UNITED STATES SECURITIES AND EXCHANGE COMMISSION

(Mark One)

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 þ 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. o

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

     The aggregate market value of the shares of Common Stock of LifePoint Hospitals, Inc. held by non-affiliates as of June 30, 2004, was approximately $1.2 billion.

     As of February 16, 2005, the number of outstanding shares of Common Stock of LifePoint Hospitals, Inc. was 39,142,535.

DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the definitive proxy statement for our 2005 annual meeting of stockholders are incorporated by reference into Part III of this report.

Table of Contents

PART I

Item 1. Business.

General

     LifePoint Hospitals, Inc. is a holding company. Its subsidiaries and affiliates own, lease and operate their respective facilities and other assets. Unless the context otherwise indicates, references in this report to “LifePoint,” the “Company,” “we,” “our” or “us” are references to LifePoint Hospitals, Inc., and/or its wholly-owned and majority-owned subsidiaries, including Lakers Holding Corp., which will be renamed LifePoint Hospitals, Inc. upon the consummation of the proposed transaction with Province Healthcare Company (described below). Any reference herein to our hospitals, facilities or employees refers to the hospitals, facilities or employees of subsidiaries or affiliates of LifePoint Hospitals, Inc.

     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.

     We operate 30 general acute care hospitals with an aggregate of 2,744 licensed beds in non-urban communities. In all but one of our communities, we are 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 $996.9 million in revenues from continuing operations during 2004.

     We announced on August 16, 2004 that we entered into a definitive agreement to acquire Province Healthcare Company (“Province”) for approximately $1.7 billion in cash, stock and the assumption of debt. Province is a healthcare services company focused on operating acute care hospitals located in non-urban markets throughout the United States. As of December 31, 2004, Province owned or leased 21 general acute care hospitals in 13 states, with a total of approximately 2,533 licensed beds. Province generated $882.9 million in revenues from continuing operations during 2004. Province’s objective has been to be the primary provider of quality healthcare services in the selected non-urban communities that it serves. If consummated, the proposed Province transaction will create a hospital company focused on providing healthcare services in non-urban communities, with 51 hospitals, of which 48 are located in markets where the combined company will be the sole hospital provider in the community. The transaction is expected to close in the first half of 2005.

     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”).

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 hospitals in these markets may lessen the likelihood of the entry of other hospitals or 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. Of the twelve hospitals that we have acquired since our spin-off from HCA in 1999, eight were acquired from either not-for-profit or governmental entities.

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.

Business Strategy

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

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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 for continuing operations 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

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	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 improve labor productivity and decrease the use of contract labor, controlling supply expenses through the use of a group purchasing organization, controlling professional and general liability insurance expenses through the utilization of risk management and quality care programs, 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 focus our recruitment of managers on those who wish to live and practice in the communities in which our hospitals are located and we allow our hospital managers to 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. By implementing our operating strategies, we believe that we may attract many of the patients in these markets 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.

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     Since our inception in 1999, we have acquired the following twelve hospitals (dollars in millions):

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, 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 access to 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;

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	•	physician recruiting;
	•	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 we operated as of December 31, 2004:

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     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 41,900 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 facility are secured by a pledge of substantially all of our assets, including first priority mortgages on most of our hospitals.

     The following are brief narratives of each of our hospitals, describing their location relative to the nearest urban area and nearest competitors.

     Andalusia Regional Hospital is located approximately 90 miles south of Montgomery, Alabama. Its nearest competitors are Mizell Memorial Hospital, which is located approximately 14 miles away and Florala Memorial Hospital, which is located approximately 23 miles away.

     Lakeland Community Hospital is located approximately 80 miles northwest of Birmingham, Alabama. Lakeland Community Hospital is located approximately 20 miles away from our own Russellville Hospital. Its nearest competitor is Marion Regional Medical Center, which is located approximately 24 miles away.

     Russellville Hospital is located approximately 100 miles northwest of Birmingham, Alabama. Its nearest competitor is Shoals Hospital, which is located approximately 16 miles away.

     Northwest Medical Center is located approximately 75 miles northwest of Birmingham, Alabama. Its nearest competitors are Fayette Medical Center, which is located approximately 15 miles away, and Marion Regional Medical Center, which is located approximately 17 miles away.

     Bartow Memorial Hospital, which we are expecting to sell during 2005, is located approximately 50 miles east of Tampa and approximately 60 miles southwest of Orlando. Its two nearest competitors are Winter Haven Hospital, which is located approximately 10 miles away, and Lakeland Regional Medical Center, which is located approximately 12 miles away.

     Putnam Community Medical Center is located approximately 45 miles southeast of Gainesville, Florida and 65 miles south of Jacksonville, Florida. Its nearest competitor is Flagler Hospital, which is located approximately 30 miles away.

     Western Plains Regional Hospital is located approximately 150 miles west of Wichita, Kansas. Its nearest competitor is Minneola District Hospital, which is located approximately 25 miles away.

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     Georgetown Community Hospital is located approximately 11 miles northwest of Lexington, Kentucky. Georgetown Community Hospital is 13 miles from our own Bourbon Community Hospital. Its nearest competitor is Eastern State Hospital, which is located approximately 10 miles away.

     Spring View Hospital, acquired by us in October 2003, is located approximately 65 miles southwest of Lexington, Kentucky. Its two nearest competitors are Taylor County Hospital, which is located approximately 15 miles away, and Flaget Memorial Hospital, which is located approximately 20 miles away.

     Jackson Purchase Medical Center (“JPMC”) is located approximately 150 miles northwest of Nashville, Tennessee. JPMC’s nearest competitors are Lourdes Hospital and Western Baptist Hospital, both of which are located approximately 20 miles away, and Murray-Calloway County Hospital, which is located approximately 25 miles away.

     Meadowview Regional Medical Center is located approximately 64 miles southeast of Cincinnati, Ohio. Its nearest competitors include Fleming County Hospital, which is located approximately 15 miles away, and Brown County General Hospital, which is located approximately 16 miles away.

     Bourbon Community Hospital is located approximately 20 miles northeast of Lexington, Kentucky. Its nearest competitor is Saint Joseph Hospital, which is located approximately 20 miles away.

     Logan Memorial Hospital is located approximately 50 miles north of Nashville, Tennessee. Its nearest competitors are Greenview Regional Hospital and The Medical Center at Bowling Green, which are both located approximately 30 miles away.

     Lake Cumberland Regional Hospital is located approximately 80 miles south of Lexington, Kentucky. Its nearest competitor is Wayne County Hospital, which is located approximately 23 miles away.

     Bluegrass Community Hospital (“Bluegrass”) is located approximately 13 miles west of Lexington, Kentucky. Bluegrass is located approximately 13 miles from our own Georgetown Community Hospital. Its nearest competitor is Saint Joseph Hospital, which is located approximately 11 miles away.

     River Parishes Hospital, acquired by us in July 2004, is located approximately 30 miles west of New Orleans, Louisiana. Its nearest competitors are St. James Parish Hospital, which is located approximately 13 miles away, St. Charles Parish Hospital, which is located approximately 12 miles away, and Kenner Regional Medical Center, which is located approximately 20 miles away.

     Ville Platte Medical Center is located approximately 95 miles northwest of Baton Rouge, Louisiana. Its nearest competitor is Savoy Medical Center, which is located approximately 10 miles away.

     Athens Regional Medical Center is located between Knoxville, Tennessee and Chattanooga, Tennessee, which are both approximately 50 miles away from Athens, Tennessee. Its nearest competitors are Sweetwater Hospital, which is located approximately 18 miles away and Woods Memorial Hospital, which is located approximately 12 miles away.

     Smith County Memorial Hospital is located approximately 60 miles east of Nashville, Tennessee. Its nearest competitor is Carthage General Hospital, a critical access hospital, located approximately 4 miles away.

     Crockett Hospital is located approximately 85 miles southwest of Nashville, Tennessee. Its nearest competitor is Maury Regional Hospital, which is located approximately 40 miles away.

     Livingston Regional Hospital is located approximately 100 miles east of Nashville, Tennessee. Its nearest competitors are Cumberland River Hospital, which is located approximately 15 miles away, and Cookeville Regional Medical Center, which is located approximately 18 miles away.

     Hillside Hospital is located approximately 80 miles south of Nashville, Tennessee. Its nearest competitor is Maury Regional Hospital, which is located approximately 23 miles away.

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     Southern Tennessee Medical Center (“STMC”) and its satellite facility, Emerald-Hodgson Hospital (“EHH”), are located approximately 80 miles southeast of Nashville, Tennessee and approximately 50 miles northwest of Chattanooga, Tennessee. STMC and EHH are approximately 13 miles apart. Their nearest competitor is Harton Regional Hospital, which is located approximately 20 miles away.

     Castleview Hospital is located approximately 119 miles southeast of Salt Lake City. Its nearest competitors are Utah Valley Medical Center, which is located approximately 75 miles away, and Mountain View Hospital, which is located approximately 73 miles away.

     Ashley Valley Medical Center is located approximately 180 miles southeast of Salt Lake City. Its nearest competitor is Unitah Basin Medical Center, which is located approximately 30 miles away.

     Logan Regional Medical Center (“LRMC”) and Guyan Valley Hospital, are located approximately 60 miles southwest of Charleston, West Virginia. Both LRMC and Guyan Valley Hospital are located in Logan, West Virginia. Their nearest competitor is Boone Memorial Hospital, a critical access facility, which is located approximately 20 miles away.

     Lander Valley Medical Center is located approximately 150 miles west of Casper, Wyoming. Lander Valley Medical Center shares the service area population with our own Riverton Memorial Hospital located approximately 22 miles away. Its nearest competitor is Wyoming Medical Center, which is located approximately 150 miles away.

     Riverton Memorial Hospital is located approximately 125 miles west of Casper, Wyoming. The nearest non-LifePoint hospital is Wyoming Medical Center, which is located approximately 125 miles away.

Services and Utilization

     We believe that the most important factors relating to the overall utilization of a hospital are the breadth of services, market position of the hospital, level of technology, emphasis on patient care, convenience for patients and physicians and the number, quality and specialties of physicians providing patient care within the facility.

     Other factors which impact the ability of a hospital to meet the healthcare needs of its community 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;
	•	improved treatment protocols as a result of advances in medical technology and pharmacology; and
	•	the intensity and timing of yearly flu outbreaks.

     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

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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 continuing to reconfigure some of our hospitals to more effectively accommodate outpatient services and diagnostics. We are also restructuring existing surgical capacity in some of our hospitals to permit additional outpatient volume and a greater variety of outpatient services.

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 from continuing operations from these sources during the years specified below were as follows:

     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. 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.

     With the passage of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (“MMA”), which was signed into law on December 8, 2003, Congress passed sweeping changes to the Medicare program. This legislation offers a prescription drug benefit for Medicare beneficiaries and also provides a number of benefits to hospitals, particularly rural hospitals. 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 DRG payments have been lower than the projected increase in the cost of goods and services purchased by hospitals. Historical DRG rate increases were as follows:

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     MMA allowed 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 fully complied with this requirement for payments relating to federal fiscal year 2005 and intend to fully comply for future periods.

     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 provided for payment relief to the wage index component of the base DRG rate. Effective October 1, 2004, MMA lowered 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. We anticipate outlier payments to increase slightly in 2005 as a result of a reduction in the outlier threshold from $31,000 to $25,800.

     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 raised 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 be based on the same conversion factor, regardless of geographic location. A majority of our hospitals have benefited from these provisions. The following table lists our historical disproportionate share payments and outlier payments from Medicare from our continuing operations:

     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 (“APCs”), with associated specific relative weights, which are multiplied by an APC conversion factor. The APC conversion factors are $52.151, $54.561 and $56.983 for 2003, 2004 and 2005, respectively. 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 reductions were reimbursed through December 31, 2003. Substantially all of our remaining hospitals qualified for relief under this provision. MMA extended the hold harmless provision for non-urban hospitals with 100 beds or less and expanded 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. As of December 31, 2004, we operated six inpatient psychiatric units, eight inpatient rehabilitation units, four hospital-based skilled nursing facility units, three rural health clinics, four home health agencies and twenty hospitals utilizing swing beds. Prior to the implementation of the prospective payment systems, payments to exempt hospitals and units, such as inpatient

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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.

     In November 2004, CMS issued a new Medicare PPS final rule for inpatient psychiatric facilities. This system, mandated by BBRA, replaces the current cost-based payment system by implementing a per diem PPS. CMS is phasing in the PPS for existing facilities over a three-year period for cost reporting periods beginning on or after January 1, 2005. Facilities in rural areas will receive a 17% increase. We anticipate our revenue from Medicare psychiatric payments to decrease slightly in 2005 as a result of this new rule.

     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 inpatient rehabilitation units have fully transitioned to PPS-based Case-Mix Groups (“CMGs”). The inpatient rehabilitation PPS CMG update factor for federal fiscal year 2005 is 3.1%, which is to be increased by 0.35% for a budget-neutral wage adjustment. This results in the 2005 base CMG increasing from $12,525 to $12,958.

     On November 20, 2004, Congress passed the FY 2005 Omnibus Appropriations bill. Included in this bill was a provision delaying the inpatient rehabilitation facility (“IRF”) 75% rule (the “IRF 75% Rule”) up to 60 days after a Government Accountability Office (“GAO”) report is completed on this issue. The IRF 75% Rule, implemented in 1983, is one of the key eligibility criteria for IRFs. In May 2004, CMS issued a final rule that included restrictive changes to the conditions that qualify under the IRF 75% Rule. This rule requires that beginning July 1, 2004, at least 50% of Medicare patients are classified in one of 13 medical categories. The threshold increases to 60% beginning July 1, 2005, 65% on July 1, 2006, and up to the original 75% on July 1, 2007. A hospital not meeting these thresholds will receive reduced payments based on Medicare DRGs instead of IRF payments. We anticipate release of the GAO report during the first quarter of 2005, and in the interim, intend to fully comply with the provisions of the May 2004 final rule.

     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 rendered 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 2005 is 2.8%.

     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, were effectively decreased by 4.9%. The market basket rate increase for calendar year 2005 is 3.1%, which was reduced 0.8% as mandated by MMA, and results in a net increase of the episode rate of 2.3%. 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 that 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.

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

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     The following table lists our historical disproportionate share payments from Medicaid from our continuing operations, which are included in the Medicaid revenues listed in the above table (in millions):

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 payable 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 and employers. 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.

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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. In all but one of our communities, our hospitals face no direct hospital competition 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 may provide more comprehensive services. 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 specialized 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-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, 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’s needs, 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 December 31, 2004, our subsidiaries had approximately 9,900 employees, including approximately 2,600 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 governing board of the hospital in accordance with established credentialing criteria. In certain cases, physicians are employed by our hospitals.

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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 addition, as of December 31, 2004, all of our hospitals were 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

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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;
	•	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. Failure to comply with the safe harbor regulations does not make conduct illegal, but instead the safe harbors 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 that is not a specialty 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

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and recruitment agreements. We have structured our financial arrangements with physicians to comply with the statutory exceptions included in the Stark law and regulations.

     Many states in which we operate also have adopted, or are considering adopting, laws similar to the federal anti-kickback and Stark laws. 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 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.

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     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 the effects of home health and rural hospital reimbursement effects in current and anticipated reimbursement methodologies. On the state level, 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), requiring enrollees to use the lowest-cost prescription drugs significantly decreasing the eligibility criteria or reverting to a traditional Medicaid model. The proposed changes to TennCare have been challenged by advocacy groups. Currently, 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.

     Among other things, HIPAA requires healthcare facilities to use standard data formats and code sets established by DHHS 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. We have implemented or upgraded computer systems utilizing a third party vendor, 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.

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     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. All healthcare providers, including our facilities, will be required to obtain a new National Provider Identifier (“NPI”) to be used in standard transactions instead of other numerical identifiers beginning no later than May 23, 2007; healthcare providers may begin applying for NPIs on May 23, 2005. We cannot predict whether our facilities may experience payment delays during the transition to the new identifier. Our facilities have fully implemented use of the Employer Identification Number as the standard unique health identifier for employers. 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, but cannot predict the impact of such changes at this time.

     HIPAA regulations also require our facilities to comply with standards to protect the confidentiality, availability and integrity of patient health information, by establishing and maintaining 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. We expect that the security standards will require our facilities to implement business procedures and training programs, though the regulations do not mandate use of a specific technology.

     DHHS has also established standards for the privacy of individually identifiable health information. These privacy standards apply to all health plans, all health care clearinghouses and health care providers, such as our facilities, that transmit health information in an electronic form in connection with standard transactions, and apply to individually identifiable information held or disclosed by a covered entity in any form. These standards impose extensive administrative requirements on our facilities and require compliance with rules governing the use and disclosure of this 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 laws vary by state and could impose additional penalties.

     A violation of the HIPAA 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 significant 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.

     Compliance with these standards requires significant commitment and action by us and our facilities. Because some of the HIPAA regulations are proposed regulations, we cannot predict the total financial impact of the regulations on our operations.

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 and certain contractors involved in patient care, coding and billing, 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

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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 five-year corporate integrity agreement with the OIG and agreed to maintain our compliance program in accordance with the corporate integrity agreement. This agreement has been amended four times since then. 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;
	•	performing internal coding reviews of our facilities and having an independent third party conduct periodic audits of those reviews;
	•	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 and making the appropriate refund for 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.

     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 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

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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 until December 2009. HCA-IT charges us fees for services provided under this agreement.

     The fees that HCA-IT charged us for the five-year period ended December 31, 2004, including the discontinued operations of Bartow, 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.

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. We are currently unable to estimate the costs that could be associated with modifying these facilities because these costs are negotiated and determined on a facility-by-facility basis and, therefore, have varied and will continue to

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vary significantly among facilities. 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, 2004, the plaintiffs have conducted inspections at 22 of our hospitals. On July 19, 2004, the United States District Court approved the settlement agreements between the parties relating to two of our facilities. These facilities have completed the litigation process and now will move forward in implementing facility modifications in accordance with the terms of the settlement, and we currently anticipate that the costs associated with modifying these two facilities will be approximately $1.0 million.

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, 2004.

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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 February 16, 2005, the last reported sales price for our common stock on the NASDAQ National Market was $40.20 per share. As of February 16, 2005, there were 39,142,535 shares of our common stock held by 5,040 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.

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Item 6. Selected Financial Data.

     The following table contains selected financial data of our company for, or as the end of, each of the five years ended December 31, 2004. The selected financial data are derived from our audited financial statements. The timing of acquisitions and divestitures completed during the years presented affects the comparability of the selected financial data. The summary of operations, financial position and other operating data excludes the operations as well as assets and liabilities that are expected to be sold related to Bartow Memorial Hospital, which is held for sale and reflected as discontinued operations in our consolidated financial statements. You should read this table in conjunction with the consolidated financial statements and related notes included elsewhere in this report and in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

     You should read this discussion together with our consolidated financial statements and related notes included elsewhere in this report.

Executive Overview

     This was another challenging year for both the healthcare services industry and our company. We believe that we produced positive financial results after considering all of the factors affecting our industry. This year was negatively impacted by lower patient volumes that were experienced by most healthcare providers as a result of the lack of flu-related cases in late 2004. We also experienced the continuation of higher co-payments and deductibles for patients and more patients electing not to be covered by a health insurance program, resulting in increased collection pressures on providers. We believe that our financial results for 2004 reflect our disciplined operating strategy that addressed these industry challenges. We are guardedly optimistic regarding our outlook for 2005 as a result of the improved reimbursement environment and patient volumes more in line with historical trends and our future acquisition of Province. During 2005, we will continue to focus on physician recruiting and retention, investing capital in our hospitals and seeking selected hospital acquisitions that fit our non-urban strategy and complement our existing portfolio of hospitals. In addition, upon closing of the Province transaction, we will work to integrate the Province facilities. The following table reflects our summarized operating results:

Anticipated Acquisition of Province Healthcare Company

     We announced on August 16, 2004 that we entered into a definitive agreement to acquire Province Healthcare Company for approximately $1.7 billion in cash, stock and the assumption of debt. Province is a healthcare services company focused on operating acute care hospitals located in non-urban markets throughout the United States. As of December 31, 2004, Province owned or leased 21 general acute care hospitals in 13 states, with a total of approximately 2,533 licensed beds. Province generated $882.9 million in revenues from continuing operations during 2004. Province’s objective has been to be the primary provider of quality healthcare services in the selected non-urban communities that it serves. If consummated, the proposed Province transaction will create a hospital company focused on providing healthcare services in non-urban communities, with 51 hospitals, of which 48 are located in markets where the combined company will be the sole hospital provider in the community. The transaction is expected to close in the first half of 2005.

     Based on $40.20, the closing price of a share of our common stock on February 16, 2005 and the number of shares of Province common stock outstanding on such date, we will issue approximately 14.6 million shares of our common stock to Province stockholders and will pay approximately $571.2 million in cash.

Discontinued Operations

     During 2004, we committed to a plan to divest Bartow. Please refer to Note 3 of our consolidated financial statements included elsewhere in this report for a discussion of our discontinued operations of Bartow. We expect to sell Bartow during 2005. Unless otherwise indicated, all relevant financial and statistical information included herein relates to our continuing operations.

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Hospital Acquisitions

     We seek to identify and acquire additional hospitals in non-urban areas. The proposed Province transaction gives us a unique opportunity to acquire 21 additional hospitals in non-urban areas. Additionally, we plan on pursuing a disciplined acquisition strategy that is focused on attempting to acquire one to three additional hospitals each year. We seek to acquire hospitals that are the sole or significant market provider of healthcare services in their community. In evaluating a hospital for acquisition, we focus on a variety of factors. One factor we consider is the number of patients that are traveling outside of the community for healthcare services. Another factor we consider is the hospital’s prior operating history and our ability to implement new healthcare services. Upon acquiring a facility, we work to quickly integrate the hospital into our operating practices. Please refer to Note 2 to our consolidated financial statements included in this report for further discussion of acquisitions that we made in 2002, 2003 and 2004. In addition, please refer to the “Business Strategy” section in Part I, Item 1. Business, in this report for a table of our hospital acquisitions since our inception.

Revenue Sources

     Our hospitals generate revenues by providing healthcare services to our patients. We are paid for these healthcare services from a number of different sources, depending upon the patient’s medical insurance coverage. Primarily, we are paid by governmental Medicare and Medicaid programs, by commercial insurance, including managed care organizations, and directly by the patient. The amounts we are paid for providing healthcare services to our patients vary depending upon the payor. Governmental payors generally pay significantly less than the hospital’s customary charges for the services provided. Please refer to the “Sources of Revenue” section in Part I, Item 1. Business in this report for a detailed discussion of our revenue sources.

     Revenues from governmental payors, such as Medicare and Medicaid, are controlled by complex rules and regulations that stipulate the amount a hospital is paid for providing healthcare services. These rules and regulations require an extensive amount of effort to ensure our compliance with the requirements to participate in these governmental programs. In addition, these rules and regulations are subject to frequent changes as a result of legislative and administrative action on both the federal and state level. For these reasons, revenues from governmental payors change frequently and require us to regularly monitor the environment in which these governmental programs operate. For example, MMA increased the payments received by non-urban healthcare providers beginning in 2004.

     Revenues from HMOs, PPOs and other private insurers are subject to contracts and other arrangements that require us to discount the amounts we customarily charge for healthcare services. These discounted arrangements often limit our ability to increase charges in response to increasing costs. We actively negotiate with these payors to ensure we are appropriately pricing our healthcare services. Insured patients are generally not responsible for any difference between customary hospital charges and the amounts received from commercial insurance payors. However, the patient is responsible for payments related to amounts not covered by insurance, such as exclusions, deductibles and co-payments.

     Self-pay revenues are generated through the treatment of uninsured patients. Our hospitals experienced an increase in self-pay revenues during the past two years.

Revenues/Volume Trends

     The key metrics we use internally to evaluate our revenues are equivalent admissions, which equate to volume, and revenue per equivalent admission, which relates to pricing and acuity. We anticipate our patient volumes and related revenues will continue to increase as a result of the following factors:

•

Physician Recruitment and Retention. Recruiting and retaining both primary care physicians and specialists for our non-urban communities is a key to increasing revenues and patient volumes. Continuing to add specialists should help our hospitals increase volumes by offering new services. We signed 85 admitting physicians during 2004, all of which started work at our hospitals in 2004. In addition, we recruited 18 non-admitting physicians such as emergency room physicians, anesthesiologists, dermatologists, allergists and other important specialists who are vital to meeting community needs and often use hospital outpatient services. During 2005, we anticipate recruiting an additional 92 admitting physicians to start in 2005.

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•	Capital Expenditures. Increases in capital expenditures in our hospitals should increase our local market share and help persuade patients to obtain healthcare services within their communities. The following table reflects our capital expenditures:

•

Medicare Rate Increases. MMA provides a prescription drug benefit for Medicare beneficiaries and also provides numerous provisions that provide incremental funding to hospitals. The earliest provisions of MMA were effective in 2004. Please refer to the “Sources of Revenue” section in Part I, Item 1. Business in this report for a discussion of MMA’s provisions that affect our reimbursement.

     Although we anticipate that our patient volumes will increase, the resulting revenues will likely be partially offset by the following factors:

•

Growth in Outpatient Services. We anticipate that the long-term growth trend in outpatient services will continue. A number of procedures once performed only on an inpatient basis have been, and will continue to be, converted to outpatient procedures. This conversion has occurred through continuing advances in pharmaceutical and medical technologies and as a result of efforts made by payors to control costs. Generally, the payments we receive for outpatient procedures are less than those for similar procedures performed in an inpatient setting. The following table shows net outpatient, inpatient and other revenues as a percentage of our total revenues:

•

Efforts to Reduce Payments. Revenues from HMOs, PPOs and other private insurance programs are subject to contracts and other arrangements that require us to discount the amounts we customarily charge for healthcare services. These discounted arrangements often limit our ability to increase charges in response to increasing costs during the term of the contracts.

•

States Implementing Medicaid Cost Containment Measures. A number of states have incurred budget deficits within recent years. To close these budget gaps, certain states have reduced spending and increased taxes. State cost containment activity continues to focus on reducing provider payments and limiting eligible enrollees under the state Medicaid programs.

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Other Trends

•

Increases in Provision for Doubtful Accounts. We experienced an increase in our provision for doubtful accounts during the past two years. The increase was the result of a combination of broad economic factors, including an increased number of uninsured patients, and health care plan design changes that resulted in increased co-payments and deductibles. Our provision for doubtful accounts was as follows (in millions):

The provision for doubtful accounts relates primarily to self-pay revenues. The following table reflects our quarterly self-pay revenue activity which exhibits these trends (in millions):

Our revenues are reduced when we write-off patient accounts identified as charity and indigent care. Our hospitals write-off a portion of a patient’s account upon the determination that the patient qualifies under a hospital’s charity/indigent care policy. The following table reflects our charity and indigent care write-offs (in millions):

The following table shows our revenue days in our consolidated accounts receivable:

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The approximate percentages of billed hospital receivables (which is a component of total accounts receivable) are summarized as follows:

The approximate percentages of billed hospital receivables in summarized aging categories are as follows:

We anticipate that our provision for doubtful accounts for the next several quarters will remain at approximately 8.5% — 9% of revenues, excluding the Province hospitals. We implemented a number of operating strategies during 2004 that improved our cash collections of self-pay revenues. However, if the trend of increasing self-pay revenues continues, then this trend could have a material adverse effect on our results of operations and financial position in the future.

•

Increased Purchase Prices for Acquisitions. As previously discussed, we attempt to make acquisitions in a highly competitive environment. We have seen higher prices being paid for hospital acquisitions in the past few years. In some cases, the cost of an acquisition could result in a dilutive effect on our results of operations for up to two years depending on various factors, including the acquired hospital’s results of operations, allocations of tangible and intangible assets, effects of subsequent legislation changes and limitations on rate increases. In addition, our acquisition activity requires transitions from, and the integration of, various information systems that are used by hospitals we acquire. We rely heavily on HCA-IT for information systems integration as part of our contractual arrangement for information technology services.

•

Shortage of Clinical Personnel and Increased Contract Labor Usage. In recent years, many hospitals, including the hospitals we own, have encountered difficulty in recruiting and retaining nursing and other clinical personnel. When we are unable to staff our nursing and clinical positions, we are required to use contract labor to ensure adequate patient care. Contract labor generally costs more per hour than employed labor. We have adopted a number of human resources strategies in an attempt to improve our ability to recruit and retain nursing and other clinical personnel. These strategies are working as we experienced a $1.2 million, or 8.9%, decrease in contract labor costs in 2004 compared to 2003. However, we expect that the staffing issues related to nurses and other clinical personnel will continue in the near term.

•

Increases in Supply Costs. During the past few years, we have experienced an increase in supply costs as a percentage of revenues, especially in the areas of pharmaceutical, orthopaedic, and cardiac supplies. We participate in a group purchasing organization in an attempt to achieve optimum supply costs from our vendors. Because of the fixed reimbursement nature of most governmental and commercial payor arrangements, we may not be able to recover supply cost increases through increased revenues.

•

Challenges in professional and general liability costs. In recent years, we have incurred favorable loss experience, as reflected in our external actuarial reports. We implemented enhanced risk management processes for monitoring professional and general liability claims and managing in high-risk areas. Professional and general liability costs remain a challenge to us, and we expect this pressure to continue in the near term.

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Outlook

     We expect to continue increasing our revenues and net income by continuing to selectively acquire hospitals and increasing the operating results of the hospitals we currently own, including the hospitals we expect to acquire from Province. We plan to adhere to our disciplined acquisition strategy as we seek to selectively acquire hospitals. We intend to continue to invest in additional healthcare services in our facilities and implement our operating strategies.

     The Province acquisition will require significant attention from our management to integrate the business practices and operations of Province’s hospitals. In order for us to increase revenues and profitability of our hospitals, there are a number of on-going challenges that we must effectively manage, such as:

•

competition from other healthcare providers, including physicians in our communities;

•

recruiting and retaining quality physicians;

•

increasing the volume of patients in our facilities;

•

staffing issues related to the shortage of clinical personnel and the use of contract labor;

•

identifying and acquiring hospitals at appropriate prices;

•

the integration of new acquisitions into our operating systems and practices;

•

pricing pressures from government and commercial payors; and

•

increased bad debt risk as a result of the increased number of uninsured patients and increased co-payments and deductibles due from insured patients.

     By successfully focusing on each of these challenges, we anticipate increasing our revenues and profitability on both a short-term and long-term basis. These challenges are intensified by our inability to control related trends and the associated risks. Therefore, our actual results may differ from our expectations. To maintain or improve operating margins in the future, we must, among other things, increase patient volumes through physician recruiting while controlling the costs of providing services.

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Critical Accounting Estimates

     The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect reported amounts and related disclosures. We consider an accounting estimate to be critical if:

•	it requires assumptions to be made that were uncertain at the time the estimate was made; and
•	changes in the estimate or different estimates that could have been made could have a material impact on our consolidated results of operations or financial condition.

     The table that follows presents information about our critical accounting estimates, as well as the effects of hypothetical changes in the material assumptions used to develop each estimate:

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32

33

34

35

36

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     Our management has discussed the development and selection of these critical accounting estimates with the audit committee of our Board of Directors and the audit committee has reviewed the disclosure presented above relating to our critical accounting estimates.

     The above table of critical accounting estimates is not intended to be a comprehensive list of all of our accounting policies that require estimates. We believe that of our significant accounting policies, as discussed in Note 1 of our consolidated financial statements, the estimates discussed above involve a higher degree of judgment and complexity. We believe the current assumptions and other considerations used to estimate amounts reflected in our consolidated financial statements are appropriate. However, if actual experience differs from the assumptions and other considerations used in estimating amounts reflected in our consolidated financial statements, the resulting changes could have a material adverse effect on our consolidated results of operations and our financial condition.

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Results of Operations

Operating Results Summary

     The following tables present summaries of results of operations for the three months ended December 31, 2003 and 2004 and for the years ended December 31, 2002, 2003, and 2004 (dollars in millions, except revenues per equivalent admission):