hca annual reports2002

HCA 2002
Annual Report
Table of Contents Mission and
for This PDF File Values Statement
Above all else, we are committed to the care and
Mission and Values Statement. . . . . . . . . . . . . . . . . . . . 2
Financial Highlights. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 improvement of human life. In recognition of this
HCA Cares / The Program . . . . . . . . . . . . . . . . . . . . . . 4 commitment, we will strive to deliver high quality, cost-
Letter to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . 5 effective healthcare in the communities we serve.
HCA Cares Profile: Johna Voss . . . . . . . . . . . . . . . . . . . 8 In pursuit of our mission, we believe the following value
HCA Cares Profile: Roman Juarez. . . . . . . . . . . . . . . . . 9 statements are essential and timeless:
HCA Cares Profile: Denise Cantrell . . . . . . . . . . . . . . 10
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . 11 1. We recognize and affirm the unique and
Management’s Discussion and Analysis of
intrinsic worth of each individual.
Financial Condition and Results of Operations . . . 13
Report of Management . . . . . . . . . . . . . . . . . . . . . . . . 28
2. We treat all those we serve with compassion
Report of Independent Auditors . . . . . . . . . . . . . . . . . 28
and kindness.
Consolidated Financial Statements
Income Statements . . . . . . . . . . . . . . . . . . . . . . . . 29
3. We act with absolute honesty, integrity and
Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
fairness in the way we conduct our business
Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . 31
and the way we live our lives.
Cash Flows. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Notes to Consolidated Financial Statements. . . . . . . . 33
4. We trust our colleagues as valuable
Quarterly Consolidated Financial Information . . . . . 55
members of our healthcare team and
Senior Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
pledge to treat one another with loyalty,
Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
respect, and dignity.
Corporate Information . . . . . . . . . . . . . . . . . . . . . . . . 57

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2

FinancialHighlights
2002 2001
Years Ended December 31
(Dollars in millions, except per share amounts)

Results of Operations
$ 19,729
Revenues $ 17,953
$ 3,901
EBITDA (a) $ 3,421
Adjusted net income, excluding settlement with Federal government,
gains on sales of facilities, impairment of investment securities,
impairment of long-lived assets, investigation related costs and
$ 1,409
loss on retirement of debt (b) $ 1,112
$ 833
Adjusted net income (c) $ 955
Diluted earnings per share:
Adjusted net income, excluding settlement with Federal government,
gains on sales of facilities, impairment of investment securities,
impairment of long-lived assets, investigation related costs and
$ 2.68
loss on retirement of debt (b) $ 2.07
$ 1.59
Adjusted net income (c) $ 1.78
525,219
Shares used in computing diluted earnings per share (in thousands) 538,177

Financial Position
$ 18,741
Assets $ 17,730
766
Working capital 957
6,943
Long-term debt, including amounts due within one year 7,360
611
Minority interests in equity of consolidated entities 563
5,702
Stockholders’ equity 4,762
52.4%
Ratio of debt to debt plus common, temporary and minority equity 56.2%

Other Data (d)
173
Number of hospitals at end of period 178
39,932
Licensed beds at end of period 40,112
21,509
Average daily census 21,160
1,582,800
Admissions 1,564,100
37.0%
Outpatient revenues as a percentage of total patient revenues 37.1%
a) EBITDA for 2002 and 2001, respectively, is defined as income before: depreciation and b) During 2002 and 2001, respectively, the Company recorded net charges of $576 (net of
amortization ($1,010 and $1,048), interest expense ($446 and $536), settlement with tax benefits), and $157 (net of tax benefits) related to the settlement with Federal
Federal government ($603 and $262), gains on sales of facilities ($6 and $131), impairment government, gains on sales of facilities, impairment of investment securities, impairment
of investment securities ($168 for 2002), impairment of long-lived assets ($19 and $17), of long-lived assets, investigation related costs and loss on retirement of debt.
investigation related costs ($58 and $65), loss on retirement of debt ($28 for 2001),
minority interests ($148 and $119) and income taxes ($622 and $591). HCA uses EBITDA c) Adjusted net income excludes $76 ($69 net of tax benefits) of goodwill amortization for 2001.
as an analytical indicator for purposes of allocating resources to geographic areas and
assessing their performance. EBITDA is commonly used as an analytical indicator within d) Excludes data for six hospitals at December 31, 2002 and at December 31, 2001, that are not
the health care industry, and also serves as a measure of leverage capacity and debt service consolidated (accounted for using the equity method) for financial reporting purposes.
ability. EBITDA should not be considered as a measure of financial performance under
generally accepted accounting principles, and the items excluded from EBITDA are
significant components in understanding and assessing financial performance. Because The terms “HCA” or the “Company” as used in this Annual Report refer to HCA Inc. and
EBITDA is not a measurement determined in accordance with generally accepted its affiliates, unless otherwise stated or indicated by context. The term “facilities” refers
accounting principles and is thus susceptible to varying calculations, EBITDA as presented to entities owned or operated by subsidiaries or affiliates of HCA. References herein to
may not be comparable to other similarly titled measures of other companies. “HCA employees” or to “our employees” refer to employees of affiliates of HCA.

3

HCA Cares
The Program
Through a unique public-private endeavor called with HCA and the U.S. Department of Labor each
HCA Cares, HCA, the U.S. Department of Labor and contributing $5 million. By combining resources,
partner nursing programs across the country are the two organizations are providing funds for new
developing the healthcare workforce of the future. scholarships, childcare and transportation services
HCA Cares is a national scholarship program for scholarship recipients and training resources,
that is training people for careers in healthcare and including faculty, classroom space and supplies. In
then employing them at HCA hospitals. An innovative 2002, new markets were added to the program and
$15 million partnership, HCA Cares was originally HCA contributed an additional $5 million to meet
created to help people who lost jobs following the the overwhelming demand for these healthcare
tragedy of September 11 and to help solve the scholarships.
national shortage of healthcare professionals. So far, HCA Cares has awarded 500 scholarships
Today, the collaborative program is helping valued at more than $5.7 million. Scholarship
train students to become nursing professionals, recipients come from a variety of industries, including
surgical technicians and radiology technologists, airline, restaurant, telecommunications, banking
depending on local needs, by enabling qualified and tourism. Some of them lost their jobs following
individuals to enroll in some of the country’s top September 11, while others are under-employed or
nursing and medical technology schools. unemployed and hoping to fulfill long-time dreams
The program was launched in December 2001, by starting new careers in healthcare.

At HCA, we believe that the trained nurse is
the heart and soul of any healthcare organization.

4

ShareholderLetter
Dear Shareholders,
that motivated us to reinvest. We continue to make this
commitment to our facilities, knowing this measure of
The year 2002 was remarkable for HCA in many ways,
financial support is integral to each hospital, its caregivers,
and for us, it was significant on a personal level. With its
and its community. In the coming year, we expect our
culmination, 2002 was the first full year we served as HCA’s
capital spending for our hospitals to grow to $2 billion.
Chairman/CEO and President/COO. We are proud of that
Our goal is to appropriately develop the facilities in
fact, not only because we have the good fortune to work
our networks through reinvestment. We have, however,
with what we believe is one of the finest management teams
also remained open to the opportunities presented by key
and the best network of hospitals in healthcare today, but
acquisitions that are consistent with our strategic vision.
more notably because this past year brought achievements
One such opportunity came in 2002, with the invitation
in a number of important areas. The Company’s advances
to purchase a group of hospitals in Kansas City. Health
in technology and demonstrated commitment to patient
Midwest is a network of hospitals located throughout
safety, combined with sound financial performance, were
densely-populated neighborhoods on both the Kansas
reason enough to be pleased; but those results were
and Missouri sides of the greater Kansas City area. We
accompanied by other positive events.
believe the ownership of these facilities is consistent with
In 2002, HCA achieved significant progress towards
our goal to serve as a leading provider in large urban and
resolving the various investigations of the Company by
suburban communities throughout the United States.
the Federal government. In March, we reached an
Our commitment includes a considerable infusion of
understanding with the Centers for Medicare and Medicaid
capital that will bring the facilities in this system some
Services (CMS) to close the books on more than 2,600 cost
much needed improvements in equipment, technology
reports and home office cost statements, as well as related
and care advancements.
appeals. This understanding put a great deal of uncertainty
We believe the Health Midwest hospital system will
behind us…but there was more good news to come. In
benefit not only from the financial support we offer, but
December, we reached an understanding with the U.S.
also from the operating solutions HCA will bring to the
Department of Justice to resolve all remaining civil issues
organization. Our initiatives in employee recruitment,
related to cost reports, physician relations, and wound care
issues, signaling an end to a period of
We know the importance of direct investment in our people.
government investigation that has
patient safety, information systems, clinical technology,
arguably been the most difficult time in the Company’s
and best practices will add value to the Health Midwest
history. We are most pleased we were able to reach
enterprise.
understandings to put these issues behind us. Yet even as we
Our commitment to our hospitals is not limited to
work toward the expected approvals needed to resolve these
buildings and equipment. Caregivers are the heart of the
issues, we have remained focused on strengthening our
service we provide. We understand the burden we face as
hospitals, corporate infrastructure, and patient care services.
an industry is, in large part, borne by the men and women
In 2002, HCA reinvested a record $1.7 billion in
who care for our patients every day. The development of
existing facilities, primarily in new patient care beds,
equipment and technology can help to address some of the
emergency departments, and diagnostic and treatment
caregiver’s burden, but it is also important to recognize the
technology. While our strong operating performance
contribution our workforce makes to the provision of
enabled us to make this expenditure, it was our
quality care and to reward them for those efforts. We know
longstanding commitment to the communities we serve

5

the importance of direct investment in our people. $10 million, and the Federal government’s contribution of
HCA’s objective is to be the employer of choice in our $5 million, many of these individuals will realize their
markets. To that end, we seek to ensure that we remain dream of becoming a nurse or other medical professional.
competitive in the compensation and benefits we provide. When these students complete their course of study, they
We also want to make possible regular advancement will become employees in our hospitals. HCA Cares is one
among our workforce. One of the advantages our family of way we are working to make certain our facilities
approximately 190 hospitals offers, is the collective continue to maintain a full complement of dedicated,
opportunity it provides for career development. Our compassionate, highly-trained caregivers. The Army PaYS
efforts appear to have made an impact. Despite program is another.
continuing challenges in the hospital industry, HCA’s A cooperative effort with the U.S. Army, the PaYS
employee satisfaction levels showed solid improvements in program is designed to provide an opportunity for military
the past year and are now at record levels. Our turnover men and women who desire to pursue a career path in
rate among employees has slowed, indicating a reduction in healthcare after they leave active military duty. This
expenses and a more stable work environment. unique effort not only addresses the shortage of trained
These improvements in the stability of our current medical professionals, it also supports men and women
workforce are promising, but the rising shortage of nurses who have served our country through military service.
and other healthcare workers in this country is a problem Looking to the future is important, not only for the
that can’t be solved without a longer term perspective.
Perhaps our greatest challenge is to ensure the continuing
availability of skilled, caring medical professionals for our
hospitals. With that in mind, we initiated several longer
term initiatives in 2002 to encourage the ongoing
development of a competent and talented workforce.
HCA’s Leadership Training Program focuses on
enhancing management skills. This program is geared
specifically to help managers improve their ability to
supervise those employees who report to them. It has
long been acknowledged that employees don’t leave
organizations, they leave supervisors. The goal of this
training initiative is to provide over 1,200 managers with
the knowledge and tools to successfully improve retention
and employee satisfaction levels at HCA.
In December of 2001, HCA announced the creation of
a scholarship program designed to allow more individuals
to pursue healthcare careers. Designed to assist workers
displaced as a result of the September 11, 2001 tragedy,
the HCA Cares program, in partnership with the U.S.
Richard M. Bracken, President and COO (seated)
Department of Labor, received over 12,000 inquiries in
and Jack O. Bovender, Jr., Chairman and CEO (standing)
2002 from interested applicants. Through our donation of

6

development of skilled clinical staff, but also for the however, not rest on past performance. The “baby boom”
creation and implementation of leading technology. In generation is increasing the median age of America’s
2002, we emphasized patient safety through advancements population creating a significant increase in demand for
in both technology and training. With the continued healthcare facilities. The continuing development of better
rollout of the Electronic Medication Administration technologies offers greater improvements in care but also
Record (EMAR), a bar coding mechanism similar to that brings increases in costs. Against these trends, the ability
employed in grocery stores and other retail establishments, to provide quality healthcare, at an affordable rate, for all
we are implementing systems to further reduce medication our citizens, is a challenge.
errors. Our goal is that within two years this system will be Our communities face new burdens from the potential
at every HCA hospital. threat of bio-terrorism and large natural disasters. In many
The past year also saw the early stages of development of our communities, HCA facilities provide a third of all
for Electronic Physician Order Management (EPOM). This healthcare services. If disaster strikes we must be ready.
system, now in the testing phase, will enhance patient care HCA now sponsors two medical teams that can be
mobilized by the U.S.
...HCA supports a number of initiatives within our industry designed
Department of Health
to improve healthcare satisfaction, quality, and accountability.
and Human Services in a
in the future. By allowing for the real-time electronic entry time of need. Within the communities we serve, we are
and recording of physician orders in the clinical record, assisting all of our hospitals in the development of
EPOM will help eliminate confusion and time lags in the community-based readiness programs.
delivery of medicine and other treatments to patients. Like The past year has seen HCA undergo another
the bar coding system, over time we plan to make EPOM generation of change. As we assumed our new leadership
available in every HCA facility. We believe our continuing roles, we renewed our focus on operational excellence and
commitment to advancements such as these will reinforce reinvestment in our communities; we emphasized a new
o u r p o s i t i o n a s a l e a d i n g p rov i d e r o f s a f e a n d level of commitment to patient safety and the delivery of
compassionate healthcare services. quality care; and we reaffirmed our dedication to corporate
In addition to these internal efforts, HCA supports a integrity throughout our organization.
number of initiatives within our industry designed As our Mission and Values Statement reminds us, we
to improve healthcare satisfac tion, qualit y, and must “act with absolute honesty, integrity and fairness in
accountability. We have recently joined both The Leapfrog the way we conduct our business and the way we live our
Group, a coalition of major employers who have come lives.” That is the essence of who we are at HCA. This is
together to address healthcare quality and patient safety the commitment we bring to you for the future.
issues and the National Quality Forum, a standards
Sincerely,
commission organized to develop and implement
national standards for healthcare quality measurement
and reporting. As a leading provider of healthcare
Jack O. Bovender, Jr. / Chairman and CEO
services in the United States, our goal in these efforts is to
contribute to a common approach for the measurement
and reporting of healthcare quality.
Last year was full of accomplishments. We will, Richard M. Bracken / President and COO

7

For Johna Voss, 2001 was a year of dramatic change.
A housewife for five years, the HCA Cares
scholarship recipient from Ft. Worth, Texas separated
from her husband and, with her five-year-old
daughter, Asa, moved back home with her mother.
Johna, 29, quickly found a job teaching at a daycare
center and began thinking about a career in healthcare.
“A lot of my aunts are nurses, and they always
encouraged me to go into nursing,” Johna said. “I
thought I’d better jump in there and get my license. I
didn’t know how I’d do it, but I knew I wanted to.”

JohnaVoss By December, with her divorce finalized, Johna
was attending night school to prepare for the
Licensed Vocational Nurse program, teaching at the
daycare center, raising her daughter and “struggling
with everything.” While it wasn’t easy, she was moving
toward her goal until she lost her job at the daycare
center – which cared for many children whose
parents were pilots or flight attendants – due to the
effects of September 11.
Still focused on a nursing career, despite not
knowing how she’d pay for tuition, books and other
expenses, Johna visited a Workforce Development
Office two weeks before the one-year LVN program
started in early 2002. That’s when she heard about
HCA Cares.
“It’s been exciting,” she said. “I started off anxious
“I’m thankful for HCA Cares, and unsure whether I could do it. I’m thankful for
HCA Cares, because I know that without it, I
because I know that without it,
wouldn’t have been able to do this. I thank God for
I wouldn’t have been able to do this.” HCA and this program. They’re enabling me to make
a better life for me and my baby.”
When she completes her training, Johna would
like to work in labor and delivery or the emergency
department.
“Recently I had a chance to follow one of the
surgical techs around in labor and delivery, and that
is a very interesting job. In the ER, you see everything.
To get a chance to help someone, it’s an adrenaline
rush, and I love it.”

8

When Ralph “Roman” Juarez heard about the HCA
Cares scholarship program last year, he didn’t waste
any time pursuing a new career in nursing.
“The demand was there for RNs (Registered
Nurses), and the scholarship was available, so I
jumped on it,” said Roman, who had been looking to
make a career change. “I feel very fortunate to get the
scholarship. I’m very blessed.”
Roman, 40, worked as a paramedic until June of
2002. After sustaining a back injury and realizing he
had accomplished all he could as an Emergency

RomanJuarez Medical Technician and then paramedic, the 12-year
veteran of emergency medicine decided it was time to
make a professional change. But, Roman, who as a
child “always wanted to help people,” knew he wanted
to stay in healthcare.
A graduate of the University of Colorado at
Boulder with a bachelor’s degree in recreation
therapy, Roman returned to school last summer to
take prerequisites for a nursing program. While
talking with someone from Community College of
Denver (CCD), Roman found out about a newly
developed accelerated RN program and that he was
eligible to receive an HCA Cares scholarship.
“It all happened rather quickly,” Roman said.
“When they told me I got the scholarship I had to
finish my prerequisites a little early to qualify. I went
into the nursing school a week later.”
His HCA Cares scholarship pays for his tuition,
“I’ve always wanted to help people, books and uniforms. To cover living expenses, Roman
and now there are a lot of great options works part-time as an EMT instructor, teaching
skills such as intubation, wound care and limb
that come with having an RN degree.”
immobilization to paramedic trainees.
One of just 32 students in CCD’s accelerated
nursing program, Roman is scheduled to graduate
this November. After completing his training, Roman
plans to put his emergency background to work at
Swedish Medical Center, a Level I trauma center.
“It’s been a blessing,” said Roman, who would
have had to enroll in a two-year program without the
HCA Cares scholarship. “It’s huge. I can get this all
done in a little over a year.”

9

When Denise Cantrell was a child growing up in
Georgia, she used to pretend she was a nurse, applying
bandages to her dolls. Since as early as she can
remember, this has always been her dream.
While she had to put her career plans on hold for
a while, today Denise is an HCA Cares scholarship
recipient training to fulfill her dream of being a nurse.
“I had planned to become a nurse after high
school,” she said. “But, I had my son, Brett, and that
changed my plans.”

DeniseCantrell Instead, the proud mom from Lawrenceville, Ga.
worked at a bank for several years. In early 2001,
Denise, 30, accepted a job as an administrative
assistant at an engineering firm. Unfortunately – or
so it seemed – plans changed again when the
engineering firm downsized and Denise lost her job
in June. That’s when she decided to pursue her goal to
become a Registered Nurse.
“I looked through the paper, and nurse jobs were
everywhere,” Denise said. “There were pages and
pages of nursing jobs. I thought, okay, this is the
perfect time.”
Fortunately for Denise, she found out about HCA
Cares. While the Workforce Investment Act funding
pays for her tuition, books and other fees, Denise’s
HCA Cares scholarship provides a monthly living
stipend that helps pay her rent and childcare expenses
while she pursues her RN training.
“If it wasn’t for HCA Cares, there’s no way I’d be
able to continue with school,” said Denise. “The
school load is so demanding that there’s no way I
could have worked full-time.”
In August, she enrolled in the Registered Nursing
“If it wasn’t for HCA Cares, there’s no program at North Georgia College & State University
in Dahlonega, Ga. Scheduled to graduate this year,
way I’d be able to continue with school.”
Denise juggles a full schedule that includes raising her
11-year-old son Brett, class, clinical training, a part-
time job as a nurse technician, Brett’s baseball games
and, of course, studying.
“I enjoy taking care of people,” said Denise. “This is
something I’ve wanted to do since I was a little girl.”

10

HCA Inc.
Selected Financial Data, as of and for the Years Ended December 31

2002 2001 2000 1999 1998
Summary of Operations:
Revenues $ 19,729 $ 17,953 $ 16,670 $ 16,657 $ 18,681

Salaries and benefits 7,952 7,279 6,639 6,694 7,766
Supplies 3,158 2,860 2,640 2,645 2,901
Other operating expenses 3,341 3,238 3,208 3,306 3,865
Provision for doubtful accounts 1,581 1,376 1,255 1,269 1,442
Insurance subsidiary (gains) losses on sales
of investment securities 2 (63) (123) (55) (49)
Equity in earnings of affiliates (206) (158) (126) (90) (112)
Depreciation and amortization 1,010 1,048 1,033 1,094 1,247
Interest expense 446 536 559 471 561
Settlement with Federal government 603 262 840 — —
Gains on sales of facilities (6) (131) (34) (297) (744)
Impairment of investment securities 168 — — — —
Impairment of long-lived assets 19 17 117 220 542
Restructuring of operations and investigation
related costs 58 65 62 116 111
Loss on retirement of debt — 28 — — —
18,126 16,357 16,070 15,373 17,530
Income from continuing operations before
minority interests and income taxes 1,603 1,596 600 1,284 1,151
Minority interests in earnings of consolidated entities 148 119 84 57 70
Income from continuing operations before
income taxes 1,455 1,477 516 1,227 1,081
Provision for income taxes 622 591 297 570 549
Reported income from continuing operations 833 886 219 657 532
Discontinued operations, net of income taxes:
Loss from operations of discontinued businesses — — — — 80
Loss on disposals of discontinued businesses — — — — 73
Goodwill amortization, net of income taxes — 69 73 83 92
Adjusted net income $ 833 $ 955 $ 292 $ 740 $ 471
Basic earnings per share:
Reported income from continuing operations $ 1.63 $ 1.69 $ 0.39 $ 1.12 $ 0.82
Discontinued operations:
Loss from operations of discontinued businesses — — — — (0.12)
Loss on disposals of discontinued businesses — — — — (0.11)
Goodwill amortization, net of income taxes — 0.13 0.13 0.15 0.14
Adjusted net income $ 1.63 $ 1.82 $ 0.52 $ 1.27 $ 0.73
Shares used in computing basic earnings per
share (in thousands) 511,824 524,112 555,553 585,216 643,719
Diluted earnings per share:
Reported income from continuing operations $ 1.59 $ 1.65 $ 0.39 $ 1.11 $ 0.82
Discontinued operations:
Loss from operations of discontinued businesses — — — — (0.12)
Loss on disposals of discontinued businesses — — — — (0.11)
Goodwill amortization, net of income taxes — 0.13 0.13 0.15 0.14
Adjusted net income $ 1.59 $ 1.78 $ 0.52 $ 1.26 $ 0.73
Shares used in computing diluted earnings per
share (in thousands) 525,219 538,177 567,685 591,029 646,649
Cash dividends per common share $ 0.08 $ 0.08 $ 0.08 $ 0.08 $ 0.08

11

HCA Inc.
Selected Financial Data, as of and for the Years Ended December 31

2002 2001 2000 1999 1998
Financial Position:
Assets $ 18,741 $ 17,730 $ 17,568 $ 16,885 $ 19,429
Working capital 766 957 312 480 446
Long-term debt, including amounts due
within one year 6,943 7,360 6,752 6,444 6,753
Minority interests in equity of consolidated entities 611 563 572 763 765
Company-obligated mandatorily redeemable securities
of affiliate holding solely Company securities — 400 — — —
Forward purchase contracts and put options — — 769 — —
Stockholders’ equity 5,702 4,762 4,405 5,617 7,581

Cash Flow Data:
Cash provided by operating activities $ 2,750 $ 1,413 $ 1,547 $ 1,223 $ 1,916
Cash provided by (used in) investing activities (1,740) (1,300) (1,087) 925 970
Cash used in financing activities (934) (342) (336) (2,255) (2,699)

Operating Data:
Number of hospitals at end of period(a) 173 178 187 195 281
Number of licensed beds at end of period(b) 39,932 40,112 41,009 42,484 53,693
Weighted average licensed beds(c) 39,985 40,645 41,659 46,291 59,104
Admissions(d) 1,582,800 1,564,100 1,553,500 1,625,400 1,891,800
Equivalent admissions(e) 2,339,400 2,311,700 2,300,800 2,425,100 2,875,600
Average length of stay (days)(f) 5.0 4.9 4.9 4.9 5.0
Average daily census(g) 21,509 21,160 20,952 22,002 25,719
Occupancy(h) 54% 52% 50% 48% 44%

(a) Excludes six facilities in 2002, six facilities in 2001, nine facilities in 2000, 12 facilities in 1999 and 24 facilities in 1998 that are not consolidated (accounted for using
the equity method) for financial reporting purposes.
(b) Licensed beds are those beds for which a facility has been granted approval to operate from the applicable state licensing agency.
(c) Weighted average licensed beds represents the average number of licensed beds, weighted based on periods owned.
(d) Represents the total number of patients admitted to HCA’s hospitals and is used by management and certain investors as a general measure of inpatient volume.
(e) Equivalent admissions are used by management and certain investors as a general measure of combined inpatient and outpatient volume. Equivalent admissions are
computed by multiplying admissions (inpatient volume) by the sum of gross inpatient revenue and gross outpatient revenue and then dividing the resulting amount
by gross inpatient revenue. The equivalent admissions computation “equates” outpatient revenue to the volume measure (admissions) used to measure inpatient
volume, resulting in a general measure of combined inpatient and outpatient volume.
(f) Represents the average number of days admitted patients stay in HCA’s hospitals.
(g) Represents the average number of patients in HCA’s hospital beds each day.
(h) Represents the percentage of hospital licensed beds occupied by patients. Both average daily census and occupancy rate provide measures of the utilization of inpatient
rooms.

12

HCA Inc. Management’s Discussion and Analysis
of Financial Condition and Results of Operations

The selected financial data and the accompanying consolidated financial statements present certain information with
respect to the financial position, results of operations and cash flows of HCA Inc. which should be read in conjunction
with the following discussion and analysis. The terms “HCA” or the “Company” as used herein refer to HCA Inc. and its
affiliates unless otherwise stated or indicated by context. The term “affiliates” means direct and indirect subsidiaries of
HCA Inc. and partnerships and joint ventures in which such subsidiaries are partners.

Forward-Looking Statements
This annual report includes certain disclosures which contain “forward-looking statements.” Forward-looking
statements include all statements that do not relate solely to historical or current facts, and can be identified by the use
of words like “may,” “believe,” “will,” “expect,” “project,” “estimate,” “anticipate,” “plan,” “initiative” or “continue.” These
forward-looking statements are based on the current plans and expectations of HCA and are subject to a number of
known and unknown uncertainties and risks, many of which are beyond HCA’s control, that could significantly affect
current plans and expectations and HCA’s future financial position and results of operations. These factors include, but
are not limited to, (i) the ability to enter into definitive written agreements with regard to, and to consummate, the
understanding with attorneys of the Civil Division of the Department of Justice and the Centers for Medicare and
Medicaid Services (“CMS”) and obtain court approval thereof, (ii) the highly competitive nature of the health care
business, (iii) the efforts of insurers, health care providers and others to contain health care costs, (iv) possible changes
in the Medicare and Medicaid programs that may limit reimbursements to health care providers and insurers, (v)
changes in Federal, state or local regulations affecting the health care industry, (vi) the possible enactment of Federal or
state health care reform, (vii) the ability to attract and retain qualified management and personnel, including affiliated
physicians, nurses and medical support personnel, (viii) liabilities and other claims asserted against HCA, (ix)
fluctuations in the market value of HCA’s common stock, (x) changes in accounting practices, (xi) changes in general
economic conditions, (xii) future divestitures which may result in additional charges, (xiii) changes in revenue mix and
the ability to enter into and renew managed care provider arrangements on acceptable terms, (xiv) the availability and
terms of capital to fund the expansion of the Company’s business, (xv) changes in business strategy or development
plans, (xvi) delays in receiving payment, (xvii) the ability to implement HCA’s shared services and other initiatives and
realize decreases in administrative, supply and infrastructure costs, (xviii) the ability to develop and implement the
financial enterprise resource planning (“ERP”) and millennium accounts receivable system (“MARS”) information
systems within the expected time and cost projections and, upon implementation, to realize the expected benefits and
efficiencies, (xix) the outcome of pending and any future tax audits, appeals, and litigation associated with HCA’s tax
positions, (xx) the outcome of HCA’s continuing efforts to monitor, maintain and comply with appropriate laws,
regulations, policies and procedures and HCA’s corporate integrity agreement with the government, (xxi) the ability to
maintain and increase patient volumes and control the costs of providing services, (xxii) the ability to successfully
consummate the acquisition of Health Midwest and integrate its operations, and (xxiii) other risk factors described in
this annual report. As a consequence, current plans, anticipated actions and future financial position and results may
differ from those expressed in any forward-looking statements made by or on behalf of HCA. You are cautioned not to
unduly rely on such forward-looking statements when evaluating the information presented in this report.

Investigations and Settlement of Certain Government Claims
HCA continues to be the subject of governmental investigations and litigation relating to its business practices.
Additionally, HCA is a defendant in several qui tam actions brought by private parties on behalf of the United
States of America.
In December 2000, HCA entered into a Plea Agreement with the Criminal Division of the Department of Justice and
various U.S. Attorneys’ Offices (the “Plea Agreement”) and a Civil and Administrative Settlement Agreement with the
Civil Division of the Department of Justice (the “Civil Agreement”). The agreements resolved all Federal criminal issues
outstanding against HCA and certain issues involving Federal civil claims by, or on behalf of, the government against
HCA relating to DRG coding, outpatient laboratory billing and home health issues. The civil issues that were not covered
by the Civil Agreement include claims related to cost reports and physician relations issues. The Civil Agreement was
approved by the Federal District Court of the District of Columbia in August 2001. HCA paid the government $840
million (plus $60 million of accrued interest), as provided by the Civil Agreement and Plea Agreement, during 2001.
HCA also entered into a Corporate Integrity Agreement (“CIA”) with the Office of Inspector General of the Department
of Health and Human Services.

13


On March 28, 2002, HCA announced that it had reached an understanding with CMS to resolve all Medicare cost
report, home office cost statement and appeal issues between HCA and CMS (the “CMS Understanding”). The CMS
Understanding provides that HCA would pay CMS $250 million with respect to these matters. The CMS Understanding
was reached as a means to resolve all outstanding appeals and more than 2,600 HCA cost reports for cost report periods
ended on or before July 31, 2001, many of which CMS has yet to audit. The CMS Understanding is subject to approval
by the Department of Justice (“DOJ”), which has not yet been obtained, and execution of a definitive written agreement.
The understanding with CMS resulted in HCA recording a pretax charge of $260 million ($165 million after-tax), or
$0.32 per basic and $0.30 per diluted share, consisting of the accrual of $250 million for the settlement payment and the
write-off of $10 million of net Medicare cost report receivables. This charge was recorded in the consolidated income
statement for the year ended December 31, 2001.
In December 2002, HCA reached an understanding with attorneys for the Civil Division of the DOJ to recommend
an agreement whereby the United States would dismiss the various claims it had brought related to physician relations,
cost reports and wound care issues (the “DOJ Understanding”) in exchange for a payment of $631 million, with interest
accruing from February 3, 2003 to the payment date at a rate of 4.5%. The DOJ Understanding would result in the
dismissal of several qui tam actions brought by private parties. The DOJ Understanding is subject to court approval, and
any of the private parties who brought forth the actions could object to the DOJ Understanding and have those
objections considered by the Federal District Court of the District of Columbia. Were the DOJ Understanding to be
approved, it would effectively end the DOJ investigation of the Company that was first made public in 1997. However,
the DOJ Understanding would not affect qui tam cases in which the government has not intervened. The CIA previously
entered into by the Company would remain in effect. The Company also reached an agreement in principle with a
negotiating team representing states that may have similar claims against the Company. Under this agreement, the
Company would pay $17.5 million to state Medicaid agencies to resolve any such claims. In addition, the Company has
accrued $35 million as an estimation of its legal obligation to pay reasonable legal fees of the private parties. As a result
of this settlement, HCA recorded a pretax charge of $603 million ($418 million after-tax) in the fourth quarter of 2002.
Under the Civil Agreement, HCA’s existing Letter of Credit Agreement with the DOJ was reduced from $1 billion to
$250 million at the time of the settlement payment. Upon the Company making the payments provided under the DOJ
Understanding, the Company would no longer have any remaining obligation to maintain letters of credit with the DOJ.
HCA remains the subject of a formal order of investigation by the Securities and Exchange Commission (“SEC”).
HCA understands that the investigation includes the anti-fraud, insider trading, periodic reporting and internal
accounting control provisions of the Federal securities laws.
HCA continues to cooperate in the governmental investigations. Given the scope of the investigations and current
litigation, HCA anticipates continued investigative activity may occur in the ongoing investigations and litigation as well
as other proceedings that may be initiated.
While management remains unable to predict the outcome of the investigations and litigation or the initiation of any
additional investigations or litigation, if HCA was found to be in violation of Federal or state laws relating to Medicare,
Medicaid or similar programs or breach of the CIA, HCA could be subject to substantial monetary fines, civil and
criminal penalties and/or exclusion from participation in the Medicare and Medicaid programs. Any such sanctions or
expenses could have a material adverse effect on HCA’s financial position, results of operations and liquidity. See Note 2
— Investigations and Settlement of Certain Government Claims and Note 11 — Contingencies in the notes to
consolidated financial statements.

Business Strategy
HCA’s primary objective is to provide the communities it serves a comprehensive array of quality health care services
in the most cost-effective manner and consistent with HCA’s ethics and compliance program, governmental regulations
and guidelines and industry standards. HCA also seeks to enhance financial performance by increasing utilization of its
facilities and improving operating efficiencies. To achieve these objectives, HCA pursues the following strategies:

• Emphasize a “patients communities HCA serves. HCA of HCA is putting patients first and providing quality health
first” philosophy: The foundation
care services in the continuously updates and implements quality assurance
procedures to monitor level of care and patient safety issues. HCA has instituted a number of patient safety initiatives,
including bar coding, computerized physician order entry and quality audits, and identifies best practices in its many
health care facilities and shares those practices throughout its network of hospitals and health care facilities to help
achieve better outcomes for patients.

14


• Commitment to Ethicshuman life. The values highlighted by HCA’s corporate culture — compassion,prioritizesintegrity,
and Compliance: HCA is committed to a values-based corporate culture that the care
and improvement of honesty,
fairness, loyalty, respect and kindness — are the cornerstone of HCA. To reinforce HCA’s dedication to these values
and to ensure integrity in all that it does, HCA has developed and implemented a comprehensive ethics and
compliance program that articulates a high set of values and behavioral standards. HCA believes that this program
reinforces the dedication to providing excellent patient care.

• Focus on strong assetsorand investtwo healthselect,provider and which HCA focuseslocated in urban areas characterized
capital in core communities: on communities where it is, or can
be, the number one number care are typically
by highly integrated health care facility networks. HCA intends to continue to optimize core assets through capital
expenditures and selected acquisitions and divestitures.

• Develop comprehensive local network with other with a broad facilities healthHCA’sservices: HCA seeks to operate each
health care networks range of care
of its facilities as part of a health care that affiliates own or operate within a
common region that should enable these local health care networks to effectively contract with managed care and
other payers, and attract and serve patients and physicians.

• Grow plans capital spending to volume, expansion of specialty services and emergency rooms and selective acquisitions:
through increased patient
HCA increase bed capacity, provide new or expanded services, and provide renovated and
expanded emergency rooms, operating rooms, women’s services, imaging, oncology, open-heart areas and intensive
and critical care units.

• Improve operating efficiencies through enhanced cost management and resource utilization, and financial performance
the implementation of
shared services and other initiatives: HCA has initiated several measures designed to improve the
of its facilities. To address labor costs, HCA implemented a best practices initiative that provides HCA’s hospitals with
strategies to improve recruiting, compensation programs and productivity; implemented various leadership and
career development programs; and created an internal contract labor agency that provides for improved quality at a
reduced cost. To curtail supply costs, HCA formed a group purchasing organization that allows the achievement of
better pricing in negotiating purchasing and supply contracts. In addition, as HCA grows in select core markets, the
benefits should continue to be realized from economies of scale, including supply chain efficiencies and volume
discount cost savings. HCA expects to be able to reduce operating costs and to be better positioned to work with
health maintenance organizations, preferred provider organizations and employers, by sharing certain services among
several facilities in the same market by consolidating hospitals’ back office functions such as billings and collections
and standardizing and upgrading financial, human resources and patient accounting systems (ERP and MARS).

• Recruit, care andand maintain relationships with physicians: HCA plans to actively recruit physicians to enhance
develop
patient fulfill the needs of the communities it serves. HCA believes that recruiting and retaining quality
physicians is essential to being a premier provider of health care services.

• decentralizeand decentralize management,management of HCA’s facilitiesfocus: HCA’s strategy todecisions thatand
Streamline consistent with HCA’s local streamline
management structure affords greater flexibility to make are
specific to the respective local communities. This operating structure creates a more nimble, responsive organization.

• constructsallocate capital to maximizeadds new services to increase the attractivenessreplaces equipment, other facilities
Effectively return on investments: HCA maintains and renovates and
replacement facilities and of its hospitals and
to patients and physicians. In addition, HCA evaluates acquisitions that complement its strategies and assesses
opportunities to enhance stockholder value, including repayment of indebtedness and stock repurchases.

Critical Accounting Policies and Estimates
The preparation of HCA’s consolidated financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities and the
reported amounts of revenues and expenses. HCA’s management base their estimates on historical experience and
various other assumptions that they believe are reasonable under the circumstances. Management evaluates its estimates
on an ongoing basis and makes changes to the estimates and related disclosures as experience develops or new

15


information becomes known. Actual results may differ from these estimates under different assumptions or conditions.
Management believes that the following critical accounting policies affect its more significant judgments and
estimates used in the preparation of its consolidated financial statements.

Revenues

HCA derived 79% of its 2002 patient revenues (76% in 2001 and 75% in 2000) from Medicare, Medicaid and
managed care patients. Revenues are recorded during the period the health care services are provided, based upon the
estimated amounts due from Medicare, Medicaid and the managed care payers. Estimates of contractual allowances
under managed care health plans are based upon the payment terms specified in the related contractual agreements.
Laws and regulations governing the Medicare and Medicaid programs are complex and subject to interpretation. The
estimated reimbursement amounts are made on a payer-specific basis and are recorded based on the best information
available regarding management’s interpretation of the applicable laws, regulations and contract terms. Management
continually reviews the contractual estimation process to consider and incorporate updates to laws and regulations and
the frequent changes in managed care contractual terms that result from contract renegotiations and renewals.
Management has invested significant resources to refine and improve the information system data used to make these
estimates and to develop a standardized calculation process and train employees.
Due to the complexities involved in these estimations of revenue earned, the health care services authorized and
provided and related reimbursement are often subject to interpretations that could result in payments that are different
from our estimates.

Provision for Doubtful Accounts

The collection of outstanding receivables from Medicare, managed care payers, other third-party payers and patients
is HCA’s primary source of cash and is critical to the Company’s operating performance. The primary collection risks
relate to uninsured patient accounts and patient accounts for which the primary insurance carrier has paid the amounts
covered by the applicable agreement, but patient responsibility amounts (deductibles and co-payments) remain
outstanding. Because HCA does not pursue collection of amounts related to patients that meet the Company’s guidelines
to qualify as charity care, they are not reported in revenues and do not have an impact on the provision for doubtful
accounts. The revenues associated with uninsured patients that do not meet the Company’s current guidelines to qualify
as charity care are generally reported in revenues at gross charges. Implementation of the Company’s plans to adjust the
threshold for determining when patients qualify as charity care, and to begin recording revenues associated with
uninsured patients at amounts less than HCA’s established gross charges, would result in reductions to both revenues
and the provision for doubtful accounts. The Company’s implementation of the planned policies is conditioned on
receiving a favorable ruling from CMS that the planned policies would not adversely affect the Company’s payments
from the Medicare program.
The amount of the provision for doubtful accounts is based upon management’s assessment of historical and
expected net collections, business and economic conditions, trends in Federal and state governmental health care
coverage and other collection indicators. Management relies on annual detailed reviews of historical collections and
write-offs at facilities that represent a majority of HCA’s revenues and accounts receivable. Adverse changes in business
office operations, payer mix, economic conditions or trends in Federal and state governmental health care coverage could
affect HCA’s collection of accounts receivable, cash flows and results of operations.

Investments of Insurance Subsidiary — Other-than-temporary Impairment Considerations

Continued negative trends in the debt and equity investment markets have brought about an increased emphasis on
the disclosure of, and accounting recognition for, other-than-temporary impairments of investment securities. HCA’s
wholly-owned insurance subsidiary holds debt and equity security investments having an aggregate fair value of $1.655
billion at December 31, 2002. The fair value of the investment securities is generally based on quoted market prices. The
investment securities are held for the purpose of providing the funding source to pay professional and general liability
claims covered by the insurance subsidiary. Management’s assessment each quarter of whether a decline in fair value is
temporary or other-than-temporary involves multiple judgment calls, often involves estimating the outcome of future

16


events, and requires a significant level of professional judgment in determining whether factors exist that indicate an
impairment has occurred. HCA evaluates, among other things, the financial position and near term prospects of the issuer,
conditions in the issuer’s industry, liquidity of the investment, changes in the amount or timing of expected future cash
flows from the investment, and recent downgrades of the issuer by a rating agency, to determine if and when a decline in
the fair value of an investment below amortized cost is considered other-than-temporary. The length of time and extent
to which the fair value of the investment is less than amortized cost and HCA’s ability and intent to retain the investment
to allow for any anticipated recovery of the investment’s fair value are important components of management’s investment
securities evaluation process. During the third quarter of 2002, HCA recognized a $168 million other-than-temporary
impairment charge related, primarily, to the insurance subsidiary’s equity investment securities. At December 31, 2002, the
investment security portfolio had unrealized gains of $83 million and unrealized losses of $16 million.

Professional Liability Insurance Claims

HCA, along with virtually all health care providers, operate in an environment with medical malpractice and
professional liability risks. A substantial portion of HCA’s professional liability risks is insured through a wholly-owned
insurance subsidiary. Reserves for professional liability risks were $1.551 billion and $1.520 billion at December 31, 2002
and December 31, 2001, respectively. Obligations covered by reinsurance contracts remain on the balance sheet as the
subsidiary remains liable to the extent that reinsurers do not meet their obligations. Reserves for professional liability
risks (net of $265 million and $313 million receivable under reinsurance contracts at December 31, 2002 and 2001,
respectively) were $1.286 billion and $1.207 billion at December 31, 2002 and 2001, respectively. Reserves and provisions
for professional liability risks are based upon actuarially determined estimates. The independent actuaries estimated
reserve ranges, net of amounts receivable under reinsurance contracts, were $1.022 billion to $1.361 billion at December
31, 2002 and $960 million to $1.322 billion at December 31, 2001. Reserves for professional liability risks represent the
estimated ultimate cost of all reported and unreported losses incurred through the respective consolidated balance sheet
dates. The reserves are estimated using individual case-basis valuations and actuarial analyses. Those estimates are
subject to the effects of trends in loss severity and frequency. The estimates are continually reviewed and adjustments are
recorded as experience develops or new information becomes known.
The aggregate liability covers approximately 4,400 individual claims at both December 31, 2002 and 2001 and
estimates for potential unreported claims. The time period required to resolve these claims can vary depending upon the
jurisdiction and whether the claim is settled or litigated. The estimation of the timing of payments beyond a year can
vary significantly. Changes to the estimated reserve amounts are included in current operating results. Due to the
considerable variability that is inherent in such estimates, there can be no assurance that the ultimate liability will not
exceed management’s estimates.

Accrual of Government Claims Settlements and Related Litigation Contingencies

HCA continues to be the subject of governmental investigations and litigation relating to its business practices. The
governmental investigations were initiated more than five years ago and include activities for certain entities for periods
prior to their acquisition by the Company and activities for certain entities that have been divested.
During December 2000, HCA and the government entered into agreements that resolved all Federal criminal issues
outstanding against HCA and certain issues involving Federal civil claims by or on behalf of the government against the
Company relating to DRG coding, outpatient laboratory billing and home health issues. Pursuant to the agreements,
HCA paid the government $840 million (plus $60 million of accrued interest) during 2001.
During March 2002, HCA and CMS reached an understanding pursuant to which the Company has agreed to pay
CMS $250 million for settlement of all CMS Medicare reimbursement and payment issues regarding all HCA cost report,
home office cost statement and appeal issues between HCA and CMS related to cost report periods ended on or before
July 31, 2001. HCA recorded an accrual for the $250 million settlement payment in the December 31, 2001 consolidated
financial statements. The CMS Understanding is subject to approval by the DOJ, which has not yet been obtained, and
execution of a definitive written agreement.
During December 2002, the DOJ Understanding was reached by HCA and attorneys for the Civil Division of the
DOJ. Upon anticipated court approval, the DOJ Understanding would result in the dismissal of the various claims the
DOJ had brought against the Company related to physician relations, cost reports and wound care issues and would

17


effectively end the DOJ’s investigation of the Company that was first made public in 1997. As a result of the DOJ
Understanding, the Company recorded a pretax charge of $603 million ($418 million after-tax) in 2002. See Note 2 —
Investigations and Settlement of Certain Government Claims in the notes to consolidated financial statements.
The CMS Understanding and the DOJ Understanding are both subject to approval and the execution of definitive
agreements and there are several qui tam cases in which the government has not intervened that are not covered by the
DOJ Understanding. Management recognizes that the amounts that have been accrued must continue to be reassessed
as the approval processes and execution of definitive agreements activities continue and new information becomes
available. The amounts claimed and the amounts the Company has accrued are substantial and the ultimate resolution
of these contingencies could require adjustments to the amounts recorded or additional liability accruals that could have
a material adverse effect on the Company’s results of operations, financial position and liquidity.

Results of Operations
Revenue/Volume Trends

HCA’s revenues depend upon inpatient occupancy levels, the ancillary services and therapy programs ordered by
physicians and provided to patients, the volume of outpatient procedures and the charge and negotiated payment rates
for such services.
HCA’s health care facilities’ gross charges typically do not reflect what the facilities are actually paid. HCA’s health care
facilities have entered into agreements with third-party payers, including government programs and managed care
health plans, under which the facilities are paid based upon the cost of providing services, predetermined rates per
diagnosis, fixed per diem rates or discounts from gross charges. HCA’s facilities have experienced revenue growth due to
increases in same facility volume growth, changes in patient mix and favorable pricing trends. HCA has experienced
increases in revenue per equivalent admission over the prior period of 8.6%, 7.2% and 5.5%, in 2002, 2001, and 2000,
respectively. There can be no assurances that HCA will continue to receive these levels of increases in the future. These
increases were the result of renegotiating and renewing certain managed care contracts on more favorable terms, shifts
of managed care admissions to more favorable plans and improved reimbursement from the government.
Admissions related to Medicare, Medicaid and managed care plans and other discounted arrangements for the years
ended December 31, 2002, 2001 and 2000 are set forth below.

Years Ended December 31,
2002 2001 2000
Medicare 38% 38% 37%
Medicaid 11% 11% 11%
Managed care and other discounted plans 41% 41% 42%
Other 10% 10% 10%
100% 100% 100%

The approximate percentages of inpatient revenues of the Company’s facilities related to Medicare, Medicaid and managed
care plans and other discounted arrangements for the years ended December 31, 2002, 2001 and 2000 are set forth below.

Years Ended December 31,
2002 2001 2000
Medicare 38% 39% 40%
Medicaid 8% 7% 8%
Managed care and other discounted plans 41% 39% 38%
Other 13% 15% 14%
100% 100% 100%

HCA receives a significant portion of its revenues from government health programs, principally Medicare and
Medicaid, which are highly regulated and subject to frequent and substantial changes. Legislative changes have resulted

18


in limitations and even reductions in levels of payments to health care providers for certain services under these
government programs. Legislation enacted in 1999 and 2000 was directed at reducing potential future Medicare cuts that
would have occurred as a result of previously enacted legislation, however, future legislation or other changes or
interpretation of government health programs could have an adverse effect on reimbursement from the government.
HCA has recorded $284 million, $240 million, and $213 million of revenues related to Medicare operating outlier
cases for the years ended December 31, 2002, 2001, and 2000, respectively. These amounts represent 5.1%, 4.7% and
4.5% of Medicare revenues and 1.4%, 1.3%, and 1.3% of total revenues for the years ended December 31, 2002, 2001
and 2000, respectively. There can be no assurances that HCA will continue to receive these levels of Medicare outlier
payments in future periods. Future Medicare outlier payments may be materially, adversely affected by: (a) the March
2003 CMS proposed rules relating to outlier payments; (b) changes in Medicare regulations; (c) changes to the
methodology utilized by CMS to compute outlier payments; and (d) updates of the cost-to-charges ratios used in the
computation of HCA’s outlier payments. HCA is unable to predict whether there will be any changes to the provisions
of the proposed CMS outlier rule when it is ultimately finalized, when the new rule will become effective or what, if
any, updates will be made to the outlier payment provisions for the Federal fiscal year beginning October 1, 2003.
However, if the proposed outlier payment provisions are finalized as currently proposed and the Company does not
experience changes in Medicare patient acuity levels, then the Company’s monthly revenue from outlier payments
may be reduced by up to $12 million.
Managed care plan provisions that are structured to influence patients to utilize outpatient or alternative delivery
services and the ability to continue to renegotiate and renew managed care contracts on favorable terms are expected to
present ongoing challenges. To maintain and improve its operating margins in future periods, HCA must increase
patient volumes while controlling the cost of providing services.
Management believes that the proper response to these challenges includes the delivery of a broad range of
quality health care services to physicians and patients, with operating decisions being made by the local
management teams and local physicians, and a focus on reducing operating costs through implementation of its
shared services and other initiatives.
In March 2003, HCA announced plans to change its charitable care policies to provide financial relief to more of its
charity patients and needs based discounts to uninsured patients who receive non-elective care at its hospitals.
The planned changes to charity care policies would allow patients treated at an HCA hospital for non-elective care
who have income at or below 200% of the Federal poverty level to be eligible for charity care, a standard HCA estimates
70% of its hospitals have already been using. The Federal poverty level is established by the Federal government and is
based on income and family size. HCA would also implement a sliding scale of discounts for uninsured patients with
income between 200% and 400% of the Federal poverty level. HCA has submitted its plans to CMS and asked it to rule
that the financial relief offered under the program will not adversely affect HCA’s payments from the Medicare program.
Implementation of the planned policies is conditioned on receiving a favorable CMS ruling and will be applied to
services provided after CMS approval.
The Company estimates that, had all of these policy changes been in effect for its year ended December 31, 2002, pre-
tax income and EPS would have been reduced by approximately $25 million and $0.03 per diluted share, respectively.
Additionally, these policy changes will result in certain amounts that had previously been reported as bad debt expense
to being recorded as revenue reductions in future periods. The Company estimates the impact in 2002 would have been
a reduction in net revenue of approximately $325 million to $375 million, as well as a corresponding reduction to bad
debt expense of $300 million to $350 million.

19


The following are comparative summaries of net income for the years ended December 31, 2002, 2001 and 2000
(dollars in millions, except per share amounts):
2002 2001 2000
Amount Ratio Amount Ratio Amount Ratio
Revenues $ 19,729 100.0 $ 17,953 100.0 $ 16,670 100.0

Salaries and benefits 7,952 40.3 7,279 40.5 6,639 39.8
Supplies 3,158 16.0 2,860 15.9 2,640 15.8
Other operating expenses 3,341 16.9 3,238 18.1 3,208 19.3
Provision for doubtful accounts 1,581 8.0 1,376 7.7 1,255 7.5
Insurance subsidiary (gains) losses on sales of
investment securities 2 — (63) (0.4) (123) (0.7)
Equity in earnings of affiliates (206) (1.0) (158) (0.9) (126) (0.8)
Depreciation and amortization 1,010 5.0 1,048 5.8 1,033 6.2
Interest expense 446 2.3 536 3.0 559 3.4
Settlement with Federal government 603 3.1 262 1.5 840 5.0
Gains on sales of facilities (6) — (131) (0.7) (34) (0.2)
Impairment of investment securities 168 0.9 — — — —
Impairment of long-lived assets 19 0.1 17 0.1 117 0.7
Investigation related costs 58 0.3 65 0.4 62 0.4
Loss on retirement of debt — — 28 0.1 — —
18,126 91.9 16,357 91.1 16,070 96.4
Income before minority interests and income taxes 1,603 8.1 1,596 8.9 600 3.6
Minority interests in earnings of consolidated entities 148 0.7 119 0.7 84 0.5
Income before income taxes 1,455 7.4 1,477 8.2 516 3.1
Provision for income taxes 622 3.2 591 3.3 297 1.8
Reported net income 833 4.2 886 4.9 219 1.3
Goodwill amortization, net of income taxes — — 69 0.4 73 0.5
Adjusted net income $ 833 4.2 $ 955 5.3 $ 292 1.8
Adjusted earnings per share:
Basic earnings per share $ 1.63 $ 1.82 $ 0.52
Diluted earnings per share $ 1.59 $ 1.78 $ 0.52
% changes from prior year:
Revenues 9.9% 7.7% 0.1%
Income before income taxes (1.5) 186.4 (58.0)
Adjusted net income (12.8) 227.2 (60.5)
Basic earnings per share (10.4) 250.0 (59.1)
Diluted earnings per share (10.7) 242.3 (58.7)
Admissions(a) 1.2 0.7 (4.4)
Equivalent admissions(b) 1.2 0.5 (5.1)
Revenue per equivalent admission 8.6 7.2 5.5
Same facility % changes from prior year(c):
Revenues 11.7 10.2 6.2
Admissions(a) 2.5 2.7 2.8
Equivalent admissions(b) 2.6 2.6 2.6
Revenue per equivalent admission 8.8 7.4 3.6

(a) Represents the total number of patients admitted to HCA’s hospitals and is used by management and certain investors as a general measure of inpatient volume.
(b) Equivalent admissions are used by management and certain investors as a general measure of combined inpatient and outpatient volume. Equivalent admissions are
computed by multiplying admissions (inpatient volume) by the sum of gross inpatient revenue and gross outpatient revenue and then dividing the resulting amount by
gross inpatient revenue. The equivalent admissions computation “equates” outpatient revenue to the volume measure (admissions) used to measure inpatient volume
resulting in a general measure of combined inpatient and outpatient volume.
(c) Same facility information excludes the operations of hospitals and their related facilities that were either acquired or divested during the current and prior year.

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