Lehman Brothers Healthcare Conference—March 2004

Bill Rutherford CFO, Eastern Group

Mark Kimbrough VP, Investor Relations

Senior Vice President

2

This press release contains forward-looking statements based on current management expectations. Those forward-looking statements include all statements regarding our estimated results of operations in future periods and all statements other than those made solely with respect to historical fact. Numerous risks, uncertainties and other factors may cause actual results to differ materially from those expressed in any forward-looking statements. These factors include, but are not limited to (i) the highly competitive nature of the health care business, (ii) the efforts of insurers, health care providers and others to contain health care costs, (iii) possible changes in the Medicare and Medicaid programs that may impact reimbursements to health care providers and insurers, (iv) the ability to achieve operating and financial targets and achieve expected levels of patient volumes and control the costs of providing services, (v) increases in the amount and risk of collectibility of uninsured accounts and deductibles and co-pay amounts for insured accounts, (vi) the ability to attract and retain qualified management and personnel, including affiliated physicians, nurses and medical support personnel, (vii) potential liabilities and other claims that may be asserted against the Company, (viii) fluctuations in the market value of the Company’s common stock, (ix) the Company’s ability to complete the share repurchase program, (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 payments for services provided, (xvii) the possible enactment of Federal or state health care reform, (xviii) the outcome of pending and any future tax audits and litigation associated with the Company’s tax positions, (xix) the outcome of the Company’s continuing efforts to monitor, maintain and comply with appropriate laws, regulations, policies and procedures and the Company’s corporate integrity agreement with the government, (xx) changes in Federal, state or local regulations affecting the health care industry, (xxi) the impact of charity care and self-pay discounting policy changes, (xxii) the ability to successfully integrate the operations of Health Midwest, (xxiii) the ability to develop and implement the financial enterprise resource planning information system within the expected time and cost projections and, upon implementation, to realize the expected benefits and efficiencies, (xxiv) the ability to obtain court approval of the settlement of the class action securities lawsuits originally filed against the Company in 1997; (xxv) the ability of the Company to continue to fund a cash dividend in the future at the current rate; and (xxvi) other risk factors detailed from time to time in the Company’s filings with the SEC. Many of the factors that will determine the Company’s future results are beyond the ability of the Company to control or predict. In light of the significant uncertainties inherent in the forward-looking statements contained herein, readers should not place undue reliance on forward-looking statements, which reflect management’s views only as of the date hereof. The Company undertakes no obligation to revise or update any forward-looking statements, or to make any other forward-looking statements, whether as a result of new information, future events or otherwise.

 

All references to “Company” and “HCA” as used throughout this document refer to HCA Inc. and its affiliates.

3

HCA–Hospital Corporation of AmericaHCA–Hospital Corporation of America

•Focused upon market leading positions in fast- growing urban and suburban communities

•Targeted capital investments to improve quality and availability of care

•Use scale/size to improve processes and operate more efficiently

•190 Hospitals—Approximately $22 billion in revenues

4

HCA is located in 16 of 20 Fastest HCA is located in 16 of 20 Fastest Growing Large US CitiesGrowing Large US Cities

Switzerland

U.K.

%%

%

%%%

Compared to the National Average of

4.5%

Compared to the National Average of

4.5%

Las Vegas+22%

Las Vegas+22%

Southern California

+9%

Southern California

+9%

Denver+9%

Denver+9%

Dade+8%

Dade+8%

Nashville+8%

Nashville+8%

Panhandle+10%

Panhandle+10%

Tampa Bay+8%

Tampa Bay+8%

Dallas/Ft. Worth+12%

Dallas/Ft. Worth+12%

Austin+18%

Austin+18%

Richmond+8%

Richmond+8%

Palm Beach+11%

Palm Beach+11%

Houston+10%

Houston+10%

Kansas City+5%

Kansas City+5%

Percent Growth in Market Population

2000-2005

Percent Growth in Market Population

2000-2005

Generally 25-40% Market Share40% of facilities in Texas & Florida

Generally 25-40% Market Share40% of facilities in Texas & Florida

5

• Outpatient services account for 37% of revenue or $8 billion

Focused on Strengthening Focused on Strengthening Outpatient ServicesOutpatient Services

• Existing outpatient units must operate in a manner consistent with “retail nature” of the business

• Increase the accessibility and convenience of the service

• Develop management structure dedicated to the success of outpatient services

• Build or buy outpatient outlets that improve our market presence

6

Operations: 2003 Key ObservationsOperations: 2003 Key Observations

•Payor class composition is changing. Medicare and self- pay are growing (2.7%, 6.9%). All other Payors have declined (-1.2%)

•Self-pay admissions, although representing only 4.4% of total admissions grew 6.9%.

•Self-pay admissions via the emergency room grew 14%

•No surprises in pricing (rate, acuity, technology) environment in 2003 (+7.5%), but 2004 will be

more difficult due to Medicare Outlier and Charity Care changes.

7

Bad Debt experience in 2003:Bad Debt experience in 2003:a. Bad Debt expense was $2.2B, up $574M (sfa. Bad Debt expense was $2.2B, up $574M (sf11), ), or 36% over or 36% over 20022002b. Charity care recognition grew dramatically in 2003 to $821M b. Charity care recognition grew dramatically in 2003 to $821M up up $230M (sf), or $230M (sf), or 40% over 200240% over 2002c. We are forecasting no relief in Bad Debt/Charity in 2004c. We are forecasting no relief in Bad Debt/Charity in 2004

At close of 2003, we had $2.65B reserved as Bad Debt, representing 88.3% of self-pay balances (only $351M on balance sheet not reserved)

Impact on earnings from volume pressures minimized by Impact on earnings from volume pressures minimized by efficient expense management:efficient expense management:

• SW&B % of Net Revenue SW&B % of Net Revenue 50 bps 50 bps• Contract labor/APD Contract labor/APD 33% from 1Q 03 33% from 1Q 03• Avg. hourly rate increased 4.7% (Avg. hourly rate increased 4.7% ( 40 bps from PY) 40 bps from PY)• SW&B/AA declined 260 bps from prior yearSW&B/AA declined 260 bps from prior year• Employee Benefit Cost moderating; 2.9% vs.13.7% PYEmployee Benefit Cost moderating; 2.9% vs.13.7% PY• Supplies/AA costs slowing (Supplies/AA costs slowing ( 80 bps vs. 2002) 80 bps vs. 2002)

Operations: 2003 Key ObservationsOperations: 2003 Key Observations

1. sf: Same Facility

8

•Net Revenue (less Bad Debt) is converting to cash at Net Revenue (less Bad Debt) is converting to cash at favorable levels favorable levels (100.2%)(100.2%)

Operations: 2003 Key ObservationsOperations: 2003 Key Observations

1. Turnover results exclude Midwest Division.

•Successfully integrated Health MidWestSuccessfully integrated Health MidWest

•Patient Safety agenda was aggressively deployedPatient Safety agenda was aggressively deployed

•Total employee turnover, 20.1% vs. 22.8% in 2002. RN Total employee turnover, 20.1% vs. 22.8% in 2002. RN turnoverturnover11, , 16.8% vs. 17.0% in 2002. Fourth consecutive year 16.8% vs. 17.0% in 2002. Fourth consecutive year of improving of improving turnover rates.turnover rates.

•Enhanced outpatient organization and strategy underwayEnhanced outpatient organization and strategy underway

•All patient/employee satisfaction scores remain positive and All patient/employee satisfaction scores remain positive and at record at record levelslevels

9

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

1Q 00 2Q 00 3Q 00 4Q 00 1Q 01 2Q 01 3Q 01 4Q 01 1Q 02 2Q 02 3Q 02 4Q 02 1Q 03 2Q03 3Q03 4Q03

Admissions Rolling 12 mo. Avg Adjusted for closed SNF/OB Adjusted for closed SNF/OB unitsunits

HCA Admission Trends 2001 to 2003HCA Admission Trends 2001 to 2003Same FacilitySame Facility

10

1.6%5.0%

6.3%9.8%

5.8%7.5% 7.1%

9.6%

7.6%7.3%7.7%9.5%

4.5%4.9%4.7%4.8%

2003 Operating Indicators Same Facility vs. Prior Year2003 Operating Indicators Same Facility vs. Prior Year

-0.4% 0.2%

2.1%

0.6%

+0.6%+0.6%

+7.5%+7.5%

+8.1%+8.1%

+4.7%+4.7%

Q1 Q2 Q3 Q42003 vs. 2002 (same facility)

2003 Quarterly Trending

Admissions

Net Revenue/ AA

Supplies/ AA

Labor Cost/ Manhour

SWB/AA -2.6%-2.6%

11

• Provision for Doubtful Accounts increased to approximately 10% of NR in 2003

Increasing Uninsured RevenuesIncreasing Uninsured RevenuesPut Pressure on Bad DebtsPut Pressure on Bad Debts

• Increasing self-pay receivables combined with a deterioration in collectibility of this A/R contributed to the need to increase the provision for doubtful accounts

• Soft economy/unemployment is a major driver of the escalation of uninsured patients

• We anticipate no significant moderation in bad debts in 2004

12

• Increasing level of intensity around front-end collections

40% from ‘01-’02 30% from ‘02-’03

Response to Increasing Bad DebtResponse to Increasing Bad Debt

• Enhance self-pay policy, procedure and process flow

- Hospital self-pay committees- Review access points—impact on non-

emergent access• Aggressively pursue all alternative payment

sources, including federal and/or state funding sources (i.e. Medicaid, etc.)

- 15% of uninsured accounts convert to Medicaid

• Charity care and financial discount policy

13

Capital Expenditures Dollars ($ in billions)Capital Expenditures Dollars ($ in billions)

$0.0

$0.5

$1.0

$1.5

$2.0

2000 2001 2002 2003 2004E

MidwestDivision

Facility ExpansionProjects

New &Replacement Facilities

InfrastructureDevelop., IT&S, & Pat. Safety

Shared Services

RoutineCapital

Billions2000

$1.22001

$1.42002

$1.72003

$1.82004E

$1.8

14

Distribution of Capital DollarsDistribution of Capital Dollars2002-2005 and beyond2002-2005 and beyond

Ongoing Projects in Capital Plan

Land & Improvements

14%/$565M

Surgery/Special Units

22%/$870M

Beds14%/$550M

New Facilities10%/$395M

New & Expanded Services

18%/$740M

Replacement Facilities3%/$98M

ER & Outpatient Services19%/$720

1,565 New Beds

54 Facilities with Surgery and/or ICU/CCU expansions

Four New Facilities 378 Beds

Imaging,Open Heart, Cardiology

Oncology, etc.

37 ERExpansions

37 ERExpansions

15

(Dollars

in

Million

s)

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

2000 2001 2002 2003 2004 2005

$206$296 $264

$457

$0

$500

1Q 2Q 3Q 4Q

2003

Growth Capital Assets Placed in ServiceGrowth Capital Assets Placed in Service

Total HCA $549 $373 $676 $1,223 $896 $678

16

New Facilities: Denver, CONew Facilities: Denver, COSky Ridge Medical CenterDenver, Colorado Opened 8/20/03104 BedsCost: $147M

4 Month UpdateAdmissions:

2,076 (+47% vs. Budget)

ADC:45 (57 in December)

ER Visits:9,125 (+56% vs. Budget)

17

New Facilities: Nashville, TNNew Facilities: Nashville, TN

StoneCrest Medical CenterNashville, TennesseeOpened 11/30/0375 BedsCost: $76M

One Month of OperationsAdmissions: 255ER Visits: 3,449

18

Before Replacement

Replacement Facility:Replacement Facility: Tallahassee, FLTallahassee, FL

19

Replacement Facility: Tallahassee, FLReplacement Facility: Tallahassee, FL

Replacement Facility

20

Replacement Facility: Tallahassee, FLReplacement Facility: Tallahassee, FLCapital Regional Medical CenterTallahassee, FloridaOpened 8/26/03180 BedsCost: $98M

4 Month Update(% change vs. PY)Admissions: +15.3%Surgeries: +9%ER Visits: +28%Caths: +30%•Admissions growth for 12 months prior to the new facility opening: 5%

21

Capital Targeted to Growth OpportunitiesCapital Targeted to Growth Opportunities3.2% Admissions growth rate for facilities with major projects opening in 2002 or 2003—vs. 1.4% for Total Company• Denver: New Facility

2,076 admissions in the first 4 months of operations (+47% vs. budget)

• Tallahassee: Replacement Facility15.3% growth in admissions in the first four months vs. 5% growth rate in the 12 months prior to opening

• Nashville: New Facility3,449 ER visits in the first month of operations

22

Capital Targeted to Growth OpportunitiesCapital Targeted to Growth Opportunities

• Lewisville, TX: 85 net new beds (1Q)14.6% growth in admissions (April-December)

• Richmond, VA: Major surgery expansions at 2 facilities (2Q) 14.4% inpatient surgery growth (July-December)

• Brandon, FL: Open heart program323 open hearts in first year.

Austin, TX: 66 new beds in North Austin (3Q 02) 2003 admissions growth rate: 12.5% vs. 10.3% PY

23

HCA Board Approves Dividend IncreaseHCA Board Approves Dividend IncreaseFrom $0.02 Per Share to $0.13 Per ShareFrom $0.02 Per Share to $0.13 Per Share

• Prudent investment/use of free cash flow

• Share Repurchase Integral component of the Company’s

financial policies Since 1997, repurchased $6.9 billion

of HCA stock (average cost $29.51)

• Dividend• Cash-flows allow us to pay a

significantly increased dividend• Continue to reinvest in our markets,

and strengthen our balance sheet

24

HCA is Investing Significantly in Programs HCA is Investing Significantly in Programs for Patient Safety and Improved Patient Outcomesfor Patient Safety and Improved Patient Outcomes

E MAR: Medication Error Prevention

E POM: Physician Order Entry

100% Participation in CMS Quality Reporting Initiative

Member of NQF and Leapfrog

Cardiovascular, OB and Emergency Department Initiatives

25

A prudent financial strategy that provides for a strong A prudent financial strategy that provides for a strong balance sheet and return of cash to shareholders through balance sheet and return of cash to shareholders through

share repurchase and/or dividendsshare repurchase and/or dividends

Excellent Investment OpportunitiesExcellent Investment Opportunities

Strong Cash FlowsStrong Cash Flows

Excellent Long-Term Earnings Growth OutlookExcellent Long-Term Earnings Growth Outlook

Great AssetsGreat Assets

In Summary We Have….In Summary We Have….