basis.

     BBRA eliminated the anticipated average reduction of 5.7% for various Medicare outpatient payments under the Balanced Budget Act of 1997 (“BBA”). Under BBRA, outpatient payment reductions for non-urban hospitals with 100 beds or less were postponed until December 31, 2003. Fifteen of our hospitals qualified for this “hold harmless” relief. Payment reductions under Medicare outpatient PPS for non-urban hospitals with greater than 100 beds and urban hospitals were mitigated through a corridor reimbursement approach, pursuant to which a percentage of such

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reductions were reimbursed through December 31, 2003. Substantially all of our remaining hospitals qualified for relief under this provision. MMA extends the hold harmless provision for non-urban hospitals with 100 beds or less and expands the provision to include sole community hospitals for cost reporting periods beginning in 2004, until December 31, 2005. Eighteen of our hospitals qualify for this relief.

     Inpatient Psychiatric, Rehabilitation and Skilled Nursing Payments. Prior to the implementation of the prospective payment systems, payments to exempt hospitals and units, such as inpatient psychiatric, rehabilitation and skilled nursing services, were based upon reasonable costs, subject to a cost per discharge target and maintenance of minimum levels of care. BBA established a PPS for Medicare skilled nursing facilities that commenced in July 1998 and was implemented progressively over a three-year term. As a result, we have experienced reductions in payments for our skilled nursing services. However, BIPA increased the reimbursement amount for each resource utilization group nursing component of the skilled nursing facility PPS by 16.7% for services between April 1, 2001 and September 30, 2002. Additionally, BIPA increased the skilled nursing facility PPS update to the skilled nursing facility market basket minus 0.5% for fiscal years 2002 and 2003. BIPA also increased rates for certain categories by 6.7% effective April 1, 2001. BBRA provided for a 20% increase for certain categories effective April 1, 2000. The skilled nursing facility market basket increase for federal fiscal year 2004 is 3.0%. Also effective in federal fiscal year 2004 is an adjustment for the expected market basket variance to actual, which is an increase of 3.26%.

     BBA mandated a PPS for inpatient rehabilitation hospital services. A PPS system for Medicare inpatient rehabilitation services was phased in over two years beginning January 1, 2002. Our seven inpatient rehabilitation units have fully transitioned to PPS-based Case-Mix Groups (“CMGs”). The inpatient rehabilitation PPS CMG update factor for federal fiscal year 2004 is 3.2%, which has been decreased by 0.46% for a budget-neutral wage adjustment.

     CMS issued a proposed PPS rule for inpatient psychiatric hospital services in November 2003. We are uncertain as to when a final rule and effective date will be released. We do not anticipate material changes in our inpatient psychiatric reimbursement for 2004.

     Home Health Payments. Home health payments are reimbursed based on a PPS. For a two-year period beginning April 1, 2001, BIPA increased Medicare payments 10.0% for home health services furnished in specific rural areas. This provision expired on March 31, 2003. Home health PPS rates for 2003, which became effective October 1, 2002, included the mandated 15% reduction in home health reimbursement. The 2003 rates reduce each 60-day episode payment overall by 4.9%. The market basket rate increase for federal fiscal year 2004 is 3.3%. In the fourth quarter of 2002, we purchased four home health agencies associated with our acquisitions. We had previously sold or closed our formerly owned home health agencies. MMA included several changes to home health services, including a 5% additional payment for those home health services furnished in rural areas for one year, effective April 1, 2004.

Medicaid

     Medicaid, a joint federal-state program that is administered by the states, provides hospital benefits to qualifying individuals who are unable to afford care. Amounts received under the Medicaid program are generally significantly less than the hospital’s customary charges for the services provided. Most state Medicaid payments are made under a PPS or under programs which negotiate payment levels with individual hospitals. The federal government and many states may significantly reduce Medicaid funding. This could adversely affect future levels of Medicaid payments received by our hospitals.

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The following table summarizes our Medicaid revenues, reimbursement methodologies, and cost reporting requirements by state:

Annual Cost Reports

     Hospitals participating in the Medicare and some Medicaid programs, whether paid on a reasonable cost basis or under a PPS, are required to meet certain financial reporting requirements. Federal and, where applicable, state regulations require submission of annual cost reports identifying medical costs and expenses associated with the services provided by each hospital to Medicare beneficiaries and Medicaid recipients.

     Annual cost reports required under the Medicare and some Medicaid programs are subject to routine governmental audits. These audits may result in adjustments to the amounts ultimately determined to be due to us under these reimbursement programs. Finalization of these audits often takes several years. Providers may appeal any final determination made in connection with an audit.

HMOs, PPOs and other private insurers

     In addition to government programs, our hospitals are reimbursed by private payors including HMOs, PPOs, private insurance companies, employers and individual private payors. To attract additional volume, most of our hospitals offer discounts from established charges to certain large group purchasers of healthcare services. These discount programs often limit our ability to increase charges in response to increasing costs. Generally, patients covered by HMOs, PPOs and other private insurers will be responsible for certain co-payments and deductibles, which are paid by the patient.

Self Pay

     Self-pay revenues are derived from patients who do not have any form of health care coverage. The revenues associated with self-pay patients are generally reported at our gross charges. We evaluate these patients, after the patient’s medical condition is determined to be stable, for their ability to pay based upon federal and state poverty guidelines, qualifications for Medicaid or other state assistance programs, as well as our local hospital’s policy for indigent care.

Competition

     The hospital industry is highly competitive. We compete with other hospitals and healthcare providers for patients. The competition among hospitals and other healthcare providers for patients has intensified in recent years. Our hospitals face no direct hospital competition in 27 of our 28 communities because there are no other hospitals in these communities. However, these hospitals do face competition from hospitals outside of their communities, including hospitals in the market area and nearby urban areas that provide more complex services. These facilities are generally located in excess of 25 miles from our facilities. Patients in our primary service areas may travel to these other hospitals for a variety of reasons, including the need for services we do not offer or physician referrals. Some of these competing hospitals use equipment and services more specialized than those available at our hospitals. Patients who require services from these other hospitals may subsequently shift their preferences to those hospitals for services we provide. In addition, some of the hospitals that compete with us are owned by tax-

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supported governmental agencies or not-for-profit entities supported by endowments and charitable contributions. These hospitals, in some instances, are not required to pay sales, property and income taxes.

     We also face increasing competition from other specialized care providers, including outpatient surgery, orthopedic, oncology, physical therapy, and diagnostic centers, as well as competing services rendered in physician offices. To the extent that other providers are successful in developing specialized outpatient facilities, our market share for those specialized services will likely decrease. Some of our hospitals have developed specialized outpatient facilities where necessary to compete with these other providers.

     State certificate of need laws, which place limitations on a hospital’s ability to expand hospital services and add new equipment, also may have the effect of restricting competition. Of the nine states where we own hospitals, Alabama, Florida, Kentucky, Tennessee and West Virginia have certificate of need laws. The application process for approval of additional covered services, new facilities, changes in operations and capital expenditures is, therefore, highly competitive in these states.

     The number and quality of the physicians on a hospital’s staff are important factors in determining a hospital’s competitive advantage. Physicians decide whether a patient is admitted to the hospital and the procedures to be performed. We believe that physicians refer patients to a hospital primarily on the basis of the patient services, the quality of other physicians on the medical staff, the location of the hospital and the breadth and scope of services offered at the hospital’s facilities.

     One element of our business strategy is expansion through the acquisition of acute care hospitals in growing, non-urban markets. The competition to acquire rural hospitals is significant. We intend to acquire, on a selective basis, hospitals that are similar to those we currently own and operate by adhering to our disciplined acquisition strategy.

Employees and Medical Staff

     At January 31, 2004, our subsidiaries had approximately 9,300 employees, including approximately 2,300 part-time employees. None of our employees are subject to collective bargaining agreements. We consider our employee relations to be good. While some of our hospitals experience union organizing activity from time to time, we do not expect these efforts to materially affect our future operations.

     Our hospitals are staffed by licensed physicians who have been admitted to the medical staff of our individual hospitals. Any licensed physician may apply to be admitted to the medical staff of any of our hospitals, but admission to the medical staff must be approved by the hospital’s medical staff and the appropriate governing board of the hospital in accordance with established credentialing criteria. In certain cases, physicians are employed by our hospitals.

Government Regulation

     Overview. All participants in the healthcare industry are required to comply with extensive government regulations at the federal, state and local levels. Under these laws and regulations, hospitals must meet requirements for licensure and qualify to participate in government programs, including the Medicare and Medicaid programs. These requirements relate to the adequacy of medical care, equipment, personnel, operating policies and procedures, maintenance of adequate records, hospital use, rate-setting, compliance with building codes and environmental protection laws. If we fail to comply with applicable laws and regulations, we may be subject to criminal penalties and civil sanctions and our hospitals may lose their licenses and ability to participate in government programs. In addition, government regulations frequently change. When regulations change, we may be required to make changes in our facilities, equipment, personnel and services so that our hospitals remain licensed and qualified to participate in these programs. We believe that our hospitals are in substantial compliance with current federal, state and local regulations and standards.

     Hospitals are subject to periodic inspection by federal, state, and local authorities to determine their compliance with applicable regulations and requirements necessary for licensing and certification. All of our hospitals are licensed under appropriate state laws and are qualified to participate in Medicare and Medicaid programs. In

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addition, all of our hospitals are accredited by the Joint Commission on Accreditation of Healthcare Organizations (“JCAHO”), except for our two critical-access hospitals. This accreditation indicates that a hospital satisfies the applicable health and administrative standards to participate in Medicare and Medicaid. JCAHO has offered an accreditation program for critical-access hospitals for approximately two years, but JCAHO accreditation for such hospitals is voluntary and not required for participation in the Medicare and Medicaid programs. Nevertheless, we currently follow the JCAHO standards at each critical-access hospital.

     Fraud and Abuse Laws. Participation in the Medicare and/or Medicaid programs is heavily regulated by federal statutes and regulations. If a hospital fails to comply substantially with the numerous federal laws governing a facility’s activities, the hospital’s participation in the Medicare and/or Medicaid programs may be terminated and/or civil or criminal penalties may be imposed. For example, a hospital may lose its ability to participate in the Medicare and/or Medicaid programs if it performs any of the following acts:

	•		making claims to Medicare and/or Medicaid for services not provided or misrepresenting actual services provided in order to obtain higher payments;
	•		paying money to induce the referral of patients or purchase of items or services where such items or services are reimbursable under a federal or state health program; or
	•		failing to provide appropriate emergency medical screening services to any individual who comes to a hospital’s campus or otherwise failing to properly treat and transfer emergency patients.

     The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) broadened the scope of the fraud and abuse laws by adding several criminal statutes that are not related to receipt of payments from a federal healthcare program. HIPAA created civil penalties for proscribed conduct, including upcoding and billing for medically unnecessary goods or services. HIPAA established new enforcement mechanisms to combat fraud and abuse. These new mechanisms include a bounty system, where a portion of the payments recovered is returned to the government agencies, as well as a whistleblower program. HIPAA also expanded the categories of persons that may be excluded from participation in federal and state healthcare programs.

     The anti-kickback provision of the Social Security Act prohibits the payment, receipt, offer or solicitation of money with the intent of generating referrals or orders for services or items covered by a federal or state healthcare program. Violations of the anti-kickback statute may be punished by criminal and civil fines, exclusion from federal and state healthcare programs, imprisonment and damages up to three times the total dollar amount involved.

     The Office of Inspector General (“OIG”) of the Department of Health and Human Services (“DHHS”) is responsible for identifying fraud and abuse activities in government programs. In order to fulfill its duties, the OIG performs audits, investigations and inspections. In addition, it provides guidance to healthcare providers by identifying types of activities that could violate the anti-kickback statute. The OIG has identified the following hospital/physician incentive arrangements as potential violations:

	•		payment of any incentive by a hospital each time a physician refers a patient to the hospital;
	•		use of free or significantly discounted office space or equipment in facilities usually located close to the hospital;
	•		provision of free or significantly discounted billing, nursing or other staff services;
	•		free training (other than compliance training) for a physician’s office staff, including management and laboratory technique training;
	•		guarantees which provide that if a physician’s income fails to reach a predetermined level, the hospital will pay any portion of the remainder;
	•		low-interest or interest-free loans, or loans which may be forgiven if a physician refers patients to the hospital;

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	•		payment of the costs for a physician’s travel and expenses for conferences;
	•		payment of services which require few, if any, substantive duties by the physician or which are in excess of the fair market value of the services rendered; or
	•		purchasing goods or services from physicians at prices in excess of their fair market value.

     We have a variety of financial relationships with physicians who refer patients to our hospitals, including employment contracts, leases, joint ventures, independent contractor agreements and professional service agreements. Physicians may also own our stock. We provide financial incentives to recruit physicians to relocate to communities served by our hospitals. These incentives for relocation include minimum revenue guarantees and, in some cases, loans. The OIG is authorized to publish regulations outlining activities and business relationships that would be deemed not to violate the anti-kickback statute. These regulations are known as “safe harbor” regulations. The safe harbor regulations do not make conduct illegal, but instead delineate standards that, if complied with, protect conduct that might otherwise be deemed in violation of the anti-kickback statute. We use our best efforts to structure each of our arrangements, especially each of our business arrangements with physicians, to fit as closely as possible within an applicable safe harbor. However, not all of our business arrangements fit wholly within safe harbors, so we cannot guarantee that these arrangements will not be scrutinized by government authorities or, if scrutinized, that they will be determined to be in compliance with the anti-kickback statute or other applicable laws. The failure of a particular activity to comply with the safe harbor regulations does not mean that the activity violates the anti-kickback statute. We believe that all of our business arrangements are in full compliance with the anti-kickback statute. If we violate the anti-kickback statute, we would be subject to criminal and civil penalties and/or possible exclusion from participating in Medicare, Medicaid or other governmental healthcare programs.

     The Social Security Act also includes a provision commonly known as the “Stark law.” This law prohibits physicians from referring Medicare and Medicaid patients to selected types of healthcare entities in which they or any of their immediate family members have ownership or other financial interests. These types of referrals are commonly known as “self referrals.” Sanctions for violating the Stark law include civil monetary penalties, assessments equal to twice the dollar value of each service rendered for an impermissible referral and exclusion from Medicare and Medicaid programs. There are ownership and compensation arrangement exceptions to the self-referral prohibition. One exception allows a physician to make a referral to a hospital if the physician owns an interest in the entire hospital, as opposed to an ownership interest in a department of the hospital. Another exception allows a physician to refer patients to a healthcare entity in which the physician has an ownership interest if the entity is located in a rural area, as defined in the statute. There are also exceptions for many of the customary financial arrangements between physicians and facilities, including employment contracts, leases and recruitment agreements. The federal government released regulations interpreting some, but not all, of the provisions included in the Stark law in January 2001, and the government has said it intends to release a second phase of final Stark regulations in the future. We have structured our financial arrangements with physicians to comply with the statutory exceptions included in the Stark law and subsequent regulations. However, the future Stark regulations may interpret provisions of this law in a manner different from the manner in which we have interpreted them. We cannot predict the effect such future regulations will have on us.

     Many states in which we operate also have adopted, or are considering adopting, laws similar to the Stark law. Some of these state laws apply even if the government is not the payor. These statutes typically provide criminal and civil penalties as remedies. While there is little precedent for the interpretation or enforcement of these state laws, we have attempted to structure our financial relationships with physicians and others in light of these laws. However, if a state determines that we have violated such a law, we would be subject to criminal and civil penalties.

     Corporate Practice of Medicine and Fee-Splitting. Some states have laws that prohibit unlicensed persons or business entities, including corporations or business organizations that own hospitals, from employing physicians. Some states also have adopted laws that prohibit direct or indirect payments or fee-splitting arrangements between physicians and unlicensed persons or business entities. Possible sanctions for violations of these restrictions include loss of a physician’s license, civil and criminal penalties and rescission of business arrangements. These laws vary from state to state, are often vague and have seldom been interpreted by the courts or regulatory agencies. We

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attempt to structure our arrangements with healthcare providers to comply with the relevant state laws and the few available regulatory interpretations.

     Emergency Medical Treatment and Active Labor Act. All of our facilities are subject to the Emergency Medical Treatment and Active Labor Act (“EMTALA”). This federal law 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 department for treatment and, if the patient is suffering 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 fails 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 violations of EMTALA include civil monetary penalties and exclusion from participation in the Medicare program. In addition, an injured patient, the patient’s family or a medical facility that suffers a financial loss as a direct result of another hospital’s violation of the law can bring a civil suit against the hospital.

     On September 9, 2003, CMS published a final rule which became effective November 10, 2003, clarifying a hospital’s duties under EMTALA. In the final rule, CMS clarified when a patient is considered to be on a hospital’s property for purposes of treating the person pursuant to EMTALA. CMS stated that off-campus facilities such as specialty clinics, surgery centers and other facilities that lack emergency departments should not be subject to EMTALA, but that these locations must have a plan explaining how the location should proceed in an emergency situation such as transferring the patient to the closest hospital with an emergency department. CMS further clarified that hospital-owned ambulances could transport a patient to the closest emergency department instead of to the hospital that owns the ambulance.

     CMS’ rules did not specify “on-call” physician requirements for an emergency department, but provided a subjective standard stating that “on-call” hospital schedules should meet the hospital’s and community’s needs. CMS also did not directly address whether EMTALA applies to direct admissions, individuals who come to a hospital pursuant to a physician’s orders for a routine procedure, individuals who present themselves at a hospital’s psychiatric department or delivery/labor department and whether screening requirements apply to patients transferred from other facilities. Although we believe that our hospitals comply with EMTALA, we cannot predict whether CMS will implement new requirements in the future and whether we will comply with any new requirements.

     Federal False Claims Act. The federal False Claims Act prohibits providers from knowingly submitting false claims for payment to the federal government. This law has been used not only by the federal government, but also by individuals who bring an action on behalf of the government under the law’s “qui tam” or “whistleblower” provisions. When a private party brings a qui tam action under the federal False Claims Act, the defendant will generally not be aware of the lawsuit until the government makes a determination whether it will intervene and take a lead in the litigation.

     Civil liability under the federal False Claims Act can be up to three times the actual damages sustained by the government plus civil penalties for each separate false claim. There are many potential bases for liability under the federal False Claims Act, including claims submitted pursuant to a referral found to violate the anti-kickback statute. Although liability under the federal False Claims Act arises when an entity knowingly submits a false claim for reimbursement to the federal government, the federal False Claims Act defines the term “knowingly” broadly. Although simple negligence generally will not give rise to liability under the federal False Claims Act, submitting a claim with reckless disregard to its truth or falsity can constitute “knowingly” submitting a false claim.

     Healthcare Reform. The healthcare industry continues to attract much legislative interest and public attention. MMA introduced changes to the Medicare program. Many of MMA’s changes will not go into effect until January 1, 2006. MMA establishes a voluntary prescription drug benefit, provides federal subsidies to plan sponsors that provide prescription drug benefits to Medicare-eligible retirees, substantially adjusts Medicare+Choice and provides favorable payment adjustments for rural hospitals. MMA also provides favorable tax treatment for individual health savings accounts. In addition, MMA authorizes Medpac to study home health and rural hospital reimbursement effects in current and anticipated reimbursement methodologies. On the state level, on February 17,

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2004, Tennessee Governor Phil Bredesen proposed a plan to modify the state’s TennCare (Medicaid) program and decrease the state TennCare budget. The proposed plan includes such measures as establishing co-payments for enrollees other than pregnant women, children and disabled individuals (as determined under Social Security standards), and requiring enrollees to use the lowest-cost prescription drugs. At this time, we cannot predict when and in what form Governor Bredesen’s proposals will be implemented or how they will affect payments to our hospitals in Tennessee. We anticipate that the federal and state governments will continue to introduce legislative proposals to modify the cost and efficiency of the health care delivery system.

     Conversion Legislation. Many states have adopted legislation regarding the sale or other disposition of hospitals operated by not-for-profit entities. In other states that do not have such legislation, the attorneys general have demonstrated an interest in these transactions under their general obligations to protect charitable assets. These legislative and administrative efforts primarily focus on the appropriate valuation of the assets divested and the use of the proceeds of the sale by the not-for-profit seller. These reviews and, in some instances, approval processes can add additional time to the closing of a not-for-profit hospital acquisition. Future actions by state legislators or attorneys general may seriously delay or even prevent our ability to acquire certain hospitals.

     Certificates of Need. The construction of new facilities, the acquisition or expansion of existing facilities and the addition of new services and expensive equipment at our facilities may be subject to state laws that require prior approval by state regulatory agencies. These certificate of need laws generally require that a state agency determine the public need and give approval prior to the construction or acquisition of facilities or the addition of new services. We operate hospitals in five states that have adopted certificate of need laws — Alabama, Florida, Kentucky, Tennessee and West Virginia. If we fail to obtain necessary state approval, we will not be able to expand our facilities, complete acquisitions or add new services in these states. Violation of these state laws may result in the imposition of civil sanctions or the revocation of hospital licenses.

     HIPAA Transaction, Privacy and Security Requirements. Federal regulations issued pursuant to HIPAA contain, among other measures, provisions that require us to implement very significant and potentially expensive new computer systems, employee training programs and business procedures. The federal regulations are intended to encourage electronic commerce in the healthcare industry.

     On August 17, 2000, DHHS finalized regulations requiring healthcare facilities to use standard data formats and code sets established by the rule when electronically transmitting information in connection with several transactions, including health claims and equivalent encounter information, health care payment and remittance advice and health claim status. On February 20, 2003, DHHS issued final modifications to these regulations. We have implemented or upgraded computer systems, as appropriate, at our facilities and at our corporate headquarters to comply with the new transaction and code set regulations and have tested these systems with several of our payors. In certain cases, we have noted a slow-down in cash payments as a result of acceptability of information. Although compliance with the transaction and code set regulations was required on October 16, 2003, CMS announced on September 23, 2003 that it would implement a contingency plan to accept noncompliant electronic transactions after the October 16, 2003 deadline. CMS has announced that it will regularly reassess the readiness of its trading partners to comply with these regulations in order to determine the period of time that the contingency plan will remain in effect. Blue Cross/Blue Shield plans in several states have announced similar contingency plans.

     HIPAA also requires DHHS to issue regulations establishing standard unique health identifiers for individuals, employers, health plans and health care providers to be used in connection with the standard electronic transactions. On May 31, 2002, DHHS issued a final rule that calls for using the Employer Identification Number (the taxpayer identifying number for employers that is assigned by the Internal Revenue Service) as the standard unique health identifier for employers. Most health care organizations, including our facilities, must comply with this final rule by July 30, 2004. Health plans, health care clearinghouses and providers will use this identifier in connection with the electronic transaction standards, among other uses.

     On January 23, 2004, DHHS published a final rule that adopted the National Provider Identifier (“NPI”) as the standard unique health identifier for healthcare providers. When the NPI is implemented, healthcare providers, including our facilities, will use only the NPI to identify themselves in connection with electronic transactions. Numerical identifiers used historically, such as Medicaid numbers, CHAMPUS numbers, and Blue Cross/Blue Shield numbers, will not be permitted. Healthcare providers will no longer be required to maintain multiple numbers

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to identify themselves in the standard electronic transactions with one or more health plans. The NPI will be a 10-digit all numeric number that will be assigned to eligible healthcare providers, including our facilities, by the National Provider System (“NPS”), an independent government contractor. Under the final rule, all healthcare providers may begin applying for NPIs on May 23, 2005 with the NPS. All healthcare providers, including our facilities, must obtain and start using NPIs in connection with the standard electronic transactions no later than May 23, 2007.

     DHHS has not yet issued proposed rules that establish the standard for unique health identifiers for health plans or individuals. Once these regulations are issued in final form, we expect to have approximately two years to become fully compliant.

     On February 20, 2003, DHHS finalized a rule that establishes, in part, standards to protect the confidentiality, availability and integrity of patient health information by health plans, health care clearinghouses and health care providers that receive, store, maintain or transmit patient health and related financial information in electronic form, regardless of format. These security standards require our facilities to establish and maintain reasonable and appropriate administrative, technical and physical safeguards to ensure the integrity, confidentiality and the availability of electronic health and related financial information. The security standards were designed to protect electronic information against reasonably anticipated threats or hazards to the security or integrity of the information and to protect the information against unauthorized use or disclosure. Although the security standards do not reference or advocate a specific technology, and covered health care providers, health plans and clearinghouses have the flexibility to choose their own technical solutions, we expect that the security standards will require our facilities to implement significant new systems, business procedures and training programs. We must comply with these security regulations by April 21, 2005.

     On December 28, 2000, DHHS published a final rule establishing standards for the privacy of individually identifiable health information. The final rule establishing the privacy standards became effective on April 14, 2001, with compliance required by April 14, 2003. On August 14, 2002, DHHS published final revisions to the privacy rule. The final revisions did not alter the compliance date of April 14, 2003 for the majority of the requirements in the privacy regulations. These privacy standards apply to all health plans, all health care clearinghouses and health care providers that transmit health information in an electronic form in connection with standard transactions. Our facilities are covered entities under the final rule. The privacy standards apply to individually identifiable information held or disclosed by a covered entity in any form, whether communicated electronically, on paper or orally. These standards impose extensive new administrative requirements on our facilities and require compliance with rules governing the use and disclosure of this health information. They create new rights for patients in their health information, such as the right to amend their health information, and they require our facilities to impose these rules, by contract, on any business associate to whom we disclose such information in order to perform functions on their behalf. In addition, our facilities will continue to remain subject to any state laws that are more restrictive than the privacy regulations issued under HIPAA. These state laws vary by state and could impose additional penalties.

     A violation of these regulations could result in civil money penalties of $100 per incident, up to a maximum of $25,000 per person per year per standard. HIPAA also provides for criminal penalties of up to $50,000 and one year in prison for knowingly and improperly obtaining or disclosing protected health information, up to $100,000 and five years in prison for obtaining protected health information under false pretenses, and up to $250,000 and ten years in prison for obtaining or disclosing protected health information with the intent to sell, transfer or use such information for commercial advantage, personal gain or malicious harm. Since there is no history of enforcement efforts by the federal government at this time, it is not possible to ascertain the likelihood of enforcement efforts in connection with the HIPAA regulations or the potential for fines and penalties which may result from the violation of the regulations.

     We expect that compliance with these standards will require significant commitment and action by us and our facilities. We have appointed members of our management team to direct our compliance with these standards. Implementation will require us to engage in extensive preparation and make significant expenditures. At this time we have appointed a privacy officer, prepared privacy policies, trained our workforce on these policies and entered into business associate agreements with the appropriate vendors. Because some of the regulations are proposed regulations, we cannot predict the total financial impact of the regulations on our operations.

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Regulatory Compliance Program

     It is our policy to conduct our business with integrity and in compliance with the law. We have in place and continue to develop a company-wide compliance program, which focuses on all areas of regulatory compliance, including billing, reimbursement and cost reporting practices.

     This regulatory compliance program is intended to ensure that high standards of conduct are maintained in the operation of our business and to help ensure that policies and procedures are implemented so that employees act in full compliance with all applicable laws, regulations and company policies. Under the regulatory compliance program, we provide initial and periodic legal compliance and ethics training to every employee, review various areas of our operations and develop and implement policies and procedures designed to foster compliance with the law. We regularly monitor our ongoing compliance efforts. The program also includes a mechanism for employees to report, without fear of retaliation, any suspected legal or ethical violations to their supervisors or designated compliance officers in our hospitals.

     In December 2000, we entered into a corporate integrity agreement with the OIG and agreed to maintain our compliance program in accordance with the corporate integrity agreement. This agreement was amended in April 2002. Violations of this agreement could subject us to substantial monetary penalties. The compliance measures and reporting and auditing requirements contained in the corporate integrity agreement include:

	•		continuing the duties and activities of our audit and compliance committee, corporate compliance officer, internal audit and compliance department, local hospital ethics and compliance officers, corporate compliance committee and hospital compliance committees;
	•		maintaining our written code of conduct, which sets out our commitment to full compliance with all statutes, regulations and guidelines applicable to federal healthcare programs;
	•		maintaining our written policies and procedures addressing the operation of our compliance program;
	•		providing general training on the compliance program;
	•		providing specific training for the appropriate personnel on billing, coding and cost report issues;
	•		having an independent third party conduct periodic audits of our facilities’ inpatient DRG coding;
	•		continuing our confidential disclosure program and compliance hotline to enable employees or others to disclose issues or questions regarding possible inappropriate policies or behavior;
	•		enhancing our screening program to ensure that we do not hire or engage employees or contractors who have been sanctioned or excluded from participation in federal healthcare programs;
	•		reporting any material deficiency which resulted in an overpayment to us by a federal healthcare program;
	•		reporting any healthcare related fraud involving any federally funded program; and
	•		submitting annual reports to the OIG which describe in detail the operations of our corporate compliance program for the past year.

Arrangements Relating to the Distribution

     Immediately prior to HCA’s distribution of our common stock, we entered into agreements with HCA to define our ongoing relationships after the distribution and to allocate tax, employee benefits and other liabilities and obligations arising from periods prior to the distribution date.

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     Distribution Agreement. We entered into a distribution agreement with HCA and Triad Hospitals, Inc. (“Triad”) which governed the corporate transactions required to effect the distribution and other arrangements between the parties after the distribution. The distribution agreement also allocated financial responsibility between the parties for liabilities arising out of the assets and entities that constitute our company, including liabilities arising out of the transfer of the assets and entities to us. HCA agreed in the distribution agreement to indemnify us for any losses arising from the pending governmental investigations of HCA’s business practices prior to the date of the distribution and losses arising from legal proceedings, present or future, related to the investigation or actions engaged in prior to the distribution that relate to the investigation.

     Tax Sharing and Indemnification Agreement. We also entered into a tax sharing and indemnification agreement with HCA and Triad which allocated tax liabilities among the parties and addressed other tax matters, including responsibility for filing tax returns, control of and cooperation in tax litigation and qualification of the distribution as a tax-free transaction. Generally, HCA is responsible for taxes that are allocable to periods before the distribution date and each of HCA, LifePoint and Triad is responsible for its own tax liabilities, including its allocable portion of taxes shown on any consolidated, combined or other tax return filed by HCA, for periods after the distribution date. The tax sharing and indemnification agreement prohibits us from taking actions that could jeopardize the tax treatment of the distribution or the restructuring that preceded the distribution, and requires us to indemnify HCA and Triad for any taxes or other losses that result from our actions. Further, we must remit to HCA any tax benefits we realize as a result of an increased tax basis in assets resulting from a settlement of HCA’s ongoing tax litigation and examination by the Internal Revenue Service (“IRS”). The IRS has suspended the examination of our company pending the outcome of HCA’s tax litigation, and, as a result, we are not able to determine currently our future obligations under the tax sharing agreement.

     Insurance Allocation and Administration Agreement. Before the distribution, HCA maintained various insurance policies for the benefit of the facilities that now comprise our company. We are indemnified by HCA for losses related to insured risks incurred prior to the distribution date.

     Computer and Data Processing Services Agreement. HCA’s wholly-owned subsidiary, HCA-Information Technology and Services, Inc. (“HCA-IT”), entered into a computer and data processing services agreement with us. HCA-IT provides computer installation, support, training, maintenance, data processing and other related services to us under this agreement until May 2006. HCA-IT charges us fees for services provided under this agreement. We intend to renew our contract with HCA for periods beyond 2006.

     The fees that HCA – IT charged us for the periods ended December 31, are as follows (in millions):

     Other Agreements. HCA entered into agreements with us to share telecommunications services with us under HCA’s agreements with its telecommunications services provider and make account collection services available to us.

Available Information

     Our website is www.lifepointhospitals.com. We make available free of charge on this website under “Investor Relations – SEC Filings” our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished as soon as reasonably practicable after we electronically file such materials with, or furnish them to, the United States Securities and Exchange Commission (“SEC”).

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Item 2. Properties

     Information with respect to our hospitals and our other properties can be found in Item 1 of this report under the caption, “Business — Properties.”

Item 3. Legal Proceedings

     General. We are, from time to time, subject to claims and suits arising in the ordinary course of business, including claims for damages for personal injuries, medical malpractice, breach of contracts, wrongful restriction of or interference with physicians’ staff privileges and employment related claims. In certain of these actions, plaintiffs request payment for damages, including punitive damages, that may not be covered by insurance. We are currently not a party to any proceeding which, in management’s opinion, would have a material adverse effect on our business, financial condition or results of operations.

     Americans with Disabilities Act Claim. On January 12, 2001, Access Now, Inc., a disability rights organization, filed a class action lawsuit against each of our hospitals alleging non-compliance with the accessibility guidelines under the Americans with Disabilities Act (“ADA”). The lawsuit, filed in the United States District Court for the Eastern District of Tennessee, does not seek any monetary damages but, instead, seeks only injunctive relief requiring facility modification, where necessary, to meet the ADA guidelines, along with attorneys’ fees and costs. In January 2002, the District Court certified the class action and issued a scheduling order that requires the parties to complete discovery and inspection for approximately six facilities per year. We intend to vigorously defend the lawsuit, recognizing our obligation to correct any deficiencies in order to comply with the ADA. As of December 31, 2003, we have conducted inspections at 17 of our hospitals.

     Governmental Investigation of HCA and Related Litigation. HCA has been the subject of various federal and state investigations, qui tam actions, shareholder derivative and class action suits, patient/payor actions and general liability claims. These investigations, actions and claims relate to HCA and its subsidiaries, including subsidiaries that, before our formation as an independent company, owned many of the facilities that we now own.

     In June 2003, HCA announced agreements with the Department of Justice (“DOJ”) that settled all federal criminal and civil litigation brought by the DOJ against HCA with respect to cost reports, physician relations and wound care issues. The settlement of these issues does not affect qui tam actions in which the DOJ has not intervened. Additionally, HCA has announced that it made payments to CMS in accordance with an agreement to resolve all Medicare cost report, home office cost statement and appeal issues.

     HCA has agreed to indemnify us for any losses, other than consequential damages, arising from the governmental investigations of HCA’s business practices prior to the date of the distribution of the outstanding shares of our common stock to the stockholders of HCA and losses arising from legal proceedings, present or future, related to the investigation or actions engaged in before the distribution that relate to the investigation. However, we could be held responsible for any claims that are not covered by the agreements reached with the federal government or for which HCA is not required to, or fails to, indemnify us.

Item 4. Submission of Matters to a Vote of Security Holders

     No matters were submitted to a vote of the stockholders during the fourth quarter ended December 31, 2003.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

     Our common stock is quoted on the NASDAQ National Market under the symbol “LPNT.” The high and low common stock bid prices per share were as follows:

     On March 1, 2004, the last reported sales price for our common stock on the NASDAQ National Market was $32.80 per share. As of March 1, 2004, there were 38,030,598 shares of our common stock held by 5,246 holders of record.

     We have never declared or paid dividends on our common stock. We intend to retain future earnings to finance the growth and development of our business and, accordingly, do not currently intend to declare or pay any dividends on our common stock. Our board of directors will evaluate our future earnings, results of operations, financial condition and capital requirements in determining whether to declare or pay cash dividends. Delaware law prohibits us from paying any dividends unless we have capital surplus or net profits available for this purpose. In addition, our credit facilities impose restrictions on our ability to pay dividends. Please refer to the “Liquidity and Capital Resources” section in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in this report for more information.

     Share Repurchase Program

     In April 2003, our Board of Directors authorized the repurchase of up to $100 million of our outstanding shares of common stock either in the open market or through privately negotiated transactions, subject to market conditions, regulatory constraints and other factors, to enable us to take advantage of opportunistic market conditions. As of December 31, 2003, we repurchased 2,062,400 shares for an aggregate of approximately $45.7 million. Certain of these shares are designated by us as treasury stock. We retired 863,600 of our 2,062,400 treasury shares during 2003.

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     We may continue to execute share repurchases from time to time in order to take advantage of attractive share price levels, as determined by management. The timing and terms of the transactions depend on market conditions, our liquidity and other considerations. The following table summarizes our share repurchase activity by month:

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Item 6. Selected Financial Data

     The following table contains selected financial data of our company or a division of HCA, prior to the May 11, 1999 spin-off from HCA , for, or as the end of, each of the five years ended December 31, 2003. The selected financial data are derived from our audited financial statements. Financial data for the period from January 1, 1999 through May 11, 1999 are derived from HCA. The timing of acquisitions and divestitures completed during the years presented affect the comparability of the selected financial data. You should read this table in conjunction with the consolidated financial statements and related notes included elsewhere in this report and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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