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CONTENTS

SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

Form 10-K

Commission file number 1-7293

TENET HEALTHCARE CORPORATION
(Exact name of Registrant as specified in its charter)

Securities registered pursuant to Section 12(b) 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, and (2) has been subject to such filing requirements for the past 90 days. Yes ý    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 the 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 Exchange Act Rule 12b-2). Yes ý    No o

        As of June 30, 2004, there were 466,135,031 shares of common stock outstanding. The aggregate market value of the shares of common stock held by non-affiliates of the Registrant as of June 30, 2004, based on the closing price of the Registrant's shares on the New York Stock Exchange, was approximately $3,992,023,369. For the purpose of the foregoing calculation only, all directors and the executive officers who are SEC reporting persons of the Registrant have been deemed affiliates. As of February 28, 2005, there were 468,321,988 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

        Portions of the Registrant's definitive proxy statement for the 2005 annual meeting of shareholders to be held on May 26, 2005 are incorporated by reference into Part III of this Form 10-K.

CONTENTS

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PART I.

ITEM 1. BUSINESS

DESCRIPTION OF BUSINESS

        Tenet Healthcare Corporation operates in one line of business—the provision of health care services, primarily through the operation of general hospitals. All of Tenet's operations are conducted through its subsidiaries. (Unless the context otherwise requires, Tenet and its subsidiaries are referred to herein as "Tenet," the "Company," "we" or "us.") We are the second largest investor-owned health care services company in the United States. At December 31, 2004, our subsidiaries operated 80 general hospitals (two of which were classified as critical access hospitals) with 19,668 licensed beds, serving urban and rural communities in 13 states. Of those general hospitals, 64 were owned by our subsidiaries and 16 were owned by third parties and leased by our subsidiaries (including one facility we owned located on land leased from a third party).

        At December 31, 2004, our subsidiaries also owned or leased various related health care facilities, including two rehabilitation hospitals, one specialty hospital, four skilled nursing facilities and 85 medical office buildings—each of which is located on the same campus as, or nearby, one of our general hospitals. In addition, our subsidiaries own or lease physician practices, captive insurance companies and various ancillary health care businesses, including outpatient surgery centers, occupational and rural health care clinics, and an interest in a health maintenance organization, all of which comprise a minor portion of our business.

        Our mission is to provide quality health care services that are responsive to the needs of the communities we serve. To accomplish our mission in the complex and competitive health care industry, our operating strategies are to (1) improve the quality of care provided at our hospitals by identifying best practices and implementing those best practices in all of our hospitals, (2) improve operating efficiencies and reduce operating costs while maintaining or improving the quality of care provided, (3) improve patient, physician and employee satisfaction, (4) improve recruitment and retention of nurses and other employees, (5) reduce provisions for doubtful accounts and improve cash flow, and (6) acquire new, or divest existing, facilities as market conditions, operational goals and other considerations warrant. We adjust these strategies as necessary in response to changes in the economic and regulatory climates in which we operate and the success or failure of our various efforts.

OPERATIONS

        From March 2003 to February 2004, we organized our general hospitals and other related health care facilities into two divisions with five underlying regions. In February 2004, we announced a streamlining of our operational structure by eliminating our two divisions and having our five regions report directly to our newly appointed chief operating officer. In July 2004, we consolidated our operating regions from five to four in an effort to continue streamlining our operational structure. Our four regions are:

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California, which includes all of our hospitals in California, as well as our hospital in Nebraska;



•

Central Northeast-Southern States, which includes all of our hospitals in Georgia, Missouri, North Carolina, Pennsylvania, South Carolina and Tennessee;



•

Florida-Alabama, which includes all of our hospitals in Florida, as well as our hospital in Alabama; and



•

Texas-Gulf Coast, which includes all of our hospitals in Louisiana and Texas, as well as our hospital in Mississippi.

All of our regions report directly to our chief operating officer.

        We seek to operate our hospitals in a manner that positions them to compete effectively in the rapidly evolving health care environment. To that end, we sometimes decide to sell, consolidate or close

certain facilities in order to eliminate duplicate services, non-core assets or excess capacity, or because of changing market conditions. From time to time, we make strategic acquisitions of, or enter into partnerships or affiliations with, general hospitals and related health care businesses.

        In March 2003, we announced our intention to divest or consolidate 14 general hospitals that no longer fit our core operating strategy of building and maintaining competitive networks of hospitals that provide quality patient care in major markets. We sold 11 and closed two of the 14 hospitals by the end of 2003. The sale of the remaining hospital took place effective February 1, 2004. In November 2003, we announced we would not renew our leases on two additional hospitals and ceased operations at both of these hospitals in 2004. In addition, in December 2003, we announced our intention to close one more hospital and sell another, and we divested both hospitals in 2004. Also in December 2003, we acquired the USC Kenneth Norris Jr. Cancer Hospital, which one of our subsidiaries had managed since 1997; the hospital is a 60-bed facility specializing in cancer treatment on the campus of our USC University Hospital in Los Angeles, California.

        In January 2004, we announced our intention to divest an additional 27 general hospitals, including 19 in California and eight in Louisiana, Massachusetts, Missouri and Texas. This decision was based on a comprehensive review of the near-term and long-term prospects of each of the hospitals, including a study of the capital expenditures required to comply with California's seismic regulations for hospitals. As of December 31, 2004, we had completed the divestiture of 18 of the 27 facilities and had entered into a definitive agreement to divest an additional four hospitals. We continue to work toward entering into definitive agreements to divest the remaining facilities in the plan, with transaction closings to take place as soon as possible.

        In addition to the hospitals divested or to be divested as part of the restructuring program that we announced in January 2004, we sold our only foreign facility, a general hospital in Barcelona, Spain, in May 2004. During 2004, we also completed the divestiture of or entered into agreements to divest substantially all of the home health agencies owned and operated by our subsidiaries. In June 2004, we completed construction of and opened two new general hospitals, the 90-bed Saint Francis Hospital—Bartlett in Bartlett, Tennessee, a suburb of Memphis, and the 118-bed Centennial Medical Center in Frisco, Texas, a suburb of Dallas.

        Going forward, we will focus our financial and management resources on the 69 general hospitals and related operations that will remain after all proposed divestitures are completed. Our general hospitals in continuing operations generated in excess of 96.0% of our net operating revenues for all periods presented in our consolidated financial statements. Factors that affect patient volumes and, thereby, our results of operations at our hospitals and related health care facilities include, but are not limited to (1) unemployment levels, (2) the business environment of local communities, (3) the number of uninsured and underinsured individuals in local communities, (4) seasonal cycles of illness, (5) climate and weather conditions, (6) physician recruitment, retention and attrition, (7) local health care competitors, (8) managed care contract negotiations or terminations, (9) unfavorable publicity, which impacts relationships with physicians and patients, and (10) factors that affect the timing of elective procedures.

        Each of our general hospitals offers acute care services, operating and recovery rooms, radiology services, respiratory therapy services, clinical laboratories, and pharmacies; most offer intensive care, critical care and/or coronary care units, physical therapy, and orthopedic, oncology and outpatient services. A number of the hospitals also offer tertiary care services such as open-heart surgery, neonatal intensive care and neuroscience. Seven of our hospitals—Memorial Medical Center, USC University Hospital, Saint Louis University Hospital, Hahnemann University Hospital, Sierra Medical Center, Western Medical Center Santa Ana and St. Christopher's Hospital for Children—offer quaternary care in such areas as heart, lung, liver and kidney transplants. USC University Hospital, Sierra Medical Center and Good Samaritan Hospital also offer gamma-knife brain surgery and Saint Louis University Hospital, Hahnemann University Hospital and Memorial Medical Center offer bone marrow

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transplants. Our hospitals also will continue their efforts to deliver and develop those outpatient services that can be provided on a quality, cost-effective basis and that we believe will meet the needs of the communities served by the facilities.

        With the exception of the 25-bed Sylvan Grove Hospital located in Georgia and the 25-bed Frye Regional Medical Center—Alexander Campus located in North Carolina, which are designated by the Centers for Medicare and Medicaid Services ("CMS") as critical access hospitals and which have not sought to be accredited, each of our facilities that is eligible for accreditation is accredited by the Joint Commission on Accreditation of Healthcare Organizations, the Commission on Accreditation of Rehabilitation Facilities (in the case of rehabilitation hospitals), the American Osteopathic Association (in the case of two hospitals) or another appropriate accreditation agency. With such accreditation, our hospitals are deemed to meet the Medicare Conditions of Participation and are, therefore, eligible to participate in government-sponsored provider programs, such as the Medicare and Medicaid programs. The two hospitals that are not accredited also participate in the Medicare program by otherwise meeting the Medicare Conditions of Participation.

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        The following table lists, by state, the general hospitals owned or leased and operated by our subsidiaries as of December 31, 2004:

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*

We continue to work toward entering into definitive agreements to divest these facilities as part of the restructuring of our operations announced in January 2004.

**

We have entered into a definitive agreement to divest these facilities as part of the restructuring of our operations announced in January 2004.

(1)

Leased by a partnership in which Tenet subsidiaries own a 75% interest and of which a Tenet subsidiary is the managing general partner.

(2)

Facility owned by us on land leased from a third party.

(3)

Owned by a partnership in which a Tenet subsidiary owns a 51% interest and is the managing general partner. The partner owning the 49% interest, an affiliate of the Cleveland Clinic Foundation, has an option to acquire our interest at any time after July 2, 2006 pursuant to the terms of the related partnership agreement.

(4)

Designated by CMS as critical access hospitals and, therefore, although not being divested, these facilities are not counted among the 69 general hospitals that will remain after all proposed divestitures are completed.

(5)

Owned by a limited liability company in which a Tenet subsidiary owns a 74% interest and is the managing member.

(6)

Leased from the Metrocrest Hospital Authority under a lease that expires in August 2007.

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        As of December 31, 2004, the largest concentrations of our licensed beds were in California (27.0%), Florida (23.2%) and Texas (15.1%). Strong concentrations of hospital beds within geographic areas help us contract more successfully with managed care payers, reduce management, marketing and other expenses, and more efficiently utilize resources. However, such concentrations increase the risk that, should any adverse economic, regulatory or other development occur within these states, our business, financial position, results of operations or cash flows could be materially adversely affected.

        The following table shows certain information about the hospitals operated domestically by our subsidiaries for the years ended December 31, 2004 and 2003, for the seven-month transition period ended December 31, 2002 and for the fiscal year ended May 31, 2002.

(1)

Includes nine facilities at December 31, 2004, 32 facilities at December 31, 2003 and 45 facilities at December 31, 2002 and May 31, 2002, respectively, that are classified as discontinued operations for financial reporting purposes.

(2)

Information regarding utilization of licensed beds and other operating statistics can be found in the table on page 55.

PROPERTIES

        At December 31, 2004, our administrative offices were located in Los Angeles, Santa Ana and Santa Barbara, California; Ft. Lauderdale, Florida; Atlanta, Georgia; St. Louis, Missouri; Philadelphia, Pennsylvania; and Dallas, Texas. We moved our corporate headquarters from Santa Barbara to Dallas effective January 3, 2005.

        Our subsidiaries lease the space for our offices in Los Angeles, Santa Ana, Ft. Lauderdale, Atlanta, St. Louis and Philadelphia under operating lease agreements. We own our Santa Barbara office building, which is on land that is leased by one of our subsidiaries under a long-term ground lease that expires in 2068. We plan to close this office in June 2005, then sell the building and assign the ground lease to the buyer. Another one of our subsidiaries leases the space for our Dallas office under an operating lease agreement that terminates in 2010 subject to our ability to exercise of one or both of two five-year renewal options under the lease agreement.

        Our subsidiaries operated 85 medical office buildings at December 31, 2004; most of these office buildings are adjacent to our general hospitals. The number of licensed beds and locations of our general hospitals at December 31, 2004 are described in the table beginning on page 4.

        As of December 31, 2004, we had approximately $34 million of outstanding loans secured by property and equipment, and we had approximately $31 million of capitalized lease obligations. We believe that all of our properties, as well as the administrative and medical office buildings described above, are suitable for their intended purposes.

MEDICAL STAFF AND EMPLOYEES

        Our hospitals are staffed by licensed physicians who have been admitted to the medical staff of individual hospitals. Members of the medical staffs of our hospitals also often serve on the medical staffs of hospitals not owned by us. Members of our medical staffs are free to terminate their affiliation with our hospitals or admit their patients to competing hospitals at any time. Although we own some physician practices and, where permitted by law, employ some physicians, the overwhelming majority of the physicians who practice at our hospitals are not our employees. Nurses, therapists, lab technicians,

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facility maintenance staff and the administrative staff of hospitals, however, normally are our employees. We are subject to federal minimum wage and hour laws and various state labor laws, and maintain a number of different employee benefit plans.

        Our operations depend on the efforts, ability and experience of our employees and the physicians on the medical staffs of our hospitals. Our future growth depends on our ability to (1) attract and retain skilled employees, (2) attract and retain physicians and other health care professionals, and (3) manage growth successfully. Therefore, our success, in part, depends upon the quality, quantity and specialties of physicians on our hospitals' medical staffs, most of whom have no long-term contractual relationship with us. In some of our markets, physician recruitment and retention are affected by a shortage of physicians in certain specialties and the difficulties that physicians are experiencing in obtaining affordable malpractice insurance or finding insurers willing to provide such insurance.

        Although we believe we will continue to successfully attract and retain key employees, qualified physicians and other health care professionals, the loss of some or all of our key employees or the inability to attract or retain sufficient numbers of qualified physicians and other health care professionals could have a material adverse effect on our business, financial position, results of operations or cash flows.

        At December 31, 2004, the approximate number of our employees (of which approximately 29% were part-time employees) was as follows:

(1)

Includes employees whose employment relates to the operations of our general hospitals, rehabilitation hospitals, specialty hospital, outpatient surgery centers, managed services organizations, physician practices, in-house collection agency and other health care operations.

        The largest concentrations of our employees are in those states where we have the largest concentrations of licensed hospital beds:

        At December 31, 2004, approximately 14% of our employees were represented by labor unions, and labor relations at our facilities generally have been satisfactory. We, and the hospital industry in general, are seeing an increase in the amount of union activity, particularly in California. In May 2003, we entered into an agreement with the Service Employees International Union and the American Federation of Federal, State, County and Municipal Employees with respect to all of our California hospitals and two hospitals in Florida; in December 2003, we entered into an agreement with the California Nurses Association with respect to all of our California hospitals. The agreements are expected to streamline the organizing and contract negotiation process, with minimal impact on and disruption to patient care, if a hospital's employees choose to organize into collective bargaining units. The agreements also provide a framework for pre-negotiated salaries and benefits at the related hospitals. As of December 31, 2004, there were approximately 10,899 unionized employees in our California hospitals who were covered by these agreements. In 2005, labor union contracts at five hospitals in Pennsylvania and California, representing 2% of our employees, will expire, but we do not expect renegotiations to have a material adverse effect on our business, financial position, results of operations or cash flows.

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        Factors that adversely affect our labor costs include the nationwide shortage of nurses and the enactment of state laws regarding nurse-staffing ratios. The nursing shortage is more serious in certain specialties and in certain geographic areas than others, including several areas in which we operate hospitals, such as Southern California, South Florida and Texas. The nursing shortage has become a significant operating issue to health care providers, including us, and has resulted in increased costs for nursing personnel.

        State-mandated nurse-staffing ratios adversely affect not only our labor costs, but, if we are unable to hire the necessary number of nurses to meet the required ratios, they may also cause us to limit patient admissions with a corresponding adverse effect on our net operating revenues. The vast majority of hospitals in California, including our hospitals, are not at all times meeting the state-mandated nurse-staffing ratios that went into effect on January 1, 2004. We have, however, gradually improved our monthly compliance and strive to make continued improvements into 2005.

        We cannot predict the degree to which we will be affected by the future availability or cost of nursing personnel, but we expect to continue to experience significant wage and benefit pressures created by the current nursing shortage throughout the country and escalation in state-mandated nurse-staffing ratios, particularly in California (even though, in November 2004, California delayed its next increase in the mandated ratios until at least 2008). We may be required to enhance wages and benefits to recruit and retain nurses. We may also be required to increase our use of temporary personnel, which is typically more expensive. Significant efforts are being invested in workforce development with local schools of nursing and in recruitment of experienced nurses.

COMPETITION

        Our general hospitals and other health care businesses operate in competitive environments. Competition among health care providers occurs primarily at the local level. A hospital's position within the geographic area in which it operates is affected by a number of competitive factors, including, but not limited to (1) the scope, breadth and quality of services a hospital offers to its patients and physicians, (2) the number, quality and specialties of the physicians who admit and refer patients to the hospital, (3) nurses and other health care professionals employed by the hospital or on the hospital's staff, (4) the hospital's reputation, (5) its managed care contracting relationships, (6) its location, (7) the location and number of competitive facilities and other health care alternatives, (8) the physical condition of its buildings and improvements, (9) the quality, age and state-of-the-art of its medical equipment, (10) its parking or proximity to public transportation, (11) the length of time it has been a part of the community, and (12) the charges for its services. Accordingly, each hospital develops its own strategies to address these competitive factors locally. In addition, tax-exempt competitors may have certain financial advantages not available to our facilities, such as endowments, charitable contributions, tax-exempt financing, and exemptions from sales, property and income taxes.

        A significant factor in our future success will be the ability of our hospitals to continue to attract and retain physicians. We attract physicians by striving to equip our hospitals with technologically advanced equipment and quality physical plant, properly maintaining the equipment and physical plant, sponsoring training programs to educate physicians on advanced medical procedures, providing high-quality care to our patients and otherwise creating an environment within which physicians prefer to practice. Each hospital has a local governing board, consisting primarily of community members and physicians, that develops short-term and long-term plans for the hospital to foster a desirable medical environment for physicians. Each local governing board also reviews and approves, as appropriate, actions of the medical staff, including staff appointments, credentialing, peer review and quality assurance. While physicians may terminate their association with our hospitals at any time, we believe that by striving to maintain and improve the quality of care at our hospitals and by maintaining ethical and professional standards, we will attract and retain qualified physicians with a variety of specialties.

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        The health care industry as a whole is challenged by the difficulty of providing quality patient care in a competitive and highly regulated environment. We believe our Commitment to Quality ("C2Q") initiative should help to position us competitively to meet these challenges. The C2Q initiative is designed to (1) improve patient safety and evidence-based practice, (2) support physician excellence, (3) improve the practice and leadership of nursing, and (4) facilitate improved patient flow and care delivery. A year has passed since we formally launched our C2Q initiative with a series of hospital-based pilot programs. At December 31, 2004, 42 of our hospitals had completed the initial eight-week "transformation" phase and 10 hospitals were in process. We plan to complete the full initial implementation of our C2Q initiative by the end of 2005. At most hospitals that have completed the initial eight-week transformation phase, we have seen various levels of reductions in emergency room wait times, increases in on-time starts in the operating rooms, and improved bed management and care coordination.

HEALTH CARE REGULATION AND LICENSING

CERTAIN BACKGROUND INFORMATION

        Health care, as one of the largest industries in the United States, continues to attract much legislative interest and public attention. Changes in the Medicare and Medicaid programs and other government health care programs, hospital cost-containment initiatives by public and private payers, proposals to limit payments and health care spending, and industry-wide competitive factors greatly impact the health care industry. The industry is also subject to extensive federal, state and local regulation relating to licensure, conduct of operations, ownership of facilities, physician relationships, addition of facilities and services, and charges and effective reimbursement rates for services. The laws, rules and regulations governing the health care industry are extremely complex, and the industry often has little or no regulatory or judicial interpretation for guidance. Although we have extensive policies and procedures in place to facilitate compliance in all material respects with such laws, rules and regulations, if a determination is made that we were in material violation of such laws, rules or regulations, our business, financial position, results of operations or cash flows could be materially adversely affected.

ANTI-KICKBACK AND SELF-REFERRAL REGULATIONS

        Medicare and Medicaid anti-kickback and anti-fraud and abuse amendments codified under Section 1128B(b) of the Social Security Act (the "Anti-kickback Amendments") prohibit certain business practices and relationships that might affect the provision and cost of health care services payable under the Medicare and Medicaid programs and other government programs, including the payment or receipt of remuneration for the referral of patients whose care will be paid for by such programs. Sanctions for violating the Anti-kickback Amendments include criminal penalties and civil sanctions, as well as fines and possible exclusion from government programs, such as Medicare and Medicaid. Many states have statutes similar to the federal Anti-kickback Amendments, except that the state statutes usually apply to referrals for services reimbursed by all third-party payers, not just federal programs. In addition, it is a violation of the federal Civil Monetary Penalties Law to offer or transfer anything of value to Medicare or Medicaid beneficiaries that is likely to influence their decision to obtain covered goods or services from one provider or service over another.

        In addition to addressing other matters, as discussed below, the Health Insurance Portability and Accountability Act of 1996 also amends Title XI (42 U.S.C. Section 1301 et seq.) to broaden the scope of current fraud and abuse laws to include all health plans, whether or not payments under such health plans are made pursuant to a federal program.

        Section 1877 of the Social Security Act (commonly referred to as the "Stark" law) generally restricts referrals by physicians of Medicare or Medicaid patients to entities with which the physician or an immediate family member has a financial relationship, unless one of several exceptions applies. The

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referral prohibition applies to a number of statutorily defined "designated health services," such as clinical laboratory, physical therapy and radiology services. The exceptions to the referral prohibition cover a broad range of common financial relationships. These statutory, and the subsequent regulatory, exceptions are available to protect certain permitted employment relationships, leases, group practice arrangements, medical directorships, and other common relationships between physicians and providers of designated health services, such as hospitals. A violation of the Stark law may result in a denial of payment, required refunds to patients and the Medicare program, civil monetary penalties of up to $15,000 for each violation, civil monetary penalties of up to $100,000 for "sham" arrangements, civil monetary penalties of up to $10,000 for each day that an entity fails to report required information, and exclusion from participation in the Medicare and Medicaid programs and other federal programs. Many states have adopted or are considering similar self-referral statutes, some of which extend beyond the Medicaid program to prohibit the payment or receipt of remuneration for the referral of patients and physician self-referrals regardless of the source of the payment for the care. Our participation in and development of joint ventures and other financial relationships with physicians could be adversely affected by these amendments and similar state enactments.

        On January 4, 2001, U.S. Department of Health and Human Services ("HHS") issued final regulations, subject to comment, intended to clarify parts of the Stark law and some of the exceptions to it. These regulations were considered the first phase of a two-phase process. The "phase II" regulations were issued on March 26, 2004, and became effective on July 26, 2004. These regulations clarified existing definitions and exceptions, and added new regulatory exceptions.

        The federal government has also issued regulations that describe some of the conduct and business relationships that are permissible under the Anti-kickback Amendments. These regulations are often referred to as the "Safe Harbor" regulations. The fact that certain conduct or a given business arrangement does not meet a Safe Harbor does not necessarily render the conduct or business arrangement illegal under the Anti-kickback Amendments. Rather, such conduct and business arrangements risk increased scrutiny by government enforcement authorities and should be reviewed on a case-by-case basis. We have a regulatory compliance department that systematically reviews all of our operations to determine the extent to which they comply with federal and state laws related to health care, such as the Anti-kickback Amendments, the Stark law and similar state statutes.

        Both federal and state government agencies continue heightened and coordinated civil and criminal enforcement efforts against the health care industry. As part of an announced work plan that is implemented through the use of national initiatives pertaining to health care providers (including us), HHS and the U.S. Department of Justice are scrutinizing, among other things, the terms of acquisitions of physician practices and the coding practices related to certain clinical laboratory procedures and inpatient procedures. We believe that we, and the health care industry in general, will continue to be subject to increased government scrutiny and investigations such as this, which could have a material adverse effect on our business, financial position, results of operations or cash flows.

        Another trend impacting health care providers, including us, is the increasing number of qui tam actions brought under the federal False Claims Act. Qui tam or "whistleblower" actions allow private individuals to bring actions on behalf of the government, alleging that a hospital or health care provider has defrauded a federal government program, such as Medicare or Medicaid. If the government intervenes in the action and prevails, the defendant may be required to pay three times the actual damages sustained by the government, plus mandatory civil penalties of between $5,500 and $11,000 for each false claim submitted to the government. As part of the resolution of a qui tam case, the party filing the initial complaint may share in a portion of any settlement or judgment. If the government does not intervene in the action, the qui tam plaintiff may continue to pursue the action independently. Although companies in the health care industry in general, and us in particular, have been and may continue to be subject to qui tam actions, we are unable to predict the impact of such actions on our business, financial position, results of operations or cash flows.

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        We are unable to predict the future course of federal, state and local regulation or legislation, including Medicare and Medicaid statutes and regulations (discussed beginning on page 44). Further changes in the regulatory framework affecting health care providers could have a material adverse effect on our business, financial position, results of operations or cash flows.

HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT

        The Health Insurance Portability and Accountability Act, or HIPAA, mandates the adoption of industry standards for the exchange of health information in an effort to encourage overall administrative simplification and enhance the effectiveness and efficiency of the health care industry. HIPAA requires that health providers and other "covered entities," such as insurance companies and other third-party payers, adopt uniform standards for the electronic transmission of medical records, billing statements and insurance claims forms. HIPAA also establishes new federal rules protecting the privacy and security of personal health information. The privacy and security regulations address the use and disclosure of individual health care information and the rights of patients to understand and control how such information is used and disclosed. The law provides both criminal and civil fines and penalties for covered entities that fail to comply with HIPAA.

        HHS regulations include deadlines for compliance with the various provisions of HIPAA. In 2001, in response to concerns by many health care providers about their ability to comply with impending HIPAA deadlines, Congress extended until October 2003 the original deadline for compliance with the electronic data transmission (transaction and code set) standards that health care providers must use when transmitting certain health care information electronically. In October 2003, under authority given by HHS, CMS implemented a plan that allows providers and other electronic billers to continue to submit pre-HIPAA format electronic claims for periods after October 16, 2003, provided they can show good faith efforts to become HIPAA compliant. We continue to work toward full and complete compliance with the electronic data transmission standards.

        All covered entities, including those we operate, were required to comply with the privacy requirements of HIPAA by April 14, 2003. We were in material compliance with the privacy regulations by that date and remain so, as we continue to develop training and revise procedures to address ongoing compliance. The HIPAA security regulations require health care providers to implement administrative, physical and technical safeguards to protect the confidentiality, integrity and availability of patient information. We are required to comply with the security regulations by April 20, 2005, and are on target to complete our implementation plan by that date.

        We have developed a comprehensive set of policies and procedures in our efforts to comply with HIPAA, under the guidance of our compliance department. Hospital compliance officers and information security officers are responsible for implementing and monitoring compliance with our HIPAA privacy and security policies and procedures at our hospitals. We have also created an internal on-line HIPAA training program, which is mandatory for all employees. Based on the existing and proposed regulations, we believe that the cost of our compliance with HIPAA will not have a material adverse effect on our business, financial position, results of operations or cash flows.

HEALTH CARE FACILITY LICENSING REQUIREMENTS

        In order to maintain their operating licenses, health care facilities must comply with strict governmental standards concerning medical care, equipment and hygiene. Various licenses and permits also are required in order to dispense narcotics, operate pharmacies, handle radioactive materials and operate certain equipment. Our health care facilities hold all required governmental approvals, licenses and permits material to the operation of our business.

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UTILIZATION REVIEW COMPLIANCE AND HOSPITAL GOVERNANCE

        In addition to certain statutory coverage limits and exclusions, federal laws and regulations, specifically the Medicare Conditions of Participation, generally require health care providers, including hospitals that furnish or order health care services that may be paid for under the Medicare program or state health care programs, to assure that claims for reimbursement are for services or items that are (1) provided economically and only when, and to the extent, they are medically reasonable and necessary, (2) of a quality that meets professionally recognized standards of health care, and (3) supported by appropriate evidence of medical necessity and quality. CMS administers the Quality Improvement Organization ("QIO") program through a network of QIOs that work with consumers, physicians, hospitals and other caregivers to refine care delivery systems to assure patients receive the appropriate care at the appropriate time, particularly among underserved populations. The QIO program also safeguards the integrity of the Medicare trust fund by reviewing Medicare patient admissions, treatments and discharges, and ensuring payment is made only for medically necessary services, and investigates beneficiary complaints about quality of care. The QIOs have the authority to deny payment for services provided and recommend to HHS that a provider that is in substantial noncompliance with certain standards be excluded from participating in the Medicare program.

        Medical and surgical services and practices are extensively supervised by committees of staff doctors at each health care facility, are overseen by each health care facility's local governing board, the members of which primarily are community members and physicians, and are reviewed by our quality assurance personnel. The local hospital governing board also helps maintain standards for quality care, develop long-range plans, establish, review and enforce practices and procedures, and approve the credentials and disciplining of medical staff members.

CERTIFICATE OF NEED REQUIREMENTS

        Some states require state approval for construction, expansion and closure of health care facilities, including findings of need for additional or expanded health care facilities or services. Certificates of need, which are issued by governmental agencies with jurisdiction over health care facilities, are at times required for capital expenditures exceeding a prescribed amount, changes in bed capacity or services, and certain other matters. Following a number of years of decline, the number of states requiring certificates of need is once again on the rise as state legislatures are looking at the certificate of need process as a way to contain rising health care costs. As of December 31, 2004, we operated hospitals in eight states that require a form of state approval under certificate of need programs applicable to those hospitals. We are unable to predict whether we will be required or able to obtain any additional certificates of need in any jurisdiction where such certificates of need are required, or if any jurisdiction will eliminate or alter its certificate of need requirements in a manner that will increase competition and, thereby, affect our competitive position.

ENVIRONMENTAL REGULATIONS

        Our health care operations generate medical waste that must be disposed of in compliance with federal, state and local environmental laws, rules and regulations. Our operations, as well as our purchases and sales of facilities, also are subject to compliance with various other environmental laws, rules and regulations. We believe it is unlikely that the cost of such compliance will have a material effect on our future capital expenditures, results of operations or competitive position.

COMPLIANCE PROGRAM

        We maintain a multifaceted corporate and hospital-based compliance program that strives to meet or exceed applicable standards established by federal guidance and industry practice. On January 14, 2004, our board of directors approved a new compliance program charter intended to further our goal

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of fostering and maintaining the highest ethical standards, and valuing our compliance with all state and federal laws and regulations as a foundation of our corporate philosophy. The primary focus of the program is compliance with the requirements of the Medicare and Medicaid programs and all other government health care programs.

        We have restructured our compliance department as a separate and independent body. To further ensure the independence of the compliance department, the following measures have been implemented: (1) the compliance department has its own operating budget, (2) the compliance department has the authority to hire outside counsel, to access any Tenet document and to interview any of our personnel, and (3) according to the new structure, the chief compliance officer reports directly to the quality, compliance and ethics committee of our board of directors.

        Pursuant to the terms of the compliance program charter, the compliance department is responsible for the following activities: (1) drafting company policies and procedures related to compliance issues, (2) developing and providing compliance-related education and training to all of our employees and, as appropriate, directors, contractors, agents and staff physicians, (3) monitoring, responding to, and resolving all compliance-related issues, (4) ensuring that we take appropriate corrective and disciplinary action when noncompliant or improper conduct is identified, and (5) measuring compliance with our policies and legal and regulatory requirements related to health care operations.

        In order to ensure the compliance department is well-positioned to perform its duties as outlined in its charter, we have significantly expanded our compliance staff. As part of this expansion, we hired regional compliance directors and have named a compliance officer for each hospital. All hospital-based compliance officers report to regional compliance directors who report directly to our chief compliance officer.

        We are working toward creating a fully integrated compliance communications and data infrastructure. This tool will support the compliance staff in ensuring accountability at all levels within Tenet with measurable criteria for the effectiveness of the compliance program. Furthermore, it will help ensure that we are able to effectively address and resolve all compliance-related issues.

        On March 23, 2004, Tenet entered into a five-year Corporate Integrity Agreement ("CIA") with the Office of the Inspector General of HHS related to North Ridge Medical Center ("NRMC"), one of our Florida hospitals; however, certain provisions of the CIA impose obligations on Tenet and our subsidiaries. The CIA is structured to assure the federal government of our federal health care program compliance and specifically covers physician relations. Under the CIA, we have an affirmative obligation to report probable violations of applicable federal health care laws and regulations. This obligation could result in greater scrutiny by regulatory authorities. Breach of the CIA could subject us to substantial monetary penalties and/or affect NRMC's participation in the Medicare and Medicaid programs. We have agreed, during the five-year term of the CIA, to operate our compliance program as it pertains to NRMC in a manner that meets the requirements of the CIA.

ETHICS PROGRAM

        We maintain a values-based ethics program that is designed to monitor and raise awareness of ethical issues among employees and to stress the importance of understanding and complying with our Standards of Conduct.

        All of our employees, including our chief executive officer, chief financial officer, chief accounting officer and controller, are required to abide by our Standards of Conduct to ensure that our business is conducted in a consistently legal and ethical manner. The members of our board of directors are also required to abide by our Standards of Conduct. The standards reflect our basic values and form the foundation of a comprehensive process that includes compliance with all corporate policies, procedures

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and practices. Our standards cover such areas as quality patient care, compliance with all applicable laws and regulations, appropriate use of our assets, protection of patient information and avoidance of conflicts of interest.

        As part of the program, we provide annual ethics training sessions to every employee, as well as our board of directors. All employees are required to report incidents that they believe in good faith may be in violation of the Standards of Conduct, and are encouraged to contact our 24-hour toll-free Ethics Action Line when they have questions about the standards or any ethics concerns. Incidents of alleged financial improprieties reported to the Ethics Action Line or the ethics and business conduct department are communicated to the audit committee of our board of directors. All reports to the Ethics Action Line are kept confidential to the extent allowed by law, and employees have the option to remain anonymous. In cases reported to the Ethics Action Line that involve a possible violation of the law or regulatory policies and procedures, the matter is referred to the compliance department for investigation. Retaliation against employees in connection with reporting ethical concerns is considered a serious violation of our Standards of Conduct, and, if it occurs, it will result in discipline, up to and including termination of employment.

        The full text of our Standards of Conduct is published on our website, at www.tenethealth.com, under the "Ethics & Business Conduct" caption in the "Our Company" section. A copy of our Standards of Conduct is also available upon written request of our corporate secretary.

PROFESSIONAL AND GENERAL LIABILITY INSURANCE

        Through May 31, 2002, we insured substantially all of our professional and general liability risks in excess of self-insured retentions through Hospital Underwriting Group ("HUG"), our majority-owned insurance subsidiary, under a mature claims-made policy with a 10-year extended reporting period. (HUG became a wholly owned subsidiary effective May 31, 2003.) Our hospitals' self-insured retentions were $1 million per occurrence for fiscal years ended May 31, 1996 through May 31, 2002. HUG's retentions covered the next $2 million per occurrence. Claims in excess of $3 million per occurrence were, in turn, reinsured with major independent insurance companies. In earlier policy periods, the self-insured retentions varied by hospital and by policy period from $500,000 to $5 million per occurrence.

        For the periods June 1, 2000 through May 31, 2001, and June 1, 2001 through May 31, 2002, the policies written by HUG provided a maximum of $50 million of coverage for each policy period. As of December 31, 2004, HUG's retained reserves for losses for the policy period ended May 31, 2001 were substantially close to reaching $50 million and for the policy period ended May 31, 2002, the retained reserves for losses reached the $50 million limit. However, the $50 million coverage limit each year is based on paid claims, and the payments for each year have not reached the limit; therefore, the policies remain in effect. If the $50 million maximum amount is exhausted in either of these periods, we will be responsible for the first $25 million per occurrence for any subsequent claim paid that was applicable to the exhausted policy period before any excess professional and general liability insurance coverage would apply. Based on an actuarial review, we have provided for losses that exceed our self-insured retentions that will not be covered by the HUG policies.

        Effective June 1, 2002, our hospitals' self-insured retention per occurrence was increased to $2 million. In addition, a new wholly owned insurance subsidiary, The Healthcare Insurance Corporation, was formed to insure substantially all of these risks. This subsidiary insures these risks under a claims-made policy with retentions per occurrence for the periods June 1, 2002 through May 31, 2003, and June 1, 2003 through May 31, 2004, of $3 million and $13 million, respectively. Risks in excess of these retentions are reinsured with major independent insurance companies. For the policy period June 1, 2004 through May 31, 2005, The Healthcare Insurance Corporation retains 17.5%

14

of the first $10 million layer for reinsurance claims in excess of $15 million resulting in a maximum retention per occurrence of $14.75 million.

        As of December 31, 2004, we had purchased claims-made excess professional and general liability insurance policies from major independent insurance companies with a total aggregate limit of $275 million, which policies provide coverage if a claim exceeds $25 million. All reinsurance applicable to HUG or The Healthcare Insurance Corporation and any excess professional and general liability insurance we purchase are subject to policy aggregate limitations. If such policy aggregate limitations should be partially or fully exhausted in the future, our financial position, results of operations or cash flows could be materially adversely affected.

        In addition to the reserves recorded by the above insurance subsidiaries, we maintain self-insured retention reserves based on actuarial estimates for the portion of our professional and general liability risks, including incurred but not reported claims, for which we do not have insurance coverage (i.e., self-insured retentions). Reserves for losses and related expenses are estimated using expected loss-reporting patterns and are discounted to their present value under a risk-free rate approach using a Federal Reserve seven-year maturity composite rate of 3.8% at December 31, 2004 and a Federal Reserve 10-year maturity composite rate of 4.0% at December 31, 2003 based on our estimated claims payout period. If actual payments of claims materially exceed projected estimates of claims, our financial position, results of operations or cash flows could be materially adversely affected. Also, we provide letters of credit to our insurers as security under a selected number of programs to collateralize the deductible and self-insured retentions under our professional and general liability insurance programs, which can be drawn upon under certain circumstances.

EXECUTIVE OFFICERS

        The names, positions and ages of our executive officers, as of March 8, 2005, are:

        Mr. Fetter was elected president effective November 7, 2002 and was named chief executive officer in September 2003. He also was elected to the board of directors of Tenet in September 2003. From March 2000 to November 2002, Mr. Fetter was chairman and chief executive officer of Broadlane, Inc. He continues to serve as chairman of Broadlane. From October 1995 to February 2000, he served in several senior management positions at Tenet, including executive vice president and chief financial officer, and chief corporate officer in the office of the president. Mr. Fetter holds an M.B.A. from the Harvard Business School and a bachelor's degree in economics from Stanford University. Mr. Fetter also serves as a director of the Tenet Healthcare Foundation.

        Mr. Jennings was named chief operating officer on February 9, 2004. Prior to that, he served as president of our former eastern division, and, from 1997 to March 2003, he served as executive vice president of our former southeast division. Mr. Jennings rejoined Tenet in 1997 from Ramsay Health Care Inc., where he was president and chief executive officer from 1993 to 1996. Before that, he served as senior vice president, operations, responsible for National Medical Enterprises, Inc.'s acute care hospitals in Texas, Missouri and West Florida from 1991 to 1993. His career experience includes executive directorships at a number of acute care hospitals. Mr. Jennings has an M.B.A. from the University of South Carolina and a bachelor's degree in pharmacy from the University of Georgia.

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Mr. Jennings is also a fellow of the American College of Healthcare Executives and a board member of the Federation of American Hospitals.

        Mr. Farber was elected chief financial officer on November 7, 2002. Prior to his current position, Mr. Farber served as Tenet's senior vice president, corporate finance, and treasurer. Mr. Farber rejoined Tenet in May 1999 from J.P. Morgan & Co. in New York, where he served as vice president, health care investment banking. He previously served Tenet as vice president, corporate finance, from February 1997 to October 1998. From 1993 to 1997, Mr. Farber worked as an investment banker in the Los Angeles office of Donaldson, Lufkin & Jenrette. Mr. Farber has a bachelor of science degree in economics from the University of Pennsylvania's Wharton School of Business and completed the Advanced Management Program at Harvard Business School. Mr. Farber also serves as a director of the Tenet Healthcare Foundation. On March 10, 2005, Robert S. Shapard will succeed Mr. Farber as our chief financial officer.

        Mr. Urbanowicz joined Tenet as general counsel and was appointed secretary on December 22, 2003. From October 2001 to December 2003, he served as Deputy General Counsel of the U.S. Department of Health and Human Services. Before joining HHS, from June 2000 to October 2001, Mr. Urbanowicz was a partner in the law firm of Locke Liddell & Sapp, specializing in health care law. From January 1998 to June 2000, he was a partner in the New Orleans law firm of Liskow & Lewis and was head of that firm's health care law practice. Before joining Liskow & Lewis, Mr. Urbanowicz was a partner in the New Orleans law firm of Monroe & Lemann, where he was head of the firm's health care law practice. Mr. Urbanowicz holds a J.D. from Tulane University's School of Law and a bachelor of arts degree in English and political science from Tulane University. He is a member of the American Law Institute and a board member of the Federation of American Hospitals.

        Mr. Smith was promoted to president of our former western division on March 10, 2003; in February 2004, we announced that Mr. Smith would be responsible for managing the transition of the 27 hospitals slated for divestiture as part of the restructuring program that we announced in January 2004. Prior to March 2003, Mr. Smith was executive vice president of our former central-northeast division. Before joining Tenet in 1995, he served as executive vice president, operations, for American Medical International, where he held various positions over 16 years. Mr. Smith has a master's degree in health care administration from Duke University and a bachelor's degree in business administration from Furman University. He has served in leadership and board positions for a variety of health care and community organizations, including the Federation of American Hospitals, Esoterix, Inc. and Epic Healthcare Corporation.

        Mr. Pullen was appointed executive vice president and chief accounting officer in August 2003. Prior to his current position, he served as vice president and controller of Tenet from 1995 to 1999, when he was promoted to senior vice president and controller. He joined The Hillhaven Corporation, a subsidiary of National Medical Enterprises, in 1983 and served in various executive positions, including vice president, finance. Mr. Pullen has a bachelor of science degree in accounting from the Rochester Institute of Technology and an M.B.A. from Seattle University. He also completed the Advanced Management Program at Harvard Business School.

        Effective March 10, 2005, Robert S. Shapard, 49, will succeed Stephen Farber as our chief financial officer. Mr. Shapard joined Tenet on March 1, 2005 from Exelon Corporation, one of the nation's largest electric utilities, where he had served as executive vice president and chief financial officer since the fall of 2002. Before joining Exelon, Mr. Shapard served as vice president and chief financial officer of Covanta Energy Corporation, which held energy investments domestically and internationally. From 2000 to 2001, he was executive vice president and chief financial officer of Ultramar Diamond Shamrock, a leading North American refining and marketing company. Earlier in his career, Mr. Shapard spent 20 years with TXU Corporation, a Dallas-based gas and electric utility, serving in a range of finance and general management positions. His final role at TXU was as chief executive

16

officer of TXU Australia. Mr. Shapard holds a bachelor's degree in accounting from Texas Tech University and is a Certified Public Accountant.

FORWARD-LOOKING STATEMENTS

        The information in this Form 10-K includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical or present facts, that address activities, events, outcomes, business strategies and other matters that we plan, expect, intend, assume, believe, budget, predict, forecast, project, estimate or anticipate (and other similar expressions) will, should or may occur in the future are forward-looking statements. These forward-looking statements represent management's current belief, based on currently available information, as to the outcome and timing of future events. They involve known and unknown risks, uncertainties and other factors—many of which we are unable to predict or control—that may cause our actual results, performance or achievements, or health care industry results, to be materially different from those expressed or implied by forward-looking statements. Such factors include, but are not limited to, the following:

•

Changes in the Medicare and Medicaid programs or other government health care programs, including modifications to patient eligibility requirements, funding levels or the method of calculating payments or reimbursements.



•

Any removal or exclusion of us, or one or more of our subsidiaries' hospitals, from participation in the Medicare or Medicaid program or another government health care program.



•

The ability to enter into managed care provider arrangements on acceptable terms.



•

The outcome of known and unknown litigation, government investigations, and liabilities and other claims asserted against us.



•

Competition.



•

Changes in, or our ability to comply with, laws and governmental regulations.



•

Changes in business strategies or development plans.



•

Our ability to satisfactorily and timely collect our patient accounts receivable, particularly in light of increasing numbers of underinsured and uninsured patients.



•

Settlement of professional liability claims and the availability of professional liability insurance coverage at current levels and terms.



•

Technological and pharmaceutical improvements that increase the cost of providing, or reduce the demand for, health care.



•

National, regional and local economic and business conditions.



•

Demographic changes.



•

The ability to attract and retain qualified management and other personnel, including physicians, nurses and other health care professionals, and the impact on our labor expenses resulting from a shortage of nurses and other health care professionals.



•

The amount and terms of our indebtedness.



•

The timing and payment, if any, of any final determination of potential liability as a result of an Internal Revenue Service examination.



•

The availability of suitable acquisition and divestiture opportunities, and our ability to accomplish proposed acquisitions and divestitures.

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•

The availability and terms of debt and equity financing sources to fund the needs of our business.



•

Changes in the distribution process or other factors that may increase our costs of supplies.



•

Other factors referenced in this Form 10-K and our other public filings.

        When considering forward-looking statements, you should keep in mind the foregoing risk factors and other cautionary statements in this Form 10-K. Should one or more of the risks and uncertainties described above or elsewhere in this Form 10-K occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements. We specifically disclaim all responsibility to publicly update any information contained in a forward-looking statement or any forward-looking statement in its entirety and, therefore, disclaim any resulting liability for potentially related damages.

        All forward-looking statements attributable to us are expressly qualified in their entirety by this cautionary statement.

COMPANY INFORMATION

        We file annual, transition, quarterly and current reports, proxy statements and other documents with the Securities and Exchange Commission under the Securities Exchange Act of 1934. Our reports, proxy statements and other documents filed electronically with the SEC are available at the website maintained by the SEC at www.sec.gov.

        Our website, www.tenethealth.com, also offers, free of charge, extensive information about our operations and financial performance, including a comprehensive series of investor pages. These pages include real-time access to our annual, transition, quarterly and current reports (and amendments to such reports) and other filings made with, or furnished to, the SEC.

ITEM 2. PROPERTIES

        Note: The disclosure required under this Item is included in Item 1.

ITEM 3. LEGAL PROCEEDINGS

        Tenet and our subsidiaries are subject to a significant number of claims and lawsuits. We are also the subject of federal and state agencies' heightened and coordinated civil and criminal investigations and enforcement efforts, and have received subpoenas and other requests for information relating to a variety of subjects. In the present environment, we expect that these enforcement activities will take on additional importance, that government enforcement activities may intensify, and that additional matters concerning us and our subsidiaries may arise. We also expect new claims and lawsuits to be brought against us from time to time.

        The results of these claims and lawsuits cannot be predicted, and it is possible that the ultimate resolution of these claims and lawsuits, individually or in the aggregate, may have a material adverse effect on our business (both in the near and long term), financial position, results of operations or cash flows. Although we defend ourselves vigorously against claims and lawsuits and cooperate with investigations, these matters:

•

Could require us to pay substantial damages or amounts in judgments or settlements, which individually or in the aggregate could exceed amounts, if any, that may be recovered under our insurance policies where coverage applies and is available.



•

Cause us to incur substantial expenses.



•

Require significant time and attention from our management.

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•

Could cause us to close or sell hospitals or otherwise modify the way we conduct business.

        We recognize that, where appropriate, our interests may be best served by resolving certain matters without litigation. To that end, we have been and continue to be engaged in general discussions with federal law enforcement agencies regarding the possibility of reaching a non-litigated resolution of certain outstanding issues with the federal government. We are not able to predict whether such a resolution will in fact occur on any terms, project a timeline for resolution or quantify the economic impact of any non-litigated resolution; therefore, we have not recorded reserves for such a resolution. However, if we do reach a non-litigated resolution, it is possible that the resolution could be significant and may require us to incur additional debt or other financing. If a non-litigated resolution does not occur, we will continue to defend ourselves vigorously against claims and lawsuits. As stated above, any resolution of significant claims against us, whether as a result of litigation or negotiation, could have a material adverse impact on our business, liquidity, financial position or results of operations.

        We record reserves for claims and lawsuits when they are probable and reasonably estimable. However, we presently cannot determine the ultimate resolution of all investigations and lawsuits. For matters where the likelihood or extent of a loss is not probable or cannot be reasonably estimated, we have not recognized in our consolidated financial statements all potential liabilities that may result. If adversely determined, the outcome of some of these matters could have a material adverse effect on our business, liquidity, financial position or results of operations.

        Currently pending legal proceedings and investigations that are not in the ordinary course of business are principally related to the subject matters set forth below. Where specific amounts are sought in any pending legal proceeding, those amounts are disclosed. For all other matters, where the possible loss or range of loss is reasonably estimable, an estimate is provided. Where no estimate is provided, the possible amount of loss is not reasonably estimable at this time. We undertake no obligation to update the following disclosures for any new developments.

Physician Relationships

        We and certain of our subsidiaries are under heightened scrutiny with respect to our hospitals' relationships with physicians. We believe that all aspects of our relationships with physicians are potentially under review. Proceedings in this area may be criminal, civil or both.

United States v. Weinbaum, Tenet HealthSystem Hospitals, Inc. and Alvarado Hospital Medical Center, Inc., Case No. 03CR1587L (U.S. District Court for the Southern District of California)

        On June 5, 2003, a federal grand jury in San Diego, California returned an eight-count indictment against Barry Weinbaum, who was at that time the chief executive officer of Alvarado Hospital Medical Center, Inc., a hospital owned by one of our subsidiaries and located in San Diego. The indictment alleged conspiracy to violate the federal anti-kickback statute and included substantive counts alleging the payment of illegal remuneration related to physician relocation, recruitment and consulting agreements.

        On July 17, 2003, the grand jury returned a superseding indictment adding Tenet HealthSystem Hospitals, Inc. and Alvarado Hospital Medical Center as defendants. (Tenet HealthSystem Hospitals, Inc. is the legal entity that was doing business as Alvarado Hospital Medical Center during some of the period of time covered by the indictment.) The superseding indictment charged one count of conspiracy to violate the anti-kickback statute and 16 substantive counts of payment of illegal remunerations.

        On September 25, 2003, the grand jury returned a second superseding indictment that added the hospital's director of business development, Mina Nazaryan, as a defendant. The second superseding indictment charged the defendants with conspiracy to violate the anti-kickback statute and 19

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substantive counts of paying illegal remunerations. Additionally, Ms. Nazaryan was charged with one count of obstruction of a health care offense investigation and two counts of witness tampering.

        On April 15, 2004, the grand jury returned a third superseding indictment, adding four counts of filing a false tax return solely against Ms. Nazaryan.

        On July 22, 2004, the grand jury returned a fourth superseding indictment against Barry Weinbaum, Mina Nazaryan, Alvarado Hospital Medical Center and Tenet HealthSystem Hospitals. The fourth superseding indictment added details and allegations to the previously identified counts.

        Prior to trial, all of the defendants pleaded not guilty. Trial proceedings commenced on October 20, 2004 in U.S. District Court in San Diego. In January 2005, Ms. Nazaryan entered into a plea agreement with the U.S. Attorney for the Southern District of California to plead guilty to one count of conspiracy. Several other counts against Ms. Nazaryan were dismissed as part of her plea agreement. At the conclusion of the prosecution's case-in-chief, the defendants filed a Rule 29 Motion for Judgment of Acquittal. The defendants then rested. On February 17, 2005, the trial judge declared a mistrial after the members of the jury indicated that they were unable to reach a verdict in the case. At a subsequent hearing, the judge set March 29, 2005 as the date a second trial in the matter would commence (although he later indicated he would instead set May 3, 2005 as the commencement date). At the hearing, the judge did not issue a ruling on our previously filed Rule 29 Motion, but pointed out that he would deny the portion of the motion regarding the single count of conspiracy against all the defendants and reserved his ruling on the other counts in the indictment related to substantive violations of the federal anti-kickback statute. If convicted following a second trial, the two defendant subsidiaries could be subject to monetary penalties and exclusion from participation in the Medicare program and other federal and state health care programs.

Southern California Investigations

        On July 3, 2003, we and several of our subsidiaries received administrative subpoenas from the U.S. Attorney's Office for the Central District of California seeking documents from 1997 to 2003 related to physician relocation agreements at seven Southern California hospitals owned by our subsidiaries during that period, as well as summary information about physician relocation agreements related to all of our hospital subsidiaries. Specifically, the subpoenas, issued in connection with a criminal investigation, seek information from us, three intermediary corporate subsidiaries and subsidiaries that own or owned the following Southern California hospitals: Centinela Hospital Medical Center in Inglewood, Daniel Freeman Memorial Hospital in Inglewood, Daniel Freeman Marina Hospital in Marina del Rey, John F. Kennedy Memorial Hospital in Indio, Brotman Medical Center in Culver City, Encino-Tarzana Regional Medical Center in Encino and Tarzana, and Century City Hospital in Los Angeles. We sold Centinela Hospital Medical Center, Daniel Freeman Memorial Hospital and Daniel Freeman Marina Hospital in November 2004, and we ceased operating Century City Hospital in April 2004. We are cooperating with the government with respect to this investigation.

        Physician arrangements at three of these hospitals—Century City Hospital, Brotman Medical Center and Encino-Tarzana Regional Medical Center—are also the subject of an ongoing federal civil investigation.

        In addition, we are cooperating with the U.S. Attorney's Office in Los Angeles regarding its investigation into physician agreements, coronary procedures and billing practices at three hospitals in Southern California—Centinela Hospital Medical Center, Daniel Freeman Memorial Hospital and USC University Hospital. We have received a number of voluntary document requests from the government seeking information from 1998 to June 2004 concerning various aspects of this investigation.

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Women's Cancer Center

        In April 2003, we received an administrative subpoena duces tecum from the Office of the Inspector General ("OIG") of the U.S. Department of Health and Human Services seeking documents relating to any agreements with the Women's Cancer Center, a physician's group not owned by us practicing in the field of gynecologic oncology, and certain physicians affiliated with that group. The subpoena seeks documents from us as well as four California hospitals—Community Hospital of Los Gatos, Doctors Medical Center of Modesto, San Ramon Regional Medical Center and St. Luke Medical Center in Pasadena (which is now closed)—and Lake Mead Hospital Medical Center in North Las Vegas, Nevada (which we sold in February 2004). We are cooperating with the government with respect to this investigation.

Florida Medicaid Investigation

        In June 2003, the Florida Medicaid Fraud Control Unit ("FMFCU") issued an investigative subpoena to us seeking employee personnel records and contracts with physicians, physician assistants, therapists and management companies, including loan agreements and purchase and sale agreements, from January 1, 1992 to June 27, 2003 related to the Florida hospitals owned by our subsidiaries. Since that time, we have received additional requests for information related to the foregoing topics, as well as coding at our Florida hospitals, and we are cooperating with the FMFCU's investigation.

El Paso Investigation

        On January 23, 2004, we learned that the OIG had issued subpoenas to various physicians who have financial arrangements with our hospitals in El Paso, Texas. The subpoenas request documents relating to financial arrangements between these physicians and us or our subsidiaries. On March 3, 2004, as anticipated, we received from the Civil Division of the U.S. Department of Justice a request for documents in connection with this inquiry. We are cooperating with the government with respect to this matter.

New Orleans Investigation

        On July 30, 2004, we received a subpoena from the U.S. Attorney's Office in New Orleans, Louisiana requesting documents relating to physician relationships and financial arrangements at three New Orleans area hospitals—Memorial Medical Center, Kenner Regional Medical Center and St. Charles General Hospital (which we sold in December 2004). We are cooperating with the government with respect to this matter.

St. Louis Investigation

        On August 3, 2004, we received a voluntary request from the U.S. Attorney's Office in St. Louis, Missouri seeking documents relating to physician relocation agreements entered into from 1994 to August 2004 at four hospitals we own or owned during that period in the St. Louis area—Saint Louis University Hospital, Des Peres Hospital, Forest Park Hospital (which we sold in December 2004), and Saint Alexius Hospital, Jefferson Campus (formerly SouthPointe Hospital) (which we also sold in December 2004)—as well as Twin Rivers Regional Medical Center in Kennett, Missouri, which we sold in November 2003. We are cooperating with the government with respect to this matter.

San Ramon Regional Medical Center

        On August 31, 2004, we received a subpoena from the U.S. Attorney's Office in San Francisco, California requesting documents relating to medical directorships entered into from January 1, 2000 to August 31, 2004 at San Ramon Regional Medical Center in San Ramon, California, as well as a small

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number of physician relocation agreements at that hospital. We are cooperating with the government with respect to this matter.

Pricing

        We and certain of our subsidiaries are currently subject to government investigations and civil lawsuits arising out of pricing strategies at facilities owned or formerly owned by our subsidiaries.

Outlier Investigation

        On January 2, 2003, the U.S. Attorney's Office for the Central District of California issued an administrative investigative demand subpoena seeking production of documents related to Medicare outlier payments by us and 19 hospitals owned by our subsidiaries.

        On January 14, 2003, we received an additional subpoena requesting information concerning outlier payments and our corporate integrity agreement that expired in 1999.

        On October 15, 2003, we received another subpoena from the U.S. Attorney's Office seeking medical and billing records from January 1998 to October 15, 2003 for certain identified patients who were treated at two Los Angeles-area facilities owned by our subsidiaries—Encino-Tarzana Regional Medical Center in Tarzana and USC University Hospital. Additionally, the subpoena seeks personnel information concerning certain managers at those facilities during that period, as well as information about the two hospitals' gross charges for the same time period.

        The investigation is focused on whether our receipt of outlier payments violated federal law and whether we omitted material facts concerning our outlier revenue from our public filings. We are cooperating with the government with respect to this investigation.

Pricing Litigation

        We have been sued in class actions in a number of states regarding the pricing of pharmaceuticals and other products and services at hospitals owned and operated by our subsidiaries. The cases have been brought primarily on behalf of uninsured patients, who were billed at the hospitals' undiscounted gross charge rates. While the specific allegations and relief sought vary from case to case, the plaintiffs generally allege violations of state consumer protection statutes, breach of contract and other state law claims, and seek to enjoin us from continuing the alleged unfair pricing practices and to recover all sums obtained by those practices, including compensatory and punitive damages, restitution, and attorneys' fees and costs. At December 31, 2004, we had accrued $30 million as a minimum liability to address the potential resolution of these cases.

        In California, the following actions have been coordinated into one proceeding entitled Tenet Healthcare Cases II, J.C.C.P. No. 4289, now pending in the Los Angeles County Superior Court:

(1)

Bishop v. Tenet Healthcare Corp., Case No. 2002-074408 (Superior Court of California, County of Alameda, filed December 2, 2002);



(2)

Castro v. Tenet Healthcare Corp., Case No. C03-00460 (Superior Court of California, County of Contra Costa, filed February 24, 2003);



(3)

Colon v. Tenet Healthcare Corp., Case No. BC 290360 (Superior Court of California, County of Los Angeles, filed February 13, 2003);



(4)

Congress of California Seniors v. Tenet Healthcare Corp., Case No. BC 287130 (Superior Court of California, County of Los Angeles, filed December 17, 2002);



(5)

Delgadillo v. Tenet Healthcare Corp., Case No. BC 290056 (Superior Court of California, County of Los Angeles, filed February 7, 2003);

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(6)

Geller v. Tenet Healthcare Corp., Case No. BC 292641 (Superior Court of California, County of Los Angeles, filed March 21, 2003);



(7)

Jervis v. Tenet Healthcare Corp., Case No. BC 289522 (Superior Court of California, County of Los Angeles, filed January 30, 2003);



(8)

Moran v. Tenet Healthcare Corp., Case No. CV 030070 (Superior Court of California, County of San Luis Obispo, filed February 5, 2003);



(9)

Plocher v. Tenet Healthcare Corp., Case No. BC 293236 (Superior Court of California, County of Los Angeles, filed April 2, 2003);



(10)

Vargas v. Tenet Healthcare Corp., Case No. BC 291303 (Superior Court of California, County of Los Angeles, filed March 3, 2003);



(11)

Walker v. Tenet Healthcare Corp., Case No. BC 03082281 (Superior Court of California, County of Alameda, filed February 7, 2003);



(12)

Watson v. Tenet Healthcare Corp., Case No. 147593 (Superior Court of California, County of Shasta, filed December 20, 2002); and



(13)

Yslas v. Tenet Healthcare Corp., Case No. BC 289356 (Superior Court of California, County of Los Angeles, filed January 28, 2003).

        On December 24, 2003, after the court overruled most of our demurrers to plaintiffs' First Amended and Consolidated Complaint, plaintiffs in the coordinated California action filed a Second Amended and Consolidated Class Action and Representative Complaint against us and all of our California hospitals on behalf of plaintiffs and a purported class consisting of certain uninsured, self-insured and Medicare patients who allegedly paid excessive or unfair prices for prescription drugs or medical products or procedures at hospitals or other medical facilities owned by us or our subsidiaries. The complaint asserts claims for violation of California's unfair competition law, violation of California's Consumers' Legal Remedies Act, breach of contract, breach of the implied covenant of good faith and fair dealing, and unjust enrichment. Plaintiffs seek to enjoin us from continuing the alleged unfair pricing policies and practices, and to recover all sums wrongfully obtained by those policies and practices, including compensatory damages, punitive damages, restitution, disgorgement of profits, treble damages, and attorneys' fees and costs. On January 20, 2004, we answered the Second Amended and Consolidated Complaint and filed counterclaims against the majority of the named plaintiffs for failure to pay the outstanding balances on their respective patient bills. The case is in the class discovery phase, and no due date has been set for plaintiffs' motion for class certification. A status conference is scheduled for March 11, 2005.

        In addition to the California coordinated cases, similar class actions have been filed in Tennessee, Louisiana, Florida, South Carolina, Pennsylvania, Texas, Missouri and Alabama.

•

Wade v. Tenet Healthcare Corporation, et al., No. Ct-000250-03, was filed in Circuit Court in Memphis, Tennessee on January 15, 2003. The complaint asserts claims for violation of the Tennessee Consumer Protection Act, unjust enrichment, fraudulent concealment, declaratory relief and breach of contract. These claims are based on allegations that we excessively inflated our charges for medical products, medical services and prescription drugs at our hospitals. Plaintiffs seek compensatory and punitive damages, attorneys' fees, and equitable and other relief. On April 28, 2003, we filed a motion to dismiss the complaint. On November 13, 2003, the court accepted our challenges to the sufficiency of the complaint and granted plaintiffs leave to amend to allege certain matters with more specificity. Plaintiffs filed an amended complaint on March 12, 2004. In response to plaintiffs' amended complaint, we plan to file a motion to dismiss and a motion for summary judgment.

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•

Wright v. Tenet Healthcare Corp., et al., No. 2003 6262, Civil District Court, Orleans Parish, was filed on April 22, 2003 in Louisiana. The court granted our exception to the Wright complaint for failure to state a cause of action and gave plaintiff 30 days to amend her petition. On November 14, 2003, plaintiff filed an amended petition, alleging claims against us under the Louisiana Unfair Practices Act, as well as claims for unjust enrichment, fraud and misrepresentation. Another class action was filed in Louisiana on May 5, 2003, entitled Miranda v. Tenet Louisiana, Tenet Healthcare Corp., No. 03 6893, Civil District Court, Orleans Parish. The class action complaint, filed on behalf of all uninsured and partially insured residents of Louisiana who were treated at hospitals affiliated with us in Louisiana since February 1, 1999, alleges that the hospitals charged excessive prices for health care and pharmaceuticals. Plaintiff asserts claims for unjust enrichment, negligent misrepresentation, fraud and misrepresentation, and breach of contract, and seeks compensatory and punitive damages, attorneys' fees and equitable, injunctive and other relief. We filed exceptions seeking to have the complaint dismissed. Plaintiffs then moved to consolidate the Wright and Miranda actions, and the court granted the unopposed motion. We filed exceptions to the consolidated amended petition, which were denied on July 30, 2004. Discovery has commenced, and a class certification hearing is currently scheduled to begin on December 12, 2005.



•

Garcia v. Tenet Healthcare Corp., et al., No. 03 008646 CA 18b, which was filed on May 16, 2003 in Broward County, is pending in Florida. Plaintiffs allege, on behalf of themselves and a purported class of uninsured and partially insured patients, that we and/or our affiliated hospitals charged excessive and unlawful prices for medical products, services and pharmaceuticals. The complaint alleges a violation of Florida's Deceptive and Unfair Trade Practices Act and also asserts claims for unfair competition and unjust enrichment, and seeks damages, attorneys' fees, and injunctive and other equitable relief. We filed a motion to dismiss the complaint, which was heard on April 29, 2004. On December 13, 2004, the court entered an order granting in part and denying in part our motion to dismiss. Plaintiffs were given an extension to file their second amended complaint, but have not yet done so.



•

Comer v. Tenet Healthcare Corporation, No 03-CP-46-1688, Court of Common Pleas, Sixth Judicial Circuit, York County, was filed in South Carolina on June 19, 2003. The class action has been amended and renamed Atherton v. Tenet Healthcare Corp. & AMISUB of South Carolina, Case No. 03-CP-46-1688. The amended complaint alleges, on behalf of plaintiffs and all "uninsured or self-pay patients" treated at Piedmont Medical Center in York County, South Carolina since January 1, 1997, that the charges at Piedmont Medical Center are excessive and in breach of a contract between York County and the defendant and trustees of the hospital to limit charges at the hospital. In addition to this breach of contract claim, plaintiffs also have alleged claims for unjust enrichment and implied contract for value of goods and services received and seek compensatory and punitive damages, injunctive and other relief. We filed a motion for summary judgment on all claims, which was heard on March 1, 2004. On March 29, 2004, the court granted our motion for summary judgment in its entirety as to all claims asserted by plaintiff. On May 10, 2004, plaintiffs appealed the trial court's summary judgment ruling to the Court of Appeals of the State of South Carolina. A hearing on the appeal has not yet been scheduled.

A second similar class action was filed in South Carolina on September 13, 2004, entitled Grubb v. Tenet South Carolina, Inc. d/b/a Hilton Head Regional Medical Center, East Cooper Regional Medical Center and Piedmont Medical Center, No 04-CP-07-1660, Court of Common Pleas, Fourteenth Judicial Circuit, Beaufort County. The plaintiff purports to bring this action on behalf of himself and all uninsured patients who received treatment from Tenet South Carolina hospitals and were charged an undiscounted rate during a period of three years prior to the commencement of the action, and "uninsured patients who will receive medical treatment from

24

any of these hospitals in the future." Plaintiff alleges three causes of action for breach of contract, unjust enrichment, and declaratory and injunctive relief, and seeks compensatory and other damages, restitution, an injunction, attorneys' fees, and other relief. The action has been removed to the U.S. District Court for South Carolina, where we filed a motion to dismiss on October 22, 2004. The motion is pending. The plaintiff recently moved to amend his complaint in such a way that will eliminate the basis for the federal court's diversity jurisdiction; therefore, we expect the case will be remanded to state court in March 2005.

Two additional similar class actions were filed in the Court of Common Pleas, Charleston County, South Carolina on October 7, 2004, entitled Robert A. Singletary, Sr. v. Tenet HealthSystem Medical, Inc., et al., No. 04-CP-10-4212, and Allen Singletary, Jr. v. Tenet HealthSystem Medical Inc., et al., No. 04-CP-10-4211. In each case, the plaintiffs purport to bring the action on behalf of themselves and all other patients of the defendant who did not receive a statutory discount to which plaintiffs and class members were allegedly entitled under S.C. Code Ann. § 38-71-120. More specifically, the Allen Singletary action is asserted on behalf of uninsured patients who would be entitled to the discount; the Robert Singletary case is asserted on behalf of insured patients allegedly eligible for the discount. These lawsuits are virtually identical to actions that have been filed against various hospitals throughout South Carolina. The construction of the state statute at issue will be a matter of first impression.

•

Wright v. Tenet Healthcare Corp., No. 002365, Court of Common Pleas, Philadelphia County, was filed on December 17, 2003 on behalf of all Pennsylvania residents who allegedly paid unlawful or unfair prices for prescription drugs or medical products or procedures at hospitals or other medical facilities owned by us and/or our subsidiaries. The complaint alleges causes of action for violation of the Pennsylvania Unfair Trade Practices Act, breach of contract, breach of the covenant of good faith and fair dealing, and unjust enrichment, and seeks damages, restitution, injunctive relief and attorneys' fees. We filed a motion to dismiss the action on February 26, 2004. In response, plaintiff filed an amended complaint and, subsequently, filed a motion for leave to amend to add a new plaintiff and several additional defendant entities. Plaintiff's second amended complaint was filed on June 28, 2004. The second amended complaint adds a new representative plaintiff to the putative class and adds as defendants seven Philadelphia hospitals that were affiliated with us during the relevant time period and their parent corporation, Tenet HealthSystem Philadelphia, Inc. Plaintiffs voluntarily dismissed from the case Tenet HealthSystem HealthCorp. and Tenet HealthSystem Hospitals. We filed preliminary objections to the second amended complaint on July 22, 2004. On December 2, 2004, the court issued an order dismissing plaintiffs' claim for intentional interference with contract, but otherwise denying our preliminary objections. We expect to file our answer to plaintiffs' second amended complaint on or about March 11, 2005. Plaintiffs have begun discovery related to class certification, and must move for certification by April 30, 2005.



•

Fernandez v. Park Plaza Hospital and Tenet Healthcare Corporation, No. 2004-45486, District Court of Harris County, was filed in Texas on August 24, 2004. The complaint is brought on behalf of a purported class of uninsured patients and alleges causes of action for violation of the Texas Deceptive Trade Practices Act, breach of contract, unjust enrichment, and breach of the duty of good faith and fair dealing. The complaint alleges that the defendants charge uninsured patients unreasonable or unconscionable rates that are significantly higher than those paid by insured patients for the same services. On behalf of the purported class, the plaintiff seeks declaratory and injunctive relief, compensatory and punitive damages, restitution and disgorgement, and attorneys' fees. An answer denying the material allegations has been filed, and discovery has commenced.



•

Zimmerly v. Tenet HealthSystem SL, Inc., Case No. 042-09386, Circuit Court for the City of St. Louis, was filed in Missouri, and we were served with a complaint on January 11, 2005. The

25

complaint is brought on behalf of a purported class of uninsured patients treated at St. Louis University Hospital during the period January 1, 2000 through the date of trial. The complaint alleges that the hospital's practice of charging uninsured patients higher rates than those paid by insured patients is unlawful. Specifically, the complaint alleges claims for breach of contract, declaratory judgment, breach of the duty of good faith and fair dealing, violation of the Missouri Merchandising Practices Act, unjust enrichment, constructive trust, and injunctive relief. The complaint seeks compensatory and punitive damages, injunctive and declaratory relief, and a constructive trust.

•

Sims v. Brookwood Medical Center Hospital, et al., Case No. CV 05 900, Circuit Court of Jefferson County, was filed in Alabama, and we were served with a complaint on February 17, 2005. The complaint is brought on behalf of a purported class of Alabama uninsured patients treated at Brookwood Hospital during the six years prior to the filing of the complaint. The complaint alleges that the hospital's practice of charging uninsured patients higher rates than those paid by insured patients is unlawful. Specifically, the complaint seeks compensatory damages and restitution on plaintiff's breach of contract and unjust enrichment claims, as well as declaratory and injunctive relief. A responsive pleading is due to be filed on or about March 19, 2005.

State of Florida, Office of the Attorney, Department of Legal Issues, et al. v. Tenet Healthcare Corporation, Case No. 05-20591-CIV (U.S. District Court for the Southern District of Florida, filed March 2, 2005)

        The Attorney General of the State of Florida and 13 Florida county hospital districts, systems and non-profit corporations filed a civil action in federal district court in Miami on March 2, 2005 alleging that Tenet's past pricing policies and receipt of Medicare outlier payments violated federal and Florida state Racketeer Influenced and Corrupt Organizations (RICO) Acts, causing harm to the plaintiffs. The civil complaint asserts claims of RICO violations and unjust enrichment on behalf of the plaintiff hospital systems. The complaint also asserts a claim for violation of the Florida Deceptive and Unfair Trade Practices Act on behalf of the State of Florida and the plaintiff hospital systems. The complaint seeks unspecified amounts of damages (including treble damages under RICO), restitution and disgorgement. We were served with this suit on March 4, 2005. We are vigorously defending the company in this matter.

Boca Raton Community Hospital, Inc. v. Tenet Healthcare Corporation, Case No. 05-80183-CIV (U.S. District Court for the Southern District of Florida, filed March 2, 2005)

        Plaintiff filed this civil action in federal district court in Miami on March 2, 2005 on behalf of itself and a purported class consisting of most of the acute care hospitals in the United States, alleging that Tenet's past pricing policies and receipt of Medicare outlier payments violated the federal Racketeer Influenced and Corrupt Organizations (RICO) Act, causing harm to plaintiffs. The civil complaint asserts claims of RICO violations, as well as claims of fraud, unjust enrichment and violation of the California Unfair Competition Law. The complaint seeks unspecified amounts of damages (including treble damages under RICO), restitution, disgorgement and punitive damages. We were served with this suit on March 2, 2005. We are vigorously defending the company in this matter.

26

Securities and Shareholder Matters

In Re Tenet Healthcare Corporation Securities Litigation, Case No. CV-02-8462-RSWL (U.S. District Court for the Central District of California, Consolidated Second Amended Complaint filed January 15, 2004)

        From November 2002 through January 2003, 20 securities class action lawsuits were filed against Tenet and certain of our officers and directors in the U.S. District Court for the Central District of California and the Southern District of New York on behalf of all persons or entities who purchased our securities during the various class periods specified in the complaints. All of these actions have been consolidated under the above-listed case number in the U.S. District Court for the Central District of California. The procedures of the Private Securities Litigation Reform Act apply to these cases.

        On February 10, 2003, the State of New Jersey was appointed "lead" plaintiff in the consolidated actions and its counsel, the law firm of Schiffrin & Barroway, was appointed as lead class counsel.

        On January 15, 2004, after the court granted in November 2003 defendants' motion to dismiss plaintiffs' first amended complaint for failure to plead fraud with the required particularity, plaintiffs filed their second amended complaint. The named defendants are Tenet Healthcare Corporation, Jeffrey Barbakow, David Dennis, Thomas Mackey, Raymond Mathiasen, Barry Schochet and Christi Sulzbach. Plaintiffs allege that Tenet and the individual defendants made or were responsible for false and misleading statements concerning the company's receipt of Medicare outlier payments and allegedly medically unnecessary heart surgeries at Redding Medical Center, a hospital we owned in Redding, California until July 16, 2004. Plaintiffs have not specified an amount of monetary damages. Defendants' motions to dismiss were filed on March 1, 2004.

        On May 24, 2004, the court heard, and denied, defendants' motions to dismiss. The matter is proceeding with the following claims against the following defendants: (1) securities fraud under Section 10(b) of and Rule 10b-5 under the Securities Exchange Act of 1934 (the "Exchange Act") against Tenet and defendants Barbakow, Dennis and Mackey, (2) control person liability pursuant to Section 20(a) of the Exchange Act against defendants Barbakow, Dennis, Mackey, Mathiasen, Schochet and Sulzbach, (3) insider trading under Section 10(b) of and Rule 10b-5 under the Exchange Act against defendants Barbakow and Mackey, and (4) making false statements in registration statements for our debt offerings under Section 11 of the Securities Act of 1933 and control person liability pursuant to Section 15 of the Securities Act against Tenet and defendants Barbakow, Mackey, Dennis and Mathiasen. On July 6, 2004, all defendants filed answers to the second amended complaint denying all allegations of wrongdoing, setting forth various affirmative defenses and denying any liability for any and all of the causes of action set forth.

        On December 21, 2004, the court granted plaintiffs' motion to certify the following class and subclass: (1) all persons and entities who purchased or otherwise acquired our securities between January 11, 2000 and November 7, 2002, including all persons and entities who purchased or otherwise acquired notes pursuant to our registration statements dated September 13, 2000, November 29, 2001 and December 6, 2001, and who were damaged thereby (the "class"); and (2) all persons and entities who purchased our common stock contemporaneously with defendants Barbakow and Mackey's sales of stock between January 11, 2000 and November 7, 2002 (the "subclass"). Discovery has commenced, and the court has set May 2, 2006 as the date the jury trial will begin.

Shareholder Derivative Actions

(1)

In re Tenet Healthcare Corporation Derivative Litigation, Lead Case No. 01098905 (Superior Court of California, County of Santa Barbara); and

27

(2)

In re Tenet Healthcare Corporation Derivative Litigation, Case No. CV-03-0011 RSWL (U.S. District Court for the Central District of California).

        The above-listed cases are shareholder derivative actions filed against members of our board of directors and senior management by shareholders purporting to pursue their actions on behalf of Tenet and for our benefit. No pre-lawsuit demand to investigate the allegations or bring the action was made on the board of directors. Tenet is also named as a nominal defendant in each of the cases.

        In the California derivative litigation, which involves 10 cases that have been consolidated, the lead plaintiff filed a Consolidated Amended Complaint on March 3, 2003. On May 1, 2003, defendants filed a motion to stay the California derivative litigation in favor of the federal derivative litigation and filed demurrers to all of the causes of action alleged in the Consolidated Amended Complaint. The complaint alleges claims for breach of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets, unjust enrichment, indemnification and insider trading under California law. The complaint alleges that the individual defendants breached their fiduciary duties and engaged in gross mismanagement by allegedly ignoring indicators of the lack of control over our accounting and management practices, allowing the company to engage in improper conduct, permitting misleading information to be disseminated to shareholders, failing to monitor hospitals and doctors to prevent improper action, and otherwise failing to carry out their duties and obligations to us. The lead plaintiff further alleges that the defendants violated the California insider trading statute because they allegedly knew, but did not disclose, that (1) physicians at hospitals owned by our subsidiaries were routinely performing unnecessary procedures in order to take advantage of Medicare outlier reimbursement, (2) we deliberately raised our prices to take advantage of Medicare outlier reimbursement, (3) our growth was dependent primarily on our continued receipt of Medicare outlier payments, and (4) the rules and regulations related to Medicare outlier payments were being reformed to limit outlier payments, which would have a material negative effect on our revenues and earnings going forward. Plaintiff seeks a declaration that the individual defendants violated their fiduciary duties, compensatory damages plus interest, treble damages under Section 25502.5(a) of the California Corporations Code for insider trading, restitution and disgorgement of profits. On July 22, 2003, the California Superior Court entered an order overruling defendants' demurrer, and granting the motion to stay.

        On June 17, 2004, the court, following a motion by the lead plaintiff to lift the stay, ordered that documents produced in the federal derivative action be produced to the plaintiff upon its request and at its expense. Also on June 17, 2004, the court denied defendants' motion to strike the lead plaintiff's writ of mandate seeking documents and discovery under California Corporations Code Section 1601, and ordered us and the plaintiff to meet and confer regarding a discovery referee to determine the permissible scope of plaintiff's inspection. On January 27, 2005, the court denied another motion to lift the stay filed by the lead plaintiff. The action remains stayed until further order of the court. The next case management conference is scheduled for September 15, 2005.

        In addition to the derivative litigation pending in the California Superior Court, four derivative cases have also been filed in federal court. These four cases have been consolidated in the U.S. District Court for the Central District of California. Dr. Bernard Stern, North Border Investments and the City of Philadelphia have been appointed lead plaintiffs. Plaintiffs served their First Consolidated Amended Complaint on March 28, 2003, which was dismissed by the court, with leave to amend, pursuant to defendants' motion to dismiss in November 2003.

        Plaintiffs filed their amended complaint on January 15, 2004. In addition to common law claims for breach of fiduciary duty, abuse of control, waste of corporate assets, indemnification, insider trading and unjust enrichment, the Second Consolidated Amended Complaint alleges violations of Sections 14(a) and 10(b) of and Rules 14a-9 and 10b-5 under the Exchange Act. Plaintiffs have alleged that the court has diversity jurisdiction over the state law claims. Plaintiffs seek declarations that (1) the directors violated Section 14(a) of the Exchange Act, (2) Jeffrey Barbakow violated Section 10(b) of

28

and Rule 10b-5 under the Exchange Act, (3) defendants are liable for contribution and indemnification under Section 10(b) of and Rule 10b-5 under the Exchange Act, (4) defendants committed insider trading, and (5) defendants breached their fiduciary duties, were unjustly enriched and must indemnify us under common law. The action also seeks an order that defendants refrain from further breaches of fiduciary duty. Plaintiffs further seek compensatory damages in an unstated amount, recovery of "millions of dollars" of profit from alleged insider trading and imposition of an equitable lien to secure recovery, repayment of salaries and other compensation, statutory treble damages and punitive damages. Defendants filed motions to dismiss this complaint on March 1, 2004.

        On May 24, 2004, the court heard all motions to dismiss and granted them in part and denied them in part. As to defendant Barbakow, the court denied the motion to dismiss the claims for alleged violations of Sections 10(b) and 14(a) of and Rules 14a-9 and 10b-5 under the Exchange Act. The court further denied defendant Barbakow's motion to dismiss plaintiffs' claims for breach of fiduciary duty, common law insider trading and misappropriation, unjust enrichment, waste of corporate assets, common law indemnification and abuse of control. The court granted defendant Barbakow's motion to dismiss the claim for contribution under Section 10(b) of the Exchange Act. As to all other defendants, the court granted the motions to dismiss in their entirety.

        On June 16, 2004, plaintiffs filed a Third Consolidated Amended Shareholder Derivative Complaint. The third amended complaint sets forth claims for: (1) alleged breach of fiduciary duty against Jeffrey Barbakow, Bernice Bratter, Sanford Cloud, Jr., Maurice DeWald, Michael Focht, Van B. Honeycutt, Robert Kerrey, Lester Korn, Thomas Mackey, Raymond Mathiasen and Christi Sulzbach, (2) alleged insider trading and misappropriation in violation of the common law against defendants Barbakow, Bratter, Cloud, DeWald, Focht, Honeycutt, Kerrey, Korn, Mackey, Mathiasen and Sulzbach, (3) alleged unjust enrichment against defendants Barbakow, Mackey, Mathiasen and Sulzbach, (4) alleged violations of Section 10(b) of and Rule 10b-5 under the Exchange Act against defendant Barbakow and (5) alleged violations of Section 14(a) of and Rule 14a-9 under the Exchange Act against defendants Barbakow, Bratter, Cloud, DeWald, Focht, Honeycutt, Kerrey and Korn.

        On July 14, 2004, all defendants moved to dismiss the third amended complaint. After a hearing held on September 13, 2004, the court entered an order denying the motions to dismiss as to all claims except one; the court dismissed with prejudice the claim for insider trading and misappropriation against defendants Bratter, Cloud, DeWald, Focht, Honeycutt, Kerrey and Korn. The matter will thus proceed with the following claims against the following defendants: (1) alleged breach of fiduciary duty against defendants Barbakow, Bratter, Cloud, DeWald, Focht, Honeycutt, Kerrey, Korn, Mackey, Mathiasen and Sulzbach, (2) alleged insider trading and misappropriation in violation of the common law against defendants Barbakow, Mackey, Mathiasen and Sulzbach, (3) alleged unjust enrichment against defendants Barbakow, Mackey, Mathiasen and Sulzbach, (4) alleged violations of Section 10(b) of and Rule 10b-5 under the Exchange Act against defendant Barbakow and (5) alleged violations of Section 14(a) of and Rule 14a-9 under the Exchange Act against defendants Barbakow, Bratter, Cloud, DeWald, Focht, Honeycutt, Kerrey and Korn. Defendants' filed answers to the third amended complaint on October 20, 2004. Discovery has commenced, and the court has set July 11, 2006 as the date the trial will begin.

SEC Investigation

        The Securities and Exchange Commission initiated a formal investigation of Tenet and certain of our current and former directors and officers, whom the SEC did not specifically identify, by order dated April 22, 2003. The confidential investigation concerns whether our disclosures in our financial reports relating to Medicare outlier reimbursements and stop-loss payments under managed care contracts were misleading or otherwise inadequate, and whether there was any improper trading in our securities by certain of our current and former directors and officers. The securities law provisions

29

implicated include Sections 10(b) and 17(a) of the Exchange Act, Rules 12b-20, 13a-1 and 13a-13 under the Exchange Act, and regulations associated with those statutes and rules.

        The SEC has served a series of document requests and subpoenas for testimony on Tenet and certain of our current and former employees, officers and directors, as well as our independent auditors, and we are cooperating with the government with respect to the investigation.

Redding Medical Center

Redding OIG Administrative Action

        On August 4, 2003, following an investigation by federal government agencies regarding whether two physicians, who were independent contractors with medical staff privileges at Redding Medical Center, performed medically unnecessary invasive cardiac procedures at the hospital, we reached a settlement with the United States and the State of California in the amount of $54 million. This settlement resolved all civil and monetary administrative claims that the United States may have had under the False Claims Act, the Civil Monetary Penalties Law, the Program Fraud Civil Remedies Act and/or common law theories of payment by mistake, unjust enrichment, breach of contract and fraud arising out of the performance of, and billings for, allegedly medically unnecessary cardiac procedures at Redding Medical Center from January 1, 1997 through December 31, 2002. In addition, the settlement resolves all civil and monetary administrative claims the State of California may have had under California Government Code Section 12650-54 and/or common law theories of payment by mistake, unjust enrichment, breach of contract and fraud arising out of this same alleged conduct. We were informed by the U.S. Attorney's Office for the Eastern District of California that it would not initiate any criminal charges against Redding Medical Center, Tenet HealthSystem Hospitals or us for the conduct covered by the settlement. The settlement had no effect on the civil litigation described below.

        On September 3, 2003, the OIG issued a notice of its intent to exclude Redding Medical Center from participation in the Medicare and Medicaid programs and all other federal health care programs. Subsequently, on December 11, 2003, the OIG agreed to stay further exclusion proceedings against Redding Medical Center, conditioned upon our sale of Redding Medical Center's hospital assets. On July 16, 2004, we sold certain hospital assets of Redding Medical Center to Hospital Partners of America Inc. Redding Medical Center, Inc., our subsidiary that formerly owned the hospital, retained substantially all of its pre-closing liabilities.

Civil Litigation

        A significant number of civil cases on behalf of approximately 700 to 800 patients were filed following the announcement in October 2002 that the government was investigating whether two physicians, who had staff privileges at Redding Medical Center, had performed medically unnecessary coronary procedures. Although the specific claims varied from case to case, the complaints generally alleged that the physician defendants knowingly performed medically unnecessary coronary procedures on patients and that we knew or should have known that such medically unnecessary procedures were being performed. The actions were coordinated for pretrial purposes in Shasta County, California.

        After a series of pleadings, the court ruled that the plaintiffs were permitted to pursue a negligence claim against us, and also were permitted to pursue their fraud, breach of fiduciary duty, battery and elder abuse claims, but based only upon derivative theories of aiding and abetting and ratification. In addition, although the plaintiffs were permitted to seek compensatory damages, the court struck without prejudice the plaintiffs' requests for punitive damages and attorneys' fees.

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        On December 21, 2004, we announced that we had reached an agreement in principle to settle substantially all of the patient litigation against us and our subsidiaries arising out of the allegations set forth in the plaintiffs' complaints. We agreed to, and did, establish a settlement fund by December 31, 2004 of $395 million to be allocated among more than 750 plaintiffs who had filed suit. Substantially all of the individual plaintiffs have ratified the settlement, and the court has held that the settlement was entered into in good faith. A small number of cases relating to this matter remain pending, including:

(1)

Corapi v. Chae Moon, M.D., et al., Case No. 147223 (Superior Court of California, County of Shasta, filed November 27, 2002);



(2)

Boyd, et al. v. Redding Medical Center, et al., Case No. 149035 (Superior Court of California, County of Shasta, filed June 13, 2003);



(3)

Reynolds v. Tenet Healthcare Corp., et al., Case No. 150756 (Superior Court of California, County of Shasta, filed January 20, 2004);



(4)

Duffaut v. Tenet Healthcare Corp., et al., Case No. 151946 (Superior Court of California, County of Shasta, filed June 24, 2004);



(5)

Case v. Tenet Healthcare Corp., et al., Case No. 152909 (Superior Court of California, County of Shasta, filed October 28, 2004); and



(6)

Giannotti v. Tenet Healthcare Corp., et al., Case No. 152911 (Superior Court of California, County Shasta, filed October 28, 2004).

        We have sought recovery under our excess professional and general liability insurance policies for up to $275 million of our settlement of the Redding claims, but our insurance carriers have raised objections to coverage under our policies. We are pursuing all means available against the insurance carriers in seeking coverage, including, where permitted, filing arbitration demands. Our excess professional and general liability insurance policies covering occurrences prior to June 1, 2003 and having total limits of $275 million with three carriers, are single aggregate policies. Any limits paid, in whole or in part, could deplete or reduce the excess limits available to pay any other serious claims applicable to this policy period.

California Qui Tam Action

State of California ex rel. John Corapi, et al. v. Tenet Healthcare Corporation, et al. (Superior Court of California, County of Shasta, filed under seal November 5, 2002, First Amended Complaint filed January 25, 2005)

        This qui tam action was brought under California Insurance Code Section 1871.7 et seq., which allows "interested persons" to file sealed complaints for allegedly fraudulent billings to private insurers. The complaint generally alleges that false claims for payments were made to private insurers for allegedly medically unnecessary procedures performed at Redding Medical Center. Both the California Department of Insurance and the District Attorney of Shasta County, California have declined to intervene in this action. The action was unsealed in October 2004 and, subsequently, was served on the defendants. The plaintiff filed a first amended complaint on January 25, 2005. On February 1, 2005, the court denied our motion to stay the action until completion of the federal criminal proceedings pending against the individual physician co-defendants, but granted a complete stay to those co-defendants. We filed demurrers to plaintiff's first amended complaint on February 18, 2005, and a hearing on the demurrers is scheduled for April 18, 2005. No discovery has taken place, and no trial date has been set.

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Medicare Coding

United States v. Tenet Healthcare Corp., et al, Case Nos. CV-03-206-GAF, CV-04-857-GAF and CV-04-859-GAF (U.S. District Court for the Central District of California)

        The U.S. Department of Justice, in conjunction with the OIG, has been investigating certain hospital billings to Medicare for inpatient stays reimbursed pursuant to diagnosis-related groups ("DRG") 79 (pneumonia), 415 (operating room procedure for infectious and parasitic diseases), 416 (septicemia), and 475 (respiratory system diagnosis with mechanical ventilator). The investigation is believed to have stemmed initially from the government's nationwide pneumonia "upcoding" initiative and focuses on 103 acute care hospitals owned or acquired by our subsidiaries during the period September 1992 through December 1998. On January 9, 2003, the government filed a lawsuit in the U.S. District Court for the Central District of California in regard to this matter, alleging violations of the federal False Claims Act and various common law theories of liability. The government seeks treble damages and other relief, including punitive damages. At December 31, 2004, we had an accrual of $34 million, recorded in prior years, for this matter.

        On November 19, 2003, the District Court (1) granted our motion to dismiss for failure to plead fraud with the requisite particularity, with leave to amend, (2) granted, in part, our motion to sever, with leave to amend, and (3) dismissed, with prejudice, the government's claims for unjust enrichment, disgorgement and recoupment. Pursuant to the District Court's order, on February 6, 2004, the government filed a Second Amended Complaint and two additional related complaints against us and various subsidiaries alleging successor liability for claims submitted by the hospitals' prior owners. On July 19, 2004, we answered the complaints relating to Case Nos. CV-03-206-GAF and CV-04-859-GAF, and, on November 1, 2004, we answered the complaint relating to Case No. CV-04-857-GAF. Discovery has commenced and the trials are set to begin March 6, 2007.

Desert Regional Medical Center Comprehensive Cancer Center

        In April 2004, we received a voluntary document request from the U.S. Attorney's Office for the Central District of California seeking, among other items, information from 1993 to April 12, 2004 about coding and billing practices at the Comprehensive Cancer Center at our Desert Regional Medical Center in Palm Springs, California. The request seeks specific information related to 353 patient records. Salick Health Care Inc., an entity not owned by us, manages the Comprehensive Cancer Center. We have operated Desert Regional Medical Center since June 1997 under a long-term lease with the Desert Healthcare District. We are cooperating with the document request.

Other Matters

David L. Dennis Arbitration

        On October 27, 2003, David L. Dennis, our former chief financial officer and chief corporate officer, filed a demand for arbitration alleging that he is entitled to payments under a severance benefit plan that our board of directors adopted in January 2003. Our position is that the severance benefit plan does not apply to Mr. Dennis, who resigned in November 2002. The parties are currently in the discovery phase of the arbitration process.

Wage and Hour Actions

        On September 28, 2004, the court granted our petition to coordinate two pending wage and hour actions, McDonough, et al. v. Tenet Healthcare Corporation and Tien, et al. v. Tenet Healthcare Corporation, in Los Angeles Superior Court. The McDonough case was originally filed on June 24, 2003 in San Diego Superior Court and the Tien case was originally filed on May 21, 2004 in Los Angeles Superior Court. We will now be defending in a single court this proposed class action lawsuit alleging

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that our hospitals violated certain provisions of the California Labor Code and applicable California Industrial Welfare Commission Wage Orders with respect to meal breaks, rest periods and the payment of one hour's compensation for meal breaks or rest periods not taken. The complaint in the Tien case also alleges that we have not included certain payments in the regular rate of pay that is used for purposes of calculating overtime, and that we have not paid a double time premium when employees work in excess of 12 hours in a day. The plaintiffs seek to certify this action on behalf of virtually all nonexempt employees of our California subsidiaries.

        We will argue that certification of a class in the action is not appropriate because there are no uniform policies that fail to comply with the applicable Labor Code and Wage Orders. To the contrary, since 2000, when the applicable California law regarding missed meal and rest periods first went into effect, we have implemented policies consistent with the law that are intended to ensure that (1) employees who miss a rest period or meal break on any given day are appropriately paid and (2) all appropriate forms of compensation are included in the regular rate for overtime calculations and all appropriate overtime premiums are paid. In addition, it is our position that each of these claims must be addressed individually based on its particular facts and, therefore, should not be subject to class certification.

People's Health Network Investigation

        In October 2003, People's Health Network, or PHN, an unconsolidated New Orleans health plan management services provider in which one of our subsidiaries holds a 50% membership interest, received two subpoenas from the U.S. Attorney's office in New Orleans seeking certain records from January 1, 1999 to October 9, 2003. The first subpoena, received October 3, 2003, seeks documents including articles of incorporation and bylaws, membership data, agendas and minutes of meetings, and policy manuals from PHN and additional documents related to several New Orleans-area independent physician associations that also hold membership interests in PHN. The second subpoena, received on October 14, 2003, seeks information on patients who were admitted to a rehabilitation unit and members for whom inpatient rehabilitation services were ordered, recommended or requested, and subsequently denied. On November 21, 2003, PHN received two additional subpoenas from the U.S. Attorney's Office in New Orleans. One of the subpoenas to PHN seeks documents and information from January 1, 1999 to October 9, 2003 related to payments to and contractual matters related to physicians and others, as well as third-party reviews of denials of services. The second subpoena to PHN seeks various documents, including agendas, minutes, bylaws, membership data and policies, from June 1, 2002 to November 19, 2003, related to certain medical staff committees and other medical staff entities. On September 9, 2004, PHN received an additional subpoena from the U.S. Attorney's Office in New Orleans seeking various documents, including medical policies and practice guidelines.

        On November 21, 2003, the U.S. Attorney's Office in New Orleans also issued a related subpoena to Memorial Medical Center, a New Orleans hospital owned by one of our subsidiaries. That subpoena seeks various documents, including agendas, minutes, bylaws, membership data and policies, from June 1, 2002 to November 19, 2003, related to certain medical staff committees and other medical entities.

        We are cooperating with the government with respect to this matter, and continue to provide certain information requested by the government.

Centinela Home Health Care Investigation

        On April 13, 2004, we received a voluntary document request from the U.S. Attorney's Office for the Central District of California that primarily seeks information from January 1, 2003 to April 13, 2004 about the relationship between Centinela Hospital Medical Center in Inglewood, California, which

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we sold in November 2004, and Allied Homecare Consultants Inc., an independent home health placement service. We are cooperating with the request.

Retained Liabilities

        We were notified in mid-2004 that subpoenas had been issued to the buyer of two of our former hospitals, Twin Rivers Regional Medical Center in Missouri and John W. Harton Regional Medical Center in Tennessee. We retained certain liabilities in connection with the sale of these hospitals in November 2003. The Twin Rivers subpoena seeks documents for the period from 1999 through 2003 pertaining to a number of cardiac care patients. The Harton subpoena seeks a variety of documents, primarily financial, for the period from June 2000 through 2003.

        On August 3, 2004, we received a voluntary request from the U.S. Attorney's Office in St. Louis, Missouri seeking, among other things, documents regarding physician relocation agreements at four St. Louis area hospitals—two of which we no longer own—as well as Twin Rivers Regional Medical Center. The voluntary request also seeks additional information regarding certain admissions and medical procedures at Twin Rivers. We are cooperating with the government with respect to this matter.

Congressional Investigations

        On September 5, 2003, Senator Charles E. Grassley, chairman of the Senate Finance Committee, notified us that the Committee is investigating Tenet and requested documents relating to Redding Medical Center, Medicare outlier payments, patient care and other matters. Since such time, we have received additional requests from the Senate Finance Committee, including requests for quality reviews at certain hospitals. We are cooperating with the Committee with respect to this investigation.

        Twenty large health care systems in the United States, including us, received a letter dated July 16, 2003 from the U.S. House of Representatives, Committee on Energy and Commerce, seeking documents related to hospital billing practices and their impact on the uninsured. Specifically, the Committee, through its Subcommittee on Oversight and Investigations, is conducting an investigation into the "sophisticated and complicated forces driving health care financing, including government entitlements, managed care, rising costs, and shrinking public funds." The Subcommittee is seeking input from each of the major health care systems to analyze the impact these competing forces have on the uninsured patient population. To that end, the Subcommittee conducted a hearing on the issues on June 24, 2004. Trevor Fetter, our president and chief executive officer, provided testimony to the Subcommittee at that hearing, and then provided responses to additional questions posed by the Subcommittee in writing after the hearing. We continue to cooperate with the Subcommittee with respect to this investigation, and have provided the Subcommittee with additional information since the June 2004 hearing.

Internal Revenue Service

        The Internal Revenue Service has completed an examination of our federal income tax returns for the fiscal years ended May 31, 1995, 1996 and 1997, and has issued a Revenue Agent's Report in which it proposes to assess an aggregate tax deficiency for the three-year audit period of $157 million plus interest of approximately $138 million through December 31, 2004, before any federal or state tax benefit. The Revenue Agent's Report contains several disputed adjustments, including the disallowance of a deduction for a portion of the civil settlement we paid to the federal government in June 1994 related to our discontinued psychiatric hospital business and a disputed adjustment with respect to the timing of the recognition of income for tax purposes pertaining to Medicare and Medicaid net revenues. We have filed a protest with the Appeals Division of the Internal Revenue Service. In the event that these issues cannot be resolved successfully with the Appeals Division, we may further

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appeal the findings by filing a petition for redetermination of a deficiency with the Tax Court or by filing a claim for refund in U.S. District Court or in the Court of Federal Claims. In order to file a claim for refund in U.S. District Court or in the Court of Federal Claims, all disputed taxes plus interest must be paid prior to filing the claim. We believe we have adequately provided for all tax matters in dispute related to the Revenue Agent's Report for the fiscal years ended May 31, 1995, 1996 and 1997 as of December 31, 2004.

        In addition, the Internal Revenue Service has commenced an examination of our tax returns for the fiscal years ended May 31, 1998 through the seven-month transition period ended December 31, 2002. We presently cannot determine the ultimate resolution of this examination.

Florida Medical Center

        Following a January 26, 2005 survey of our Florida Medical Center hospital in Ft. Lauderdale by the Florida Department of Children and Families (DCF) and Florida's Agency for Health Care Administration (AHCA), on February 14, 2005, DCF suspended the hospital's authority to receive involuntary psychiatric patient admissions under the Baker Act, a Florida state law that governs the involuntary admission of psychiatric patients to a hospital. Reports issued by DCF and AHCA cited hospital deficiencies in two principal areas: (1) the transportation of Baker Act patients; and (2) completion of medical record documentation and forms required by the Baker Act. On March 1, 2005, we received a voluntary request for documents from the Florida Attorney General's Medicaid Fraud Control Unit Office in Ft. Lauderdale. The request seeks medical records and billing information for Medicaid patients admitted to Florida Medical Center's psychiatric unit from January 2004 to the present, as well as certain information concerning patients admitted to the hospital under the Baker Act. We are cooperating with all of these state agencies in connection with their reviews, and we are working with DCF to have Baker Act receiving authority reinstituted at Florida Medical Center.

Managed Care Insurance Disputes

        We recently resolved our disputes with several managed care plans regarding charges at facilities owned by our subsidiaries and the impact of those charges on stop-loss and other payments. In particular, as announced on February 14, 2005, we resolved a payment dispute involving our California hospitals by entering into a settlement agreement with Health Net, Inc. We and our subsidiaries continue to be engaged in disputes with managed care plans, although our charges and their influence on contract provisions are less frequently the focus of these disputes. For the most part, the issues raised in these contract interpretation and rate disputes are commonly encountered by other providers in the health care industry.

Medical Malpractice and Other Ordinary Course Matters

        In addition to the matters described above, we are subject to claims and lawsuits in the ordinary course of business. The largest category of these relate to medical malpractice. While most medical malpractice claims arise as separate legal actions, more than 100 individual lawsuits were filed by one law firm in Palm Beach County Circuit Court against Palm Beach Gardens Medical Center in Florida, claiming damages arising as a result of alleged postoperative infections. On December 23, 2004, we announced that our subsidiary that operates Palm Beach Gardens Medical Center had agreed in principle to settle all of these lawsuits, and, by the end of December, we paid $31 million into a settlement fund for the plaintiffs and their counsel. All of the plaintiffs have since executed individual settlement agreements, and we expect dismissal of all of the suits by the end of March 2005.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        None.

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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 listed on the New York Stock Exchange and the Pacific Stock Exchange under the symbol "THC." The following table sets forth, for the periods indicated, the high and low sales prices per share of our common stock on the New York Stock Exchange.

        On February 28, 2005, the last reported sales price of our common stock on the New York Stock Exchange composite tape was $10.91 per share. As of that date, there were approximately 9,296 holders of record of our common stock.

        We have not paid cash dividends on our common stock since the first quarter of fiscal 1994, and we do not intend to pay cash dividends on our common stock in the foreseeable future. We currently intend to retain earnings, if any, for the future operation and development of our business. In addition, our one-year letter of credit facility contains provisions that may have the effect of limiting or prohibiting the payment of dividends from time to time.

        Please see Part III, Item 12, Security Ownership of Certain Beneficial Owners and Management, for information regarding securities authorized for issuance under equity compensation plans.

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ITEM 6. SELECTED FINANCIAL DATA

OPERATING RESULTS

        In March 2003, our board of directors approved a change in our fiscal year from a fiscal year ending on May 31 to a fiscal year that coincides with the calendar year, effective December 31, 2002. The following table presents selected audited consolidated financial data for Tenet Healthcare Corporation and its wholly owned and majority-owned subsidiaries for the years ended December 31, 2004 and 2003, the seven-month transition period ended December 31, 2002, and the years ended May 31, 2002 through 2000.

        The selected financial data presented below are not necessarily indicative of our future financial position or results of operations. Reasons for this include, but are not limited to (1) our voluntary adoption of a new method for calculating Medicare outlier payments effective January 1, 2003, and subsequent new regulations governing the calculation of such payments, (2) future changes in Medicare regulations, (3) the timing and magnitude of negotiations and resolutions of disputes with managed care companies, (4) fluctuations in revenue allowances and discounts, including the impact of phasing in the discounting components of our Compact with Uninsured Patients, (5) the increase in the number of patients who are uninsured, (6) our ability to collect our accounts receivable, particularly in light of recent trends in patient accounts receivable collectibility and associated increases in provisions for doubtful accounts, (7) levels of malpractice expense and settlement trends, (8) the ultimate resolution of investigations and lawsuits and (9) changes in interest rates, tax rates, occupancy levels and patient volumes. Other items include the effects of impairment and restructuring charges, losses from early extinguishment of debt, and other disposals of facilities and other assets, all of which have also occurred during some or all of the periods presented in the below table.

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        All periods have been adjusted to reflect a 3-for-2 stock split declared in May 2002 and distributed on June 28, 2002.

BALANCE SHEET DATA

CASH FLOW DATA

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

INTRODUCTION TO MANAGEMENT'S DISCUSSION AND ANALYSIS

        The purpose of this section, Management's Discussion and Analysis of Financial Condition and Results of Operations, is to provide a narrative explanation of our financial statements that enables investors to better understand the Company, to enhance our overall financial disclosures, to provide the context within which financial information may be analyzed, and to provide information about the quality of, and potential variability of, our earnings and cash flows. This information should be read in conjunction with the accompanying consolidated financial statements. It includes the following sections:

•

Executive Overview



•

Sources of Revenue



•

Results of Operations



•

Liquidity and Capital Resources



•

Off-Balance Sheet Arrangements



•

Recently Issued Accounting Standards



•

Critical Accounting Estimates

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EXECUTIVE OVERVIEW

SIGNIFICANT CHANGES AND INITIATIVES

        During 2004, we continued to focus on the development and execution of our operating strategies, including initiatives we introduced during the year ended December 31, 2003. Management is dedicated to improving our patients', shareholders' and other stakeholders' confidence in us. We believe we will do that by providing quality care and generating positive growth and earnings at our hospitals.

        Key initiatives and developments during 2004 included:

•

Proposed Divestitures—In January 2004, we announced a major restructuring of our operations involving the proposed divestiture of 27 general hospitals (19 in California and eight others in Louisiana, Massachusetts, Missouri and Texas). As of December 31, 2004, we had completed the divestiture of 18 of the 27 hospitals and entered into a definitive agreement for the sale of four more. We continue to work toward entering into definitive agreements to divest the remaining facilities in the plan, with transaction closings to take place as soon as possible. In addition to the restructuring program we announced in January 2004, we completed several other hospital divestitures in 2004 including our general hospital in Barcelona, Spain, certain hospital assets of Redding Medical Center in Redding, California and Medical College of Pennsylvania Hospital ("MCPH") in Philadelphia, Pennsylvania. We also allowed our leases at Century City Hospital in Los Angeles, California and Suburban Medical Center in Paramount, California to expire and closed Northshore Psychiatric Hospital in Slidell, Louisiana. Our continuing operations, beginning in the fourth quarter of 2004, include only our core group of 69 general hospitals that will remain after all previously announced divestitures are completed. By focusing our financial and management resources on the 69 general hospitals that will remain, we expect to create a stronger company with greater potential for long-term growth.



•

Settlement of Litigation—In December 2004, we reached an agreement to settle substantially all of the patient litigation against us and our subsidiaries arising out of the allegations of medically unnecessary coronary procedures performed at Redding Medical Center for $395 million. We also settled all of the patient litigation against us arising as a result of alleged postoperative infections at Palm Beach Gardens Medical Center for $31 million, which we paid in December 2004. These settlements demonstrate the progress we have made to put some of our legal challenges related to past events behind us.



•

Discounts for Uninsured Patients—In March 2004, we announced that, where permitted by state law, we would be implementing managed care-style discounts for most of our uninsured patients under our Compact with Uninsured Patients ("Compact"). The discounts for uninsured patients began to be phased in during the second quarter of 2004 at many of our hospitals and were in effect at 40 of our 69 general hospitals at the end of the year. Of the remaining 29 hospitals, 17 implemented the Compact during the first quarter of 2005; however, we are still evaluating and addressing legal and other issues that may limit our ability to implement the discounting components of the Compact at our hospitals in Texas.



•

Corporate Headquarters Relocation—On May 6, 2004, we announced that we would move our corporate headquarters to Dallas, Texas as part of our ongoing effort to improve organizational effectiveness. Effective January 3, 2005, our headquarters were officially moved to Dallas; however, certain functions continue to be systematically transferred to Dallas from our Santa Barbara offices, which will close by the end of June 2005.



•

Opening of Two New Hospitals—In June 2004, we completed construction of and opened two new hospitals, the 90-bed Saint Francis Hospital—Bartlett in Bartlett, Tennessee, a suburb of Memphis, and the 118-bed Centennial Medical Center in Frisco, Texas, a suburb of Dallas.

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•

Appointment of New Members to our Board of Directors—In March and June 2004, respectively, we announced that Richard R. Pettingill and James A. Unruh had joined the company's board of directors as independent members. Mr. Pettingill was also appointed to the compensation and quality, compliance and ethics committees of the board, and Mr. Unruh was appointed to the audit and nominating and corporate governance committees of the board. Mr. Pettingill currently serves as the president and chief executive officer of Allina Hospitals & Clinics, a not-for-profit network of hospitals, clinics and other health care services based in Minneapolis. He also serves as a director for Allina, Minnesota Hospital Association, Safest in America and Minnesota Business Partnership. Mr. Unruh currently serves as principal of Alerion Capital Group, a private equity firm based in Phoenix. He also serves as a director of Prudential Financial Inc.



•

Consolidation of Operating Regions—In July 2004, we consolidated our operating regions from five to four in an effort to continue streamlining our operational structure as we build our future around 69 hospitals. Our four regions are California, Central Northeast-Southern States, Florida-Alabama and Texas-Gulf Coast, all of which report directly to our chief operating officer.

SIGNIFICANT CHALLENGES

        We believe we made progress this year in building a foundation for sustainable future growth, but our results were disappointing in the areas of volume and provision for doubtful accounts. Our performance was impacted by a combination of challenges specific to us and significant industry trends. Below is a summary of these items:

Company Specific Challenges

        Volume decline—Admissions and outpatient visits decreased from the prior year on a total-hospital and same-hospital basis. A portion of the decrease was attributable to the sale or closure of certain home health agencies, hospices, clinics and skilled nursing and rehabilitation units during 2004, and the impact of various hurricanes in the southeastern United States. We believe other reasons for the volume declines include a milder flu season this year compared to last year, the impact of our litigation and government investigations, physician attrition and managed care contract negotiations or terminations.

        Litigation and investigations—We continue to defend against a significant amount of litigation and are cooperating with a number of governmental investigations; however, we also seek to resolve certain matters without litigation when appropriate and cost effective. See Note 14 to the Consolidated Financial Statements for a summary of these matters and Part I, Item 3, Legal Proceedings, for more detailed information.

        Effective Reimbursement Rates—Pressure from payers also affects our business. We strive to ensure that we are appropriately compensated for the services we provide, but third-party payers continue to ask us to accept lower rates of payment even in the face of rising medical costs. While government regulations determine the amounts we receive for care provided through government programs, we continue to negotiate with managed care payers for adequate and timely reimbursement for our services. We continue to strive to reduce the impact of gross charges on our contractual rates; however, certain payers are unwilling to accept such a change without a reduction in overall net reimbursement to unacceptable levels. Also, we have disputes with a number of third-party payers over payment for past services.

        Impairments of long-lived assets and goodwill—As a result of our recent financial trends and the current outlook for our future operating performance, we recorded goodwill and long-lived asset impairment charges of approximately $1.2 billion during the fourth quarter of 2004.

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Significant Industry Trends

        Provision for doubtful accounts— Like others in the health care industry, we also have experienced an adverse change in our business mix and operating results as the level of uninsured and underinsured patients continued to grow. We believe this trend is due to a combination of broad economic factors, including unemployment levels, reductions in state Medicaid budgets, increasing numbers of individuals and employers who choose not to purchase insurance, and an increased burden of co-payments and deductibles to be made by patients instead of insurers. Additionally, many of these patients, who delay or do not seek routine medical care because of the costs, are being admitted through the emergency department and often require more costly care, resulting in higher billings, which are the least collectible of all accounts. Although our Compact is expected to reduce our accounts receivable and provision for doubtful accounts recorded in our consolidated financial statements, it is not expected to mitigate the net economic effects of treating such patients. In addition, we cannot predict how the Compact will affect the collectibility of those accounts.

        Providing quality patient care in a competitive and highly regulated environment—The industry as a whole is challenged by the difficulty of providing quality patient care in a competitive and highly regulated environment. We believe our Commitment to Quality ("C2Q") initiative should help to position us competitively to meet these challenges. The initiative is designed to (1) improve patient safety and evidence-based practice, (2) support physician excellence, (3) improve the practice and leadership of nursing, and (4) facilitate improved patient flow and care delivery. A year has passed since we formally launched our C2Q initiative with a series of hospital-based pilot programs. At December 31, 2004, 42 of our hospitals had completed the initial eight-week "transformation" phase and 10 hospitals were in process. We plan to complete the full initial implementation of our C2Q initiative by the end of 2005. At most hospitals that have completed the initial eight-week transformation phase, we have seen various levels of reductions in emergency room wait times, increases in on-time starts in the operating rooms, and improved bed management and care coordination.

        Cost Pressures—A significant cost pressure facing us and the industry in general is the ongoing increase in labor costs due to a nationwide shortage of nurses and the enactment of state laws regarding nurse-staffing ratios. The nursing shortage is more serious in certain specialties and in certain geographic areas than others, including several areas in which we operate hospitals, and has resulted in increased costs for nursing personnel. State-mandated nurse-staffing ratios adversely affect not only our labor costs, but, if we are unable to hire the necessary number of nurses to meet the required ratios, they may also cause us to limit patient admissions with a corresponding adverse effect on our net operating revenues. The vast majority of hospitals in California, including our hospitals, are not at all times meeting the state-mandated nurse-staffing ratios that went into effect on January 1, 2004. We have, however, gradually improved our monthly compliance and strive to make continued improvements into 2005.

        We cannot predict the degree to which we will be affected by the future availability or cost of nursing personnel, but we expect to continue to experience significant wage and benefit pressures created by the current nursing shortage throughout the country and escalation in state-mandated nurse-staffing ratios. In November 2004, California delayed its next increase in the mandated ratios until at least 2008, which will abate some of the anticipated cost increases in 2005. Nevertheless, we may be required to enhance wages and benefits to recruit and retain nurses. We may also be required to increase our use of temporary personnel, which is typically more expensive. Significant efforts are being invested in workforce development with local schools of nursing and in recruitment of experienced nurses.

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RESULTS OF OPERATIONS—OVERVIEW

        Our results of operations for the last two years reflect the challenges we have faced in restructuring our operations to focus on a smaller group of general hospitals. We believe the actions we have taken will help to return us to profitability; however, the process will take time and our turnaround timeframe is hampered by industry trends that negatively affect our revenue growth and operating expenses. Our future profitability depends significantly on volume growth, reimbursement levels and cost control. Below are some of the highlights from 2004 compared to 2003:

•

Net inpatient revenue per patient day and per admission increased by 0.7% and 1.2%, respectively, despite the implementation, during the last half of the year, of our discounting of self-pay charges under the Compact.



•

Net outpatient visits and outpatient revenue decreased by 4.3% and 4.7%, respectively.



•

Two material patient litigation matters (Redding and Palm Beach Gardens) were settled in the fourth quarter of 2004, resulting in charges to our operations.



•

We refinanced debt and increased liquidity through private placements of debt, pushing our next major maturity out to December 2011, after various debt extinguishments in the first quarter of 2005.



•

Cash used in operating activities was $82 million (prior to capital expenditures and asset sale proceeds), which included payments for restructuring, litigation and settlement costs of $280 million and a use of cash in our discontinued operations of $408 million, which included a $395 million legal settlement related to Redding Medical Center.



•

Loss per diluted share from continuing operations increased $1.61 to $(3.85), reflecting lower revenues due to lower volumes and the closure or sale of certain home health agencies, hospices, clinics and skilled nursing facilities and rehabilitation units and establishing a valuation allowance on deferred tax assets associated with continuing operations of $480 million.

Results of operations—Year ended December 31, 2003 compared to the fiscal year ended May 31, 2002

•

Net inpatient revenue per admission was $9,401 in the year ended December 31, 2003 compared to $9,449 in the year ended May 31, 2002. This decrease is primarily due to the lower outlier revenue beginning January 1, 2003.



•

Patient days and admissions increased by 4.2% and 5.4%, respectively, in 2003.



•

Loss per diluted share from continuing operations was $(2.24) in the year ended December 31, 2003 compared to earnings per share of $0.66 in the year ended May 31, 2002. This decrease reflects lower outlier revenue and increased charges recorded for impairment and restructuring and litigation and investigations.



•

We recorded a loss from early extinguishment of debt of $383 million during the year ended May 31, 2002 in connection with the repurchases of $3.7 billion of debt.



•

Cash flow from operations decreased to $838 million in the year ended December 31, 2003 from $2.3 billion in the year ended May 31, 2002, primarily due to lower net revenues and declining cash flow performance from our hospitals included in discontinued operations.

        The table below shows the pretax and after-tax impact on continuing operations of (1) additional provision for doubtful accounts, (2) goodwill amortization, (3) impairment of long-lived assets and goodwill, (4) restructuring charges, (5) costs of litigation and investigations, (6) loss from early extinguishment of debt, (7) net gains on sales of facilities, long-term investments and subsidiary

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common stock, and (8) impairment of investment securities for the years ended December 31, 2004 and 2003, the seven months ended December 31, 2002, and the year ended May 31, 2002:

LIQUIDITY AND CAPITAL RESOURCES—OVERVIEW

        Net cash used in operating activities was $82 million in the year ended December 31, 2004 compared to net cash provided by operating activities of $838 million in the year ended December 31, 2003. The principal reasons for the change were increased net losses, the payment of litigation settlements and the impact of changes in certain working capital components.

        Proceeds from the sales of facilities, long-term investments and other assets during the year ended December 31, 2004 aggregated $431 million. The proceeds from the actual and anticipated divestitures of our domestic hospitals and our hospital in Barcelona, Spain in the year ended December 31, 2004 and any anticipated tax benefits associated with such divestitures should further bolster our liquidity. We expect a significant portion of the proceeds to be received in the form of tax refunds from anticipated tax losses that will result from these divestitures.

        In June 2004, we issued $1 billion of senior notes due in 2014 and subsequently used a portion of the $954 million of net proceeds, after deducting discounts and related expenses, to repurchase $552 million of senior notes due in 2006 through 2008.

        On December 31, 2004, we terminated our then-existing credit agreement and replaced it with a new $250 million, one-year secured letter of credit facility. The new facility provides for the issuance of up to $250 million in letters of credit and does not provide for any cash borrowings. The new facility is secured by the stock of certain of our subsidiaries and cash collateral equal to 105% of the facility amount (approximately $263 million reflected as restricted cash on the consolidated balance sheet). In January 2005, we sold $800 million of unsecured 9¹/4% senior notes with registration rights in a private placement. The net proceeds from the sale of the senior notes were approximately $773 million after deducting discounts and related expenses. We used the proceeds in February 2005 to redeem our remaining $400 million outstanding senior notes due in 2006 and 2007, and for general corporate purposes. From time to time, we expect to engage in various capital markets, bank credit and other financing activities depending on our needs and financing alternatives available at the time.

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        We are currently in compliance with all covenants in our letter of credit facility and the indentures governing our senior notes. (See Note 6 to the Consolidated Financial Statements.) At December 31, 2004, we had approximately $216 million of letters of credit outstanding under the letter of credit facility, which was fully collateralized by the $263 million of restricted cash. In addition, we had $654 million of unrestricted cash and cash equivalents on hand.

OUTLOOK

        We have implemented a variety of programs and initiatives, previously announced and discussed herein, in an effort to address the various challenges that we presently face. However, we do not anticipate significant improvement in operating performance to be achievable in 2005 because overcoming many of these challenges will require time. These challenges include, but are not limited to, ongoing issues resulting from our prior pricing strategy, provisions for doubtful accounts, reduced net cash flow from operations, and the need to resolve a number of government investigations and legal actions. We believe that our decision to divest all but 69 of our hospitals, the consolidation of our regions, our ongoing program to reduce costs and enhance operating performance, and our clinical quality initiatives will ultimately position us to report improved results of operations. Our hospitals that have already been sold or that are scheduled for divestiture are expected to generate negative cash flow, excluding sales proceeds, in the aggregate, during the entire sale process time period, and the expected long-term benefits of our cost-saving initiatives will be temporarily offset by restructuring costs, costs to implement our planned initiatives, and other costs. In the long term, however, we believe the prospects for the 69 hospitals that we will continue to operate are positive as a whole, relative to their current levels, and the restructuring and other initiatives we have undertaken will position us to improve our future financial performance.

SOURCES OF REVENUE

        We receive revenues for patient services from a variety of sources, primarily, the federal Medicare program, state Medicaid programs, managed care payers (including preferred provider organizations and health maintenance organizations), indemnity-based health insurance companies, and self-pay patients (patients who do not have health insurance and are not covered by some other form of third-party arrangement).

        The table below shows the sources of net patient revenues for our general hospitals, expressed as percentages of net patient revenues from all sources:

(1)

The change is the difference between the 2004 and 2003 amounts shown.

(2)

Includes Medicare Advantage and Medicaid managed care.

GOVERNMENT PROGRAMS

        The Medicare program, the nation's largest health insurance program, is administered by the Centers for Medicare and Medicaid Services of the U.S. Department of Health and Human Services ("CMS"). Medicare is a health insurance program primarily for individuals 65 years of age and older, certain disabled individuals, and people with end-stage renal disease, and is provided without regard to

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income or assets. Medicaid is a program that pays for medical assistance for certain individuals and families with low incomes and resources, and is jointly funded by the federal government and state governments. Medicaid is the largest source of funding for medical and health-related services for individuals with limited income.

        These government programs are subject to statutory and regulatory changes, administrative rulings, interpretations and determinations, requirements for utilization review, and federal and state funding restrictions, all of which could materially increase or decrease government program payments in the future, as well as affect the cost of providing services to patients and the timing of payments to facilities. We are unable to predict the effect of future government health care funding policy changes on our operations. If the rates paid or the scope of services covered by governmental payers are reduced, if we are required to pay substantial amounts in settlement pertaining to government programs, or if we, or one or more of our subsidiaries' hospitals, are excluded from participation in the Medicare, Medicaid or other government health care programs, there could be a material adverse effect on our business, financial position, results of operations or cash flows. The government is investigating various matters, including Medicare outlier payments we received in prior years, as discussed under Part I, Item 3, Legal Proceedings, of this report.

Medicare

        Medicare offers beneficiaries different ways to obtain their medical benefits. One option, the Traditional Medicare Plan is a fee-for-service payment system. The other option, called Medicare Advantage (formerly Medicare + Choice), includes managed care and private fee-for-service plans. The major components of our net patient revenues for services provided to patients enrolled in the Traditional Medicare Plan for the years ended December 31, 2004 and 2003, the seven months ended December 31, 2002 and the year ended May 31, 2002 are set forth in the table below:

Acute Care Hospital Inpatient Prospective Payment System

        Diagnosis-Related Group Payments—Sections 1886(d) and 1886(g) of the Social Security Act (the "Act") set forth a system of payments for the operating and capital costs of acute care hospital stays based on a prospective payment system ("PPS"). Under the PPS, Medicare payments for hospital inpatient operating and capital-related costs are made at predetermined rates for each hospital discharge. Discharges are classified according to a list of diagnosis-related groups ("DRGs"), which group patients with similar clinical characteristics that are expected to require similar amounts of

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hospital resources. CMS assigns to each DRG a relative weight that represents the average resources required to care for cases in that particular DRG, relative to the average resources used to treat cases in all DRGs. Effective October 1, 2004, the federal DRG classification system includes 543 categories.

        The base payment amount for operating costs is comprised of an average standardized amount that is divided into a labor-related share and a nonlabor-related share. Both the labor-related share of the operating base payments and the capital base payments are adjusted by the geographic variations in labor and capital costs. These base payments are multiplied by the relative weight of the DRG assigned to each case. Although these payments are adjusted for area labor and capital cost differentials, the adjustments do not take into consideration an individual hospital's operating and capital costs. The DRG operating and capital base rates are updated annually, giving consideration to the increased cost of goods and services purchased by hospitals. The rate increases that became effective on October 1, 2004 and October 1, 2003 were 3.3% and 3.4%, respectively.

        Outlier Payments—Outlier payments, which were established by Congress as part of the DRG prospective payment system, are additional payments made to hospitals for treating Medicare patients who are costlier to treat than the average patient in the same DRG. To qualify as a cost outlier, a hospital's billed (or gross) charges, adjusted to cost, must exceed the payment rate for the DRG by a fixed threshold established annually by CMS. The Medicare fiscal intermediary calculates the cost of a claim by multiplying the billed charges by the cost-to-charge ratio from the hospital's most recent filed cost report. If the computed cost exceeds the sum of the DRG payment plus the fixed threshold, the hospital receives 80% of the difference as an outlier payment.

        Under the Act, CMS must project aggregate annual outlier payments to all PPS hospitals to be not less than 5% nor more than 6% of total DRG payments ("Outlier Percentage"). The Outlier Percentage is determined by dividing total outlier payments by the sum of DRG and outlier payments. CMS annually adjusts the fixed threshold to bring expected outlier payments within the mandated limit. A change to the fixed threshold affects total outlier payments by changing (1) the number of cases that qualify for outlier payments, and (2) the dollar amount hospitals receive for those cases that still qualify. The most recent change to the cost outlier threshold that became effective on October 1, 2004 was a decrease from $31,000 to $25,800, which CMS projects will result in an Outlier Percentage of 5.1%. In August 2004, CMS estimated that the actual Outlier Percentage for Federal Fiscal Year ("FFY") 2004 will be 3.5%, 1.6 percentage points lower than the 5.1% CMS projected in setting outlier policies for FFY 2004.

        On January 6, 2003, in response to concerns raised by CMS regarding the level of outlier payments we were receiving, we voluntarily submitted a proposal to CMS that would reduce outlier payments to our hospitals retroactive to January 1, 2003. During 2003, CMS issued new regulations governing the calculation of outlier payments to hospitals. Those regulations, which became effective August 8, 2003, included several significant changes, many of which were contemplated in our proposal.

        Our proposal to CMS included a provision to reconcile the payments we would receive under our proposed interim arrangement to those we would have received if the new CMS regulations had gone into effect on January 1, 2003 up to the effective date of the final rules and regulations (the "Reconciliation Period"). Effective August 8, 2003, outlier payments to our hospitals began to be calculated by the fiscal intermediary in accordance with the final rule, which applies to all hospitals. The final determination and outcome of outlier payments under the reduction arrangement continues to be the subject of further review and approval by CMS. The final outcome could result in an additional material increase to the ultimate amount of outlier revenue we could potentially recognize for the Reconciliation Period, but this remains unknown at this point.

        Also, in July 2004 we were informed that CMS is reviewing the application of their rules concerning the use of the statewide ratio of cost to charges for calculating outlier payments for prior years principally related to the acquisition of our Philadelphia-area hospitals in 1998. This matter is

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unresolved at this time and we cannot predict the final outcome. An adverse final determination could result in a material decrease to outlier revenue recorded in prior years.

        Additionally, on December 20, 2002, CMS issued Program Memorandum A-02-126 that instructed Medicare fiscal intermediaries to identify hospitals that "appear, through data analysis, to present the greatest risk to the program." Based on the results of the data analysis, the Program Memorandum instructed the fiscal intermediaries to perform certain audit and review steps of cost reports, charges and medical records. Shortly after the Program Memorandum was issued, we were informed that the required audits and reviews of any of our hospitals would be postponed until CMS issued further guidance to our fiscal intermediary in this regard. In October 2004, we were informed that CMS had instructed our fiscal intermediary to proceed with the required audits and reviews, and we were also advised that 16 of our hospitals, including nine hospitals that are part of our divestiture plan, have been identified as meeting the criteria for audit and/or review. We cannot predict what impact, if any, the results of these audits and reviews will have on Medicare revenue recorded in the current or prior years.

Hospital Outpatient Prospective Payment System

        Under the outpatient prospective payment system, hospital outpatient services, except for certain services that are reimbursed on a fee schedule, are classified into groups called ambulatory payment classifications ("APC"). Services in each APC are similar clinically and in terms of the resources they require, and a payment rate is established for each APC. Depending on the services provided, hospitals may be paid for more than one APC for an encounter. CMS periodically updates the APCs and annually adjusts rates paid for each APC.

        Disproportionate Share Payments—If a Medicare-participating hospital serves a disproportionate share of low-income patients, it receives a percentage add-on to the DRG payment for each case. This percentage varies, depending on several factors that include the percentage of low-income patients served. During 2004, 54 of our hospitals in continuing operations qualified for disproportionate share payments.

        Direct Graduate and Indirect Medical Education—The Medicare program provides additional reimbursement to approved teaching hospitals for additional expenses incurred by such institutions. This additional reimbursement, which is subject to certain limits, including intern and resident full-time equivalent ("FTE") caps established in 1996, is made in the form of Direct Graduate Medical Education ("GME") and Indirect Medical Education ("IME") payments. During 2004, 25 of our hospitals in continuing operations were affiliated with academic institutions and were eligible to receive such payments. Medicare rules permit hospitals to enter into Medicare GME Affiliation Agreements for the purpose of applying the FTE limits on an aggregate basis, and some of our hospitals have entered into such agreements.

Inpatient Psychiatric Prospective Payment System

        Effective January 1, 2005, CMS implemented a new system of reimbursement for hospital inpatient psychiatric services to replace a cost-based payment system. The inpatient psychiatric facility prospective payment system ("IPF-PPS") applies to psychiatric hospitals and psychiatric units located within acute care hospitals that have been designated as exempt from the hospital inpatient prospective payment system. The IPF-PPS includes several provisions to ease the transition to the new payment system. For example, CMS is phasing in the IPF-PPS for existing hospitals and units over a three-year period to avoid disrupting the delivery of inpatient psychiatric services. Full payment under the IPF-PPS begins in the fourth year. The IPF-PPS, which is based on prospectively determined per diem rates, includes a stop-loss provision to protect providers against significant losses during the transition period, and an outlier policy that authorizes additional payments for extraordinarily costly cases.

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        At December 31, 2004, 21 of our hospitals in continuing operations operated Medicare-certified psychiatric units. Because of the aforementioned three-year transition and stop-loss provisions of the IPF-PPS, we do not believe the new payment system will have a material impact on our 2005 inpatient psychiatric payments.

Inpatient Rehabilitation Reimbursement

        Medicare payments to qualifying inpatient rehabilitation facilities are generally higher than those paid under the Medicare acute hospital prospective payment system for similar services. Rehabilitation hospitals and rehabilitation units within acute care hospitals that are designated as exempt from the acute hospital PPS are paid according to the inpatient rehabilitation facility prospective payment system ("IRF-PPS"). Among the criteria established by CMS that a hospital or unit must satisfy to qualify for the exemption from the acute hospital PPS is the ability to demonstrate that a significant percentage of the patients admitted to the rehabilitation hospital or unit have medical conditions requiring rehabilitation as specified in the CMS regulations. Failure to satisfy this requirement could result in the rehabilitation hospital or unit losing its exemption from the acute hospital PPS.

        On April 30, 2004, CMS released a final rule that revises the medical condition criteria rehabilitation hospitals and units must meet. The new regulations make it possible for facilities treating a broader range of patients who require intensive rehabilitation to qualify for payments as inpatient rehabilitation facilities. It does so by, among other things, increasing the number of qualifying medical conditions from 10 to 13. The final rule also replaced the current 75% compliance threshold with a three-year transition compliance threshold of 50%, 60% and 65% for years one, two and three, respectively, that commences with cost reporting periods beginning on or after July 1, 2004. At the end of the three-year transition period, the compliance threshold will be 75% if CMS does not take further regulatory action.

        At December 31, 2004, we operated two inpatient rehabilitation hospitals and 20 of our hospitals in continuing operations operated inpatient rehabilitation units. Based on our preliminary analysis, approximately 50% of these 20 hospital units and two inpatient rehabilitation facilities do not meet the first year 50% compliance threshold. With respect to the compliance threshold, the final rule contains a 12-month review period, which for 10 of our units and facilities commenced on September 1, 2004; the review period for the remaining 12 units and facilities commenced on February 1, 2005. The results of the 12-month review will determine the facility's or unit's eligibility for payment under the IRF-PPS for the first cost reporting period that begins after the end of the review period.

        In accordance with the Consolidated Appropriations Act, 2005 enacted on December 8, 2004, CMS may not use the revised requirements to change the classification of inpatient rehabilitation facilities or units that were classified as such until CMS either: (1) determines that the current regulations are not inconsistent with a soon-to-be-released Government Accountability Office ("GAO") inpatient rehabilitation facility ("IRF") study; or (2) issues an interim final rule revising the regulations used to classify a facility as an inpatient rehabilitation facility in accordance with the provisions of the GAO IRF study.

        If our rehabilitation hospitals and units fail to continue to qualify as inpatient rehabilitation facilities, our business, financial position, results of operations or cash flows could be materially adversely affected.

Cost Reports

        The final determination of certain Medicare payments to our hospitals, such as IME, GME, disproportionate share, and bad debt expense, are retrospectively determined based on our hospitals' cost reports. The final determination of these amounts often takes many years to resolve because of

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audits by the program representatives, providers' rights of appeal, and the application of numerous technical reimbursement provisions.

        Prior to the fourth quarter of 2003, we recorded estimates for contractual allowances and cost report settlements based on amounts generated from information accumulated from various accounting and information systems. Adjustments to these accruals were generally made upon the final settlement of Medicare and Medicaid cost reports. In the fourth quarter of 2003, we completed the implementation of a new system and estimation process for recording Medicare net revenue and estimated cost report settlements. This resulted in a refinement in recording the accruals to more closely reflect the expected final settlements on our cost reports. For filed cost reports, we now record the accrual based on those cost reports and subsequent activity, and record a valuation allowance against those cost reports based on historical settlement trends. The accrual for periods for which a cost report is yet to be filed is now recorded based on estimates of what we expect to report on the filed cost reports and a corresponding valuation allowance is recorded as previously described. Cost reports must be filed generally within five months after the end of the annual cost report reporting period. After the cost report is filed, the accrual and corresponding valuation allowance may need to be adjusted.

Medicaid

        Medicaid programs are funded by both the federal government and state governments. These programs and the reimbursement methodologies are administered by the states and vary from state to state.

        Estimated payments under various state Medicaid programs, excluding state-funded managed care programs, constituted approximately 7.4% of net patient revenues at our continuing general hospitals for the year ended December 31, 2004. These payments are typically based on fixed rates determined by the individual states. We also receive disproportionate-share payments under various state Medicaid programs. For the years ended December 31, 2004 and 2003, our disproportionate-share payments and other state-funded subsidies were approximately $78 million and $76 million, respectively.

        Many states in which we operate are facing budgetary challenges that pose a threat to Medicaid funding levels to hospitals and other providers. We expect these challenges to continue; however, we cannot predict the extent of the impact of the states' budget reductions on our hospitals. Also, any changes to federal Medicaid funding methodologies or levels to the states could materially adversely impact Medicaid payments to our hospitals.

Legislative and Regulatory Changes

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003

        The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 ("MMA") (P.L. 108-173), which was signed into law on December 18, 2003, includes several provisions affecting hospital Medicare and Medicaid reimbursement. Below is a summary of the significant provisions affecting our hospitals' reimbursement:

        Medicare—Medicare inpatient prospective payment system payments were increased by 3.3% in FFY 2004, a rate equal to the full market basket index. For FFYs 2005, 2006 and 2007, hospitals will receive an inpatient update equal to the full market basket rate if they submit quality performance data to the U.S. Department of Health and Human Services ("HHS"). Those hospitals not submitting quality performance data for 10 quality measures will receive an increase equal to the market basket rate minus 0.4 percentage points. The update reduction is a one-year adjustment and does not affect the base amount inflated from year to year. Hospitals not submitting quality data in FFY 2005 may choose to submit data in 2006 or 2007 and would then receive a full inflationary update. In order to

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qualify for the full market basket update, hospitals must submit performance data on all patients on the 10 quality measures that are a subset of common hospital performance measures developed and aligned by CMS and the Joint Commission on Accreditation of Healthcare Organizations and endorsed by the National Quality Foundation. All of our hospitals currently participate in the National Voluntary Initiative and will, as required by CMS, report the quality data on all 10 measures to receive the full market basket update.

        The indirect medical education adjustment decreases from 6.0% at the end of FFY 2004 to 5.8% in FFY 2005 then to 5.55% in FFY 2006 and down to 5.35% in FFY 2007. It increases to 5.5% for FFY 2008 and beyond.

        Medicaid—The reduction in Medicaid Disproportionate Share hospital funding (referred to as the "DSH cliff") in FFY 2004 was eliminated and the DSH allotment increased 16% over FFY 2003 levels. Subsequent years are frozen at 2004 levels until the allotment level intersects with where it would have been absent relief from the Balanced Budget Act. Increases thereafter are tied to the change in the Consumer Price Index.

Annual Update to the Medicare Inpatient Prospective Payment System

        Under Medicare law, CMS is required annually to update certain rules governing prospective payments for acute, rehabilitation and skilled nursing facilities. The updates generally become effective October 1, the beginning of the federal fiscal year. On August 11, 2004, CMS issued the final inpatient hospital prospective payment rules for FFY 2005. The final rules implement major provisions of the MMA pertaining to hospital payments. CMS projects that the combined impact of the changes will yield an average 5.4% increase in inpatient payments for large urban (populations over one million) hospitals. Significant changes include:

•

An inflation update for DRG operating payments equal to the hospital market basket percentage of 3.3% for hospitals reporting specified quality data.



•

A decrease in the cost outlier threshold from $31,000 to $25,800.



•

An increase in the number of DRGs subject to the post-acute transfer policy from 29 to 30.

        Other changes include:

•

Replacing the Metropolitan Statistical Areas and New England County Metropolitan Areas with the new Core Based Statistical Area definitions for purposes of determining hospital geographic classification.



•

A 0.7% inflation update for DRG capital payments.



•

Implementing a provision of the MMA that redistributes unused residency slots to teaching hospitals for purposes of calculating Medicare payments for direct and indirect graduate medical education.



•

Incorporating 10% of the Occupational Mix Adjustment to the prospective payment wage index that is used to account for geographic differences in labor costs. Section 1886(d)(3)(E) of the Social Security Act requires CMS to collect data every three years on the occupational mix of employees for each acute care hospital participating in the Medicare program in order to construct an occupational mix adjustment to the wage index.

Annual Update to the Medicare Outpatient Prospective Payment System

        On November 15, 2004, CMS issued the final changes to the Hospital Outpatient Prospective Payment System and Calendar Year 2005 Payment Rates. CMS projects that the combined impact of the proposed changes will yield an average 3.9% increase in outpatient payments for large urban (populations over one million) hospitals.

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Medicare Payment Advisory Commission Recommendation

        The Medicare Payment Advisory Commission ("MedPAC"), an independent federal body established by the Balanced Budget Act of 1997, advises the U.S. Congress on issues affecting the Medicare program, including payments to providers and health plans participating in Medicare, and analyzes access to care, quality of care and other issues affecting Medicare. On January 12, 2005, the MedPAC Commissioners approved a recommendation calling for a FFY 2006 payment update for inpatient and outpatient payments of market basket minus 0.4%. Current forecasts project that the market basket of hospital goods and services will increase 3.1% in FFY 2006.

        The MedPAC Commissioners also voted unanimously to recommend that Congress extend until January 1, 2007 an existing moratorium that prohibits the development of new limited-service facilities, such as specialty hospitals in which the physicians have an ownership interest, and recommended a number of payment policy changes designed to address the payment inequities created by limited-service facilities.

        On March 1, 2005, the MedPAC released its March 2005 Report to Congress: Medicare Payment Policy ("March Report"). Included in the March Report are the following recommendations:

•

Medicare should pay more for higher quality performance from hospitals, home health agencies and physicians.



•

For hospital inpatient and outpatient prospective payment systems, payment updates equal a market basket index minus 0.4 percent.

        The March Report also states that in a forthcoming Congressional report on physician owned specialty hospitals, MedPAC is recommending several refinements to the acute inpatient PPS that will improve the accuracy of payments at the case level. These include:

•

Refining the current DRGs to more fully capture differences in severity of illness among patients;



•

Basing the DRG relative weights on the estimated cost of providing care, rather than on charges;



•

Basing the weights on the national average of hospitals' relative costs in each DRG; and



•

Adjusting the DRG relative weights to account for differences in the prevalence of high-cost outlier cases.

        We cannot predict what action Congress or HHS will take on these recommendations or the impact, if any, these recommendations will have on our hospitals.

2006 Federal Budget Proposal

        On February 7, 2005, the White House released its FFY 2006 budget proposal to Congress. The President's budget proposal assumes: (1) a full market basket increase for hospital inpatient and outpatient services as specified under current law and (2) expansion of the Medicare transfer payment policy for hospital inpatients transferred to post acute settings. The budget proposal also includes (1) an endorsement of the MedPAC proposal to address the payment inequities between acute care hospitals and limited-service specialty facilities in which physicians have an ownership interest and (2) a number of reform measures to the Medicaid program, which could reduce federal Medicaid spending, as well as proposed new spending initiatives designed to improve access to health insurance. We cannot predict the final outcome of the President's budget proposal or the effect it may have on our hospitals and facilities.

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PRIVATE INSURANCE

Managed Care

        We currently have thousands of managed care contracts with various health maintenance organizations ("HMOs") and Preferred Provider Organizations ("PPOs"). HMOs generally maintain a full-service health care delivery network comprised of physician, hospital, pharmacy and ancillary service providers that HMO members must access through an assigned "primary care" physician. The member's care is then managed by his or her primary care physician and other network providers in accordance with the HMO's quality assurance and utilization review guidelines so that appropriate health care can be efficiently delivered in the most cost-effective manner. HMOs typically provide no benefit or reimbursement to their members who use non-contracted health care providers.

        PPOs generally offer limited benefits to members who use non-contracted health care providers. PPO members who use contracted health care providers receive a preferred benefit, typically in the form of lower co-payments or deductibles. As employers and employees have demanded more choice, managed care plans have developed hybrid products that combine elements of both HMO and PPO plans.

        The amount of our net patient revenue under managed care contracts during the years ended December 31, 2004 and 2003 was $4.8 billion and $5.0 billion, respectively, and is anticipated to be approximately $5 billion for our continuing operations in 2005. Approximately 34% of our managed care net patient revenues during 2004 related to our top five managed care payers. At December 31, 2004 and 2003, approximately 55% and 45%, respectively, of our net accounts receivable related to continuing operations are due from managed care providers. A majority of our managed care contracts are "evergreen" contracts. Evergreen contracts extend automatically every year, but may be renegotiated or terminated by either party after giving 90 to 120 days notice. In the past several years, we have renewed or renegotiated over 90% of these agreements. National payers generate in excess of 40% of our total net managed care revenues, although these agreements are often negotiated on a local or regional basis. The remainder comes from regional or local payers.

        Generally, managed care plans prefer fixed, predictable rates in their contracts with health care providers. Managed care plans seeking to pay fixed and predictable rates frequently pay for hospital services on a capitation, DRG or per diem basis. Capitation is the least common of the three fixed payment methods. Under capitation, the hospital is paid a fixed amount per HMO member each month for all the hospital care of a specific group of members. Managed care plans also pay hospitals a fixed fee based upon the DRG assigned to each patient. The DRG is a health care industry code that is based upon the patients' diagnosis at time of discharge. HMOs and PPOs may also reimburse hospitals on a "per day" or "per diem" basis. Under a per diem payment arrangement, the hospital is reimbursed a fixed amount for every day of hospital care delivered to a member. Per diem payment arrangements generally represent less financial risk to a hospital than capitation payment arrangements because the amount paid varies with the number of days of care provided to each patient. The financial risk of per diem agreements is further mitigated by the fact that most contracts with per diem payment arrangements also contain some form of "stop-loss" provision that allows for higher reimbursement rates in difficult medical cases where the hospital's billed charges exceed a certain threshold amount. The majority of our managed care contracts are based on per diem payments with a stop-loss payment component as well.

        With mixed success, we have been working to transition key managed care payers to contracts that use fixed, predictable market-based per diems that are less dependent on stop-loss payments, and that provide for market-based rate escalators and terms and conditions designed to help us reduce our provision for doubtful accounts.

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        In the past, our managed care policy was developed and implemented almost exclusively at the local hospital or regional level. However, we now have a team at the corporate level to develop a strategy to support our hospitals in their managed care relationships and provide a more consistent message to payers that will focus on performance management and assessment.

        Our new approach to managed care is built around the development of key competencies in the following areas: (1) strategy, policy and initiatives; (2) individualized key payer strategies; (3) managed care economics; (4) regional contracting support for our hospital regions; and (5) centralized data base management, which will enhance our ability to effectively model contract terms and conditions for negotiations, and improve the efficiency and accuracy of our billing procedures.

Indemnity

        An indemnity-based agreement generally requires the insurer to reimburse an insured patient for health care expenses after those expenses have been incurred by the patient, subject to an increasing number of policy conditions and exclusions. Unlike an HMO member, a patient with indemnity insurance is free to control his or her utilization of health care and selection of health care providers.

SELF-PAY PATIENTS

        Self-pay patients are patients who do not qualify for government programs payments, such as Medicare and Medicaid, or who do not have some form of private insurance, and are, therefore, responsible for their own medical bills. We have seen an increase in the number of self-pay patients at our hospitals. A significant portion of this patient volume is being admitted through the emergency department and often requires high-acuity treatment. High-acuity treatment is more costly to provide and, therefore, results in higher billings, which are the least collectible of all accounts. We believe this trend is due to a combination of broad economic factors, including unemployment levels, reductions in state Medicaid budgets, increasing numbers of individuals and employers who choose not to purchase insurance, and an increased burden of co-payments and deductibles to be made by patients instead of insurers.

        Self-pay accounts pose significant collectibility problems. At December 31, 2004 and 2003, approximately 8% and 18%, respectively, of our net accounts receivable related to continuing operations are due from self-pay patients. This reduction was primarily due to the additional provision for doubtful accounts discussed in Note 3 to the Consolidated Financial Statements. The majority of our provision for doubtful accounts relates to self-pay patients. We are taking multiple actions in an effort to mitigate the effect on us of the rapid growth in uninsured patients and the related economic impact. These initiatives include conducting detailed reviews of intake procedures in hospitals facing the greatest pressures, and enhancing and updating intake best practices for all of our hospitals. Hospital-specific reports detailing collection rates by type of patient were developed to help the hospital management teams better identify areas of vulnerability and opportunities for improvement. Also, we have completely redesigned our self-pay collection workflows, enhanced technology and improved staff training to increase collections.

        Over the longer term, several other initiatives we have previously announced and begun to implement should also help address this emerging challenge. For example, our Compact, which is discussed above, is enabling us to offer lower rates to uninsured patients who historically have been charged standard gross charges.

        We provide care without charge to certain patients and, for other charity care patients who meet certain financial or economic criteria, we discount the amount of gross charges whereby the amount billed is substantially lower than our established charges. Our policy is to not pursue collection of amounts determined to qualify as charity care; accordingly, we do not report them in net operating revenues or in provision for doubtful accounts. For the year ended December 31, 2004, gross charges of $573 million in charity care were excluded from operating revenues and provision for doubtful accounts compared to $740 million in 2003 (see Note 2C to the Consolidated Financial Statements).

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RESULTS OF OPERATIONS

        The following two tables show a summary of our net operating revenues, operating expenses and operating income or loss from continuing operations, both in dollar amounts and as percentages of net operating revenues, for the years ended December 31, 2004 and 2003, the seven months ended December 31, 2002 and the year ended May 31, 2002: