Amendment No 1

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

Please wait

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q/A

(Amendment No. 1)

(Mark One)

x	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2013

¨	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission File Number: 001-11141

HEALTH MANAGEMENT ASSOCIATES, INC.

(Exact name of registrant as specified in its charter)

Delaware

61-0963645

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

5811 Pelican Bay Boulevard, Suite 500,

Naples, Florida

34108-2710

(Address of principal executive offices)

(Zip Code)

(239) 598-3131

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of April 26, 2013, there were 259,329,571 shares of the registrant’s Class A common stock outstanding.

Explanatory Note

Health Management Associates, Inc. (the “Company”) is filing this Amendment No. 1 (this “Amendment”) to its Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2013 (the “Original Form 10-Q”) filed with the Securities and Exchange Commission (the “SEC”) on May 3, 2013 (the “Original Filing Date”) to restate and amend the Company’s previously issued consolidated financial statements and related financial information for the quarterly periods ended March 31, 2013 and 2012 included in its Original Form 10-Q to correct an error in the accounting treatment of approximately $31.0 million of incentive payments recognized as income by the Company between July 1, 2011 and June 30, 2013 pursuant to federal Medicare and various state Medicaid Healthcare Information Technology (“HCIT”) programs and other individually immaterial errors.

Except as described in this Explanatory Note and Effects of Restatement below, the financial statements and financial statement footnote disclosures in the Original Form 10-Q are unchanged. In particular, except for the events described under “Background” and “Effects of Restatement”,” this Amendment has not been updated to reflect any events that have occurred after the Original Form 10-Q was filed or to modify or update disclosures affected by other subsequent events. Accordingly, forward-looking statements included in this Amendment represent management’s views as of the Original Filing Date and should not be assumed to be accurate as of any date thereafter. This Amendment should be read in conjunction with the Form 10-K filed with the SEC on February 27, 2013 and the Company’s subsequent filings with the SEC, together with any amendments to those filings.

Background

The Company participates in HCIT programs pursuant to which Medicare and Medicaid incentive payments are paid to eligible hospitals and physician practices that implement and achieve “meaningful use” of certified electronic health record (“EHR”) technology. In October 2013, based on the results of an internal review, the Company determined that it had made an accounting error in applying the requirements for certifying its EHR technology under these programs and, as a result, that 11 of the hospitals it had enrolled in the HCIT programs did not meet the “meaningful use” criteria necessary to qualify for HCIT payments. The Company promptly notified the Centers for Medicare and Medicaid Services (“CMS”), the government agency responsible for administering federal HCIT programs, as well as the agencies that administer the various relevant state HCIT programs, of its determination.

On October 30, 2013, the Company withdrew the 11 hospitals from the HCIT programs and repaid the majority of the funds to CMS. The Company is in the process of repaying the balance of the funds to the relevant state programs. The Company expects to re-enroll the hospitals in the HCIT programs and may be able to recoup some portion of the amount repaid.

Effects of Restatement

This Amendment amends and restates the Original Form 10-Q to correct an error in accounting treatment of HCIT incentive payments as more fully described in Note 2 to the Consolidated Financial Statements and to reflect certain immaterial unrelated adjustments. Revisions to the Original Form 10-Q have been made to the Company’s Consolidated Financial Statements and related disclosures in Financial Statements for the quarterly periods ended March 31, 2013 and 2012, and, where necessary, to the following other items to reflect the restatements:

•

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations

•

Item 4 - Controls and Procedures

Item 6 of this Amendment has been amended to include as exhibits currently dated certifications from the Company’s principal executive officer and principal financial officer, as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002.

The adjustments to correct the error in accounting treatment of HCIT incentive payments and unrelated adjustments resulted in an increase in income from continuing operations of $0.6 million and $0.1 million in the quarters ended March 31, 2013 and 2012 respectively.

The Company concluded that a control deficiency related to the administration, oversight and accounting for the Company’s EHR enrollment process constituting a material weakness in its internal control over financial reporting existed at December 31, 2012, March 31, 2013, June 30, 2013 and September 30, 2013 and that, due solely to this material weakness, the Company’s internal control over financial reporting and its disclosure controls and procedures were not effective as of those dates. The Company has corrected its accounting treatment for HCIT payments and is in the process of implementing new controls that management believes will remediate the material weakness in internal control over financial reporting. The Company will test the operating effectiveness of these controls in future periods.

HEALTH MANAGEMENT ASSOCIATES, INC.

FORM 10-Q/A

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2013

INDEX


		Page
PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements (as amended and restated).
Consolidated Statements of Income – Three Months Ended March 31, 2013 and 2012			4
Consolidated Statements of Comprehensive Income – Three Months Ended March 31, 2013 and 2012			5
Condensed Consolidated Balance Sheets – March 31, 2013 and December 31, 2012			6
Consolidated Statements of Stockholders’ Equity – Three Months Ended March 31, 2013 and 2012			7
Condensed Consolidated Statements of Cash Flows – Three Months Ended March 31, 2013 and 2012			8
Notes to Interim Condensed Consolidated Financial Statements			9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations (as amended and restated).		35
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		43
Item 4.	Controls and Procedures (as amended and restated).		43

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings		44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		47
Item 6.	Exhibits		47
Signatures			48
Index to Exhibits			49

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

HEALTH MANAGEMENT ASSOCIATES, INC.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

(unaudited)


	Three Months Ended March 31,
	2013			2012
	(restated)			(restated)
Net revenue before the provision for doubtful accounts	$	1,724,028		$	1,685,268
Provision for doubtful accounts		(236,199	)		(201,261	)

Net revenue		1,487,829			1,484,007

Salaries and benefits		685,678			658,237
Supplies		235,768			234,443
Rent expense		42,081			44,950
Other operating expenses		324,090			312,201
Medicare and Medicaid HCIT incentive payments		(3,982	)		(4,590	)
Depreciation and amortization		93,826			78,347
Interest expense		71,491			88,865
Other		(1,891	)		1,640

		1,447,061			1,414,093

Income from continuing operations before income taxes		40,768			69,914
Provision for income taxes		(12,415	)		(23,804	)

Income from continuing operations		28,353			46,110
Loss from discontinued operations, net of income taxes		—			(1,395	)

Consolidated net income		28,353			44,715
Net income attributable to noncontrolling interests		(4,665	)		(6,906	)

Net income attributable to Health Management Associates, Inc.	$	23,688		$	37,809

Earnings per share attributable to Health Management Associates, Inc. common stockholders:
Basic
Continuing operations	$	0.09		$	0.15
Discontinued operations		—			—

Net income	$	0.09		$	0.15

Diluted
Continuing operations	$	0.09		$	0.15
Discontinued operations		—			—

Net income	$	0.09		$	0.15

Weighted average number of shares outstanding:
Basic		256,152			253,316

Diluted		260,550			255,699

See accompanying notes.

HEALTH MANAGEMENT ASSOCIATES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)


	Three Months Ended March 31,
	2013			2012
	(restated)			(restated)
Consolidated net income	$	28,353		$	44,715
Components of other comprehensive income before income taxes attributable to:
Available-for-sale securities:
Unrealized gains (losses), net		4,120			5,119
Adjustments for net (gains) losses reclassified into net income		(1,427	)		264

Net activity attributable to available-for-sale securities		2,693			5,383
Interest rate swap contract:
Reclassification adjustments for amortization into net income		18,356			20,453

Other comprehensive income before income taxes		21,049			25,836
Income tax expense related to items of other comprehensive income		(8,070	)		(9,824	)

Other comprehensive income, net		12,979			16,012

Total consolidated comprehensive income		41,332			60,727
Total comprehensive income attributable to noncontrolling interests		(4,665	)		(6,906	)

Total comprehensive income attributable to Health Management Associates, Inc. common stockholders	$	36,667		$	53,821

See accompanying notes.

HEALTH MANAGEMENT ASSOCIATES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)

(unaudited)


	March 31, 2013			December 31, 2012
	(restated)			(restated)
ASSETS
Current assets:
Cash and cash equivalents	$	37,358		$	59,173
Available-for-sale securities		52,207			121,106
Accounts receivable, less allowances for doubtful accounts of $679,864 and $670,729 at March 31, 2013 and December 31, 2012, respectively		991,027			957,918
Supplies, prepaid expenses and other assets		221,505			220,884
Prepaid and recoverable income taxes		64,498			60,438
Restricted funds		25,109			26,525
Assets held for sale		6,250			6,250

Total current assets		1,397,954			1,452,294

Property, plant and equipment		5,564,045			5,523,870
Accumulated depreciation and amortization		(2,107,027	)		(2,057,980	)

Net property, plant and equipment		3,457,018			3,465,890

Restricted funds		126,581			125,532
Goodwill		1,025,823			1,025,137
Deferred charges and other assets		302,223			317,501

Total assets	$	6,309,599		$	6,386,354

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	169,713		$	211,387
Accrued expenses and other liabilities		556,774			609,732
Deferred income taxes		27,086			29,026
Current maturities of long-term debt and capital lease obligations		99,093			126,262

Total current liabilities		852,666			976,407

Deferred income taxes		324,157			301,237
Long-term debt and capital lease obligations, less current maturities		3,418,195			3,440,353
Other long-term liabilities		467,858			460,886

Total liabilities		5,062,876			5,178,883

Redeemable equity securities		212,208			212,458

Stockholders’ equity:
Health Management Associates, Inc. equity:
Preferred stock, $0.01 par value, 5,000 shares authorized, none issued		—			—
Common stock, Class A, $0.01 par value, 750,000 shares authorized, 259,084 shares and 256,394 shares issued at March 31, 2013 and December 31, 2012, respectively		2,591			2,564
Accumulated other comprehensive income (loss), net of income taxes		(28,961	)		(41,940	)
Additional paid-in capital		185,973			173,843
Retained earnings		867,626			843,938

Total Health Management Associates, Inc. stockholders’ equity		1,027,229			978,405
Noncontrolling interests		7,286			16,608

Total stockholders’ equity		1,034,515			995,013

Total liabilities and stockholders’ equity	$	6,309,599		$	6,386,354

See accompanying notes.

HEALTH MANAGEMENT ASSOCIATES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Three Months Ended March 31, 2013 and 2012

(in thousands)

(unaudited)


	Health Management Associates, Inc.
					Accumulated Other Comprehensive Income (Loss), Net			Additional Paid-in Capital			Retained Earnings		Noncontrolling Interests			Total Stockholders’ Equity

	Common Stock
	Shares		Par Value
								(restated)			(restated)					(restated)
Balances at January 1, 2013		256,394	$	2,564	$	(41,940	)	$	173,843		$	843,938	$	16,608		$	995,013
Net income		—		—		—			—			23,688		4,665			28,353
Unrealized gains (losses) on available-for-sale securities and reclassifications into net income, net		—		—		1,748			—			—		—			1,748
Interest rate swap contract amortization of expense into net income, net		—		—		11,231			—			—		—			11,231
Exercises of stock options and related tax matters		1,363		14		—			13,181			—		—			13,195
Issuances of deferred stock and restricted stock and related tax matters, net of forfeitures		1,327		13		—			(8,040	)		—		—			(8,027	)
Stock-based compensation expense		—		—		—			6,989			—		—			6,989
Distributions to noncontrolling shareholders		—		—		—			—			—		(13,987	)		(13,987	)

Balances at March 31, 2013		259,084	$	2,591	$	(28,961	)	$	185,973		$	867,626	$	7,286		$	1,034,515


	Health Management Associates, Inc.
					Accumulated Other Comprehensive Income (Loss), Net			Additional Paid-in Capital			Retained Earnings		Noncontrolling Interests			Total Stockholders’ Equity

	Common Stock
	Shares		Par Value
								(restated)			(restated)					(restated)
Balances at January 1, 2012		254,156	$	2,542	$	(95,440	)	$	156,859		$	693,991	$	15,975		$	773,927
Net income		—		—		—			—			37,809		6,906			44,715
Unrealized gains (losses) on available-for-sale securities and reclassifications into net income, net		—		—		3,499			—			—		—			3,499
Interest rate swap contract amortization of expense into net income, net		—		—		12,513			—			—		—			12,513
Issuances of deferred stock and restricted stock and related tax matters, net of forfeitures		2,177		21		—			(7,329	)		—		—			(7,308	)
Stock-based compensation expense		—		—		—			6,887			—		—			6,887
Distributions to noncontrolling shareholders		—		—		—			—			—		(13,529	)		(13,529	)
Purchases of subsidiary shares from noncontrolling shareholders		—		—		—			(25	)		—		(76	)		(101	)
Noncontrolling shareholder interests in an acquired business		—		—		—			—			—		1,917			1,917

Balances at March 31, 2012		256,333	$	2,563	$	(79,428	)	$	156,392		$	731,800	$	11,193		$	822,520

See accompanying notes.

HEALTH MANAGEMENT ASSOCIATES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Three Months Ended March 31,
	2013			2012
	(restated)			(restated)
Cash flows from operating activities:
Consolidated net income	$	28,353		$	44,715
Adjustments to reconcile consolidated net income to net cash provided by continuing operating activities:
Depreciation and amortization		97,123			81,109
Amortization related to interest rate swap contract		18,356			20,453
Fair value adjustments related to interest rate swap contract		(700	)		16,268
Provision for doubtful accounts		236,199			201,261
Stock-based compensation expense		6,989			6,887
(Gains) losses on sales of assets, net		(90	)		2,337
Gains on sales of available-for-sale securities, net		(2,145	)		(317	)
Write-off of deferred debt issuance costs		584			—
Deferred income tax expense (benefit)		12,909			(9,636	)
Changes in assets and liabilities of continuing operations, net of the effects of acquisitions:
Accounts receivable		(280,611	)		(296,532	)
Supplies, prepaid expenses and other current assets		(621	)		(5,516	)
Prepaid and recoverable income taxes		(2,851	)		31,063
Deferred charges and other long-term assets		(5,248	)		(6,425	)
Accounts payable		(39,673	)		(14,140	)
Accrued expenses and other liabilities		(44,945	)		(9,462	)
Equity compensation excess income tax benefits		(4,388	)		(1,400	)
Loss from discontinued operations, net		—			1,395

Net cash provided by continuing operating activities		19,241			62,060

Cash flows from investing activities:
Additions to property, plant and equipment		(61,040	)		(80,790	)
Acquisitions of hospitals and other ancillary health care businesses		(1,525	)		(81,617	)
Proceeds from sales of assets and insurance recoveries		572			808
Purchases of available-for-sale securities		(416,776	)		(439,701	)
Proceeds from sales of available-for-sale securities		487,627			521,186
Decrease in restricted funds, net		3,253			782

Net cash provided by (used in) continuing investing activities		12,111			(79,332	)

Cash flows from financing activities:
Proceeds from long-term debt borrowings		71,400			—
Principal payments on debt and capital lease obligations		(126,328	)		(20,799	)
Payments of debt issuance costs		(1,588	)		—
Proceeds from exercises of stock options		13,197			—
Cash received from noncontrolling shareholders		—			1,786
Cash payments to noncontrolling shareholders		(14,236	)		(17,886	)
Equity compensation excess income tax benefits		4,388			1,400

Net cash used in continuing financing activities		(53,167	)		(35,499	)

Net decrease in cash and cash equivalents before discontinued operations		(21,815	)		(52,771	)
Net decreases in cash and cash equivalents from discontinued operations:
Operating activities		—			(2,960	)
Investing activities		—			(16	)

Net decrease in cash and cash equivalents		(21,815	)		(55,747	)
Cash and cash equivalents at the beginning of the period		59,173			64,143

Cash and cash equivalents at the end of the period	$	37,358		$	8,396

See accompanying notes

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.	Business and Basis of Presentation

Health Management Associates, Inc. by and through its subsidiaries (collectively, “we,” “our” or “us”) provides health care services to patients in hospitals and other health care facilities in non-urban communities located primarily in the southeastern United States. As of March 31, 2013, we operated 70 hospitals in fifteen states with a total of 10,585 licensed beds, including twenty-two hospitals located in Florida, ten hospitals in Mississippi and nine hospitals in Tennessee. See Note 12 for information about an acquisition that we completed subsequent to March 31, 2013.

Unless specifically indicated otherwise, all amounts and percentages presented in the notes below are exclusive of our discontinued operations, which are identified at Note 8.

The condensed consolidated balance sheet as of December 31, 2012 is unaudited; however, it was derived from the audited consolidated financial statements included in our Annual Report on Form 10-K/A for the year ended December 31, 2012 (referred to as our “2012 Form 10-K”). The interim condensed consolidated financial statements as of March 31, 2013 and for the three months ended March 31, 2013 and 2012 are unaudited; however, such interim financial statements reflect all adjustments (consisting only of those of a normal recurring nature) that are, in our opinion, necessary for a fair presentation of our financial position, results of operations and cash flows. Our results of operations and cash flows for the interim periods presented are not necessarily indicative of the results to be expected for the full year due to, among other things, the seasonal nature of our business and changes in the economy and the health care regulatory environment.

The interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Based on the SEC’s guidance, certain information and disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted. The interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in our 2012 Form 10-K.

Our preparation of interim condensed consolidated financial statements requires us to make estimates and assumptions that affect the amounts reported in those financial statements and the accompanying notes. Actual results could differ from those estimates.

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

2.	Restatement and Revision of Previously Reported Consolidated Financial Statements

We have restated our consolidated financial statements for the quarterly periods ended March 31, 2013 and 2012 due to an accounting error in our application of the requirements for certifying our electronic health record (“EHR”) technology under various Medicare and Medicaid HCIT programs. It was determined that 11 of our hospitals did not meet the “meaningful use” criteria necessary to qualify for HCIT incentive payments. We estimate that, between July 1, 2011 and June 30, 2013, we recognized as income HCIT incentive payments totaling approximately $31.0 million for the hospitals that did not meet the “meaningful use” criteria ($8.3 million, $7.3 million and $5.4 million related to 2011, 2012 and 2013, respectively). The impact of correcting the misstatement related to the HCIT payments for these 11 hospitals, as well as correction of unrelated immaterial errors, on our consolidated balance sheets and consolidated statements of income, comprehensive income and cash flows is as follows:


	Three Months Ended March 31, 2013
	As Previously Reported			Adjustment			As Restated
Consolidated Statements of Income and Comprehensive Income
Net revenue before the provision for doubtful accounts	$	1,723,841		$	187		$	1,724,028
Provision for doubtful accounts		(240,879	)		4,680			(236,199	)

Net revenue		1,482,962			4,867			1,487,829

Salaries and benefits		684,191			1,487			685,678
Supplies		235,768			—			235,768
Rent expense		42,156			(75	)		42,081
Other operating expenses		325,775			(1,685	)		324,090
Medicare and Medicaid HCIT incentive programs		(3,826	)		(156	)		(3,982	)
Depreciation and amortization		93,875			(49	)		93,826
Interest expense		69,429			2,062			71,491
Other		(1,891	)		—			(1,891	)

Income from continuing operations before income taxes		37,485			3,283			40,768
Provision for income taxes		(9,718	)		(2,697	)		(12,415	)

Income from continuing operations		27,767			586			28,353
Loss from discontinued operations		—			—			—

Consolidated net income		27,767			586			28,353
Net income attributable to noncontrolling interests		(4,665	)		—			(4,665	)

Net income attributable to Health Management Associates, Inc.	$	23,102		$	586		$	23,688

Comprehensive income	$	40,746		$	586		$	41,332

Earnings (loss) per share attributable to Health Management Associates, Inc. common stockholders:
Basic and diluted
Continuing operations	$	0.09		$	—		$	0.09
Discontinued operations		—			—			—

Net income	$	0.09		$	—		$	0.09

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

2.	Restatement and Revision of Previously Reported Consolidated Financial Statements (continued)


	March 31, 2013
	As Previously Reported		Adjustment			As Restated
Consolidated Balance Sheet
Accounts receivable, less allowances for doubtful accounts	$	1,003,128	$	(12,101	)	$	991,027
Prepaid and recoverable income taxes		64,749		(251	)		64,498
Other current assets		342,429		—			342,429

Total current assets		1,410,306		(12,352	)		1,397,954

Net property, plant and equipment		3,454,132		2,886			3,457,018
Goodwill		1,024,142		1,681			1,025,823
Other long-term assets		428,804		—			428,804

Total assets	$	6,317,384	$	(7,785	)	$	6,309,599

Accounts payable	$	169,713		—		$	169,713
Accrued expenses and other liabilities		531,643		25,131			556,774
Deferred income taxes		42,611		(15,525	)		27,086
Other current liabilities		98,891		202			99,093

Total current liabilities		842,858		9,808			852,666
Long-term debt and capital lease obligations, less current maturities		3,411,004		7,191			3,418,195
Other long-term liabilities		791,873		142			792,015
Redeemable equity securities		212,208		—			212,208
Total stockholders’ equity		1,059,441		(24,926	)		1,034,515

Total liabilities and stockholders’ equity	$	6,317,384	$	(7,785	)	$	6,309,599


	Three Months Ended March 31, 2013
	As Previously Reported			Adjustment			As Restated
Consolidated Statements of Cash Flows
Operating activities:
Consolidated net income	$	27,767		$	586		$	28,353
Depreciation and amortization		97,172			(49	)		97,123
Provision for doubtful accounts		240,879			(4,680	)		236,199
Deferred tax expense		12,148			761			12,909
Accounts receivable		(278,438	)		(2,173	)		(280,611	)
Prepaid and recoverable income taxes		(3,102	)		251			(2,851	)
Accrued expenses and other liabilities		(50,147	)		5,202			(44,945	)
Other cash flows from operating activities		(26,936	)		—			(26,936	)

Net cash provided by continuing operating activities		19,343			(102	)		19,241

Investing activities:
Additions to property, plant and equipment		(61,142	)		102			(61,040	)
Other cash flows from investing activities		73,151			—			73,151

Net cash provided by continuing investing activities		12,009			102			12,111

Net cash used in continuing financing activities		(53,167	)		—			(53,167	)

Net decrease in cash and cash equivalents		(21,815	)		—			(21,815	)
Cash and cash equivalents at the beginning of the year		59,173			—			59,173

Cash and cash equivalents at the end of the year	$	37,358		$	—		$	37,358

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

2.	Restatement and Revision of Previously Reported Consolidated Financial Statements (continued)


	Three Months Ended March 31, 2012
	As Previously Reported			Adjustment			As Restated
Consolidated Statements of Income and Comprehensive Income
Net revenue before the provision for doubtful accounts	$	1,686,518		$	(1,250	)	$	1,685,268
Provision for the doubtful accounts		(201,261	)		—			(201,261	)

Net revenue		1,485,257			(1,250	)		1,484,007

Salaries and benefits		659,084			(847	)		658,237
Supplies		234,443			—			234,443
Rent expense		45,025			(75	)		44,950
Other operating expenses		311,780			421			312,201
Medicare and Medicaid HCIT incentive programs		(4,590	)		—			(4,590	)
Depreciation and amortization		78,394			(47	)		78,347
Interest expense		88,763			102			88,865
Other		1,640			—			1,640

Income from continuing operations before income taxes		70,718			(804	)		69,914
Provision for income taxes		(24,727	)		923			(23,804	)

Income from continuing operations		45,991			119			46,110
Loss from discontinued operations		(1,395	)		—			(1,395	)

Consolidated net income		44,596			119			44,715
Net income attributable to noncontrolling interests		(6,906	)		—			(6,906	)

Net income attributable to Health Management Associates, Inc.	$	37,690		$	119		$	37,809

Comprehensive income	$	60,608		$	119		$	60,727

Earnings (loss) per share attributable to Health Management
Associates, Inc. common stockholders:
Basic
Continuing operations	$	0.15		$	—		$	0.15
Discontinued operations		—			—			—

Net income	$	0.15		$	—		$	0.15

Diluted
Continuing operations	$	0.15		$	—		$	0.15
Discontinued operations		—			—			—

Net income	$	0.15		$	—		$	0.15

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

2.	Restatement and Revision of Previously Reported Consolidaed Financial Statements (continued)


	December 31, 2012
	As Previously Reported		Adjustment			As Restated
Consolidated Balance Sheet
Accounts receivable, less allowances for doubtful accounts	$	976,872	$	(18,954	)	$	957,918
Other current assets		494,376		—			494,376

Total current assets		1,471,248		(18,954	)		1,452,294

Net property, plant and equipment		3,463,052		2,838			3,465,890
Goodwill		1,023,456		1,681			1,025,137
Other long-term assets		443,033		—			443,033

Total assets	$	6,400,789	$	(14,435	)	$	6,386,354

Accrued expenses and other liabilities	$	469,055	$	(5,242	)	$	463,813
Due to third party payors		26,470		25,172			51,642
Deferred income taxes		45,170		(16,144	)		29,026
Other current liabilities		431,728		198			431,926

Total current liabilities		972,423		3,984			976,407
Long-term debt and capital lease obligations, less current maturities		3,433,260		7,093			3,440,353
Other long-term liabilities		762,123		—			762,123
Redeemable equity securities		212,458		—			212,458
Total stockholders’ equity		1,020,525		(25,512	)		995,013

Total liabilities and stockholders’ equity	$	6,400,789	$	(14,435	)	$	6,386,354


	Three Months Ended March 31, 2012
	As Previously Reported			Adjustment			As Restated
Consolidated Statements of Cash Flows
Operating activities:
Consolidated net income	$	44,596		$	119		$	44,715
Depreciation and amortization		81,156			(47	)		81,109
Deferred tax expense		(9,451	)		(185	)		(9,636	)
Accounts receivable		(297,782	)		1,250			(296,532	)
Prepaid and recoverable income taxes		31,380			(317	)		31,063
Accounts payable		(13,293	)		(847	)		(14,140	)
Other cash flows from operating activities		225,481			—			225,481

Net cash provided by continuing operating activities		62,087			(27	)		62,060

Investing activities:
Additions to property, plant and equipment		(80,817	)		27			(80,790	)
Other cash flows from investing activities		1,458			—			1,458

Net cash used in continuing investing activities		(79,359	)		27			(79,332	)

Net cash used in continuing financing activities		(35,499	)		—			(35,499	)

Discontinued operations		(2,976	)		—			(2,976	)

Net decrease in cash and cash equivalents		(55,747	)		—			(55,747	)
Cash and cash equivalents at the beginning of the year		64,143			—			64,143

Cash and cash equivalents at the end of the year	$	8,396		$	—		$	8,396

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

2.	Restatement and Revision of Previously Reported Consolidated Financial Statements (continued)

The notes to the interim condensed consolidated financial statements have been restated for these adjustments as applicable.

3.	Net Revenue, Provision for Doubtful Accounts, Cost of Revenue and Other

Net Revenue. We record gross patient service charges on the accrual basis in the period that the services are rendered. Net revenue before the provision for doubtful accounts represents gross patient service charges less provisions for contractual adjustments and uninsured self-pay patient discounts. Payments for services rendered to patients covered by Medicare, Medicaid and other government programs are generally less than billed charges and, therefore, provisions for contractual adjustments are made to reduce gross patient service charges to the estimated cash receipts based on each program’s principles of payment/reimbursement (i.e., either prospectively determined or retrospectively determined costs). Estimates of contractual allowances for services rendered to patients covered by commercial insurance, including managed care health plans, are primarily based on the payment terms of contractual arrangements, such as predetermined rates per diagnosis, per diem rates or discounted fee for service rates. Revenue and receivables from government programs are significant to our operations; however, we do not believe that there are substantive credit risks associated with such programs. There are no other concentrations of revenue or accounts receivable with any individual payor that subject us to significant credit or other risks.

In the ordinary course of business, we provide services to patients who are financially unable to pay for their care. Accounts identified as charity and indigent care are not recognized in net revenue before the provision for doubtful accounts. We maintain a company-wide policy whereby patient account balances are characterized as charity and indigent care only if the patient meets certain percentages of the federal poverty level guidelines. Local hospital personnel and our collection agencies pursue payments on accounts receivable from patients who do not meet such criteria. For uninsured self-pay patients who do not qualify for charity and indigent care treatment, we recognize net revenue before the provision for doubtful accounts using our standard gross patient service charges, less discounts of 60% or more for non-elective procedures. Because a significant portion of uninsured self-pay patients will be unable or unwilling to pay for their care, we record a significant provision for doubtful accounts in the period that the services are provided to those patients.

Net revenue before the provision for doubtful accounts, by major payor source, is summarized in the table below (dollars in thousands).


	Three Months Ended				Three Months Ended
	March 31, 2013				March 31, 2012
Medicare	$	512,401	29.7	%	$	503,893	29.9	%
Medicaid		177,449	10.3			180,289	10.7
Commercial insurance		820,294	47.6			817,151	48.5
Self-pay		171,547	10.0			163,435	9.7
Other		42,337	2.4			20,500	1.2

	$	1,724,028	100.0	%	$	1,685,268	100.0	%

Provision for Doubtful Accounts and Related Other. We grant credit without requiring collateral from our patients, most of whom live near our hospitals and are insured under third party payor agreements. The credit risk for non-governmental accounts receivable, excluding uninsured self-pay patients, is limited due to the large number of insurance companies and other payors that provide payment and reimbursement for patient services. Accounts receivable are reported net of estimated allowances for doubtful accounts.

Collection of accounts receivable from third party payors and patients is our primary source of cash and is therefore critical to our successful operating performance. Accordingly, we regularly monitor our cash collection trends and the aging of our accounts receivable by major payor source. Our collection risks principally relate to uninsured self-pay patient accounts and patient accounts for which the primary insurance payor has paid but patient responsibility amounts (generally deductibles and co-payments) remain outstanding. Provisions for doubtful accounts are primarily estimated based on cash collection analyses by major payor classification and accounts receivable aging reports. For accounts receivable associated with services provided to patients who have governmental and/or commercial insurance coverage, we analyze contractually due amounts and record an allowance for doubtful accounts as necessary. For accounts receivable associated with self-pay patients, which includes both patients without insurance and patients with deductible and co-payment balances due for which third party coverage exists for part of the bill, we record a significant provision for doubtful accounts in the period of service because many patients will not pay the portion of their bill for which they are financially responsible. We monitor the aging of accounts receivable from self-pay patients and record supplemental provisions for doubtful accounts when our likelihood of collection deteriorates.

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

3.	Net Revenue, Provision for Doubtful Accounts, Cost of Revenue and Other (continued)

At March 31, 2013 and December 31, 2012, our allowance for doubtful accounts for self-pay uninsured patient accounts was approximately 74.4% and 72.6%, respectively, of our total self-pay uninsured patient accounts receivable balance. The corresponding percentages for our allowance for doubtful accounts pertaining to accounts receivable from government payors, managed care health plans and other commercial payors were 6.5% and 6.3% at March 31, 2013 and December 31, 2012, respectively. Our write-offs of patient accounts receivable (most of which related to uninsured self-pay patients) were approximately $233.7 million and $183.9 million during the three months ended March 31, 2013 and 2012, respectively. The year-over-year increase in patient accounts receivable write-offs was primarily due to increases in net revenue before the provision for doubtful accounts from uninsured self-pay patients and patient responsibility amounts.

When considering the adequacy of the allowance for doubtful accounts, our accounts receivable balances are reviewed in conjunction with historical collection rates, health care industry trends/indicators and other business and economic conditions that might reasonably be expected to affect the collectability of patient accounts. Accounts receivable are written off after collection efforts have been pursued in accordance with our policies and procedures. Accounts written off as uncollectible are deducted from the allowance for doubtful accounts and subsequent recoveries are netted against the provision for doubtful accounts. Changes in payor mix, general economic conditions or federal and state government health care coverage could each have a material adverse effect on our accounts receivable collections, cash flows and results of operations.

Cost of Revenue. The presentation of costs and expenses in our consolidated statements of income does not differentiate between costs of revenue and other costs because substantially all such costs and expenses relate to providing health care services. Furthermore, we believe that the natural classification of expenses is the most meaningful presentation of our operations. Amounts that could be classified as general and administrative expenses, which include the costs of our home office as well as our regional service centers, were approximately $82.5 million and $66.2 million during the three months ended March 31, 2013 and 2012, respectively.

Electronic Health Record Incentive Programs. Using a gain contingency model, we recognize benefits under the various Medicare and Medicaid Healthcare Information Technology programs (collectively, the “HCIT Programs”) in our consolidated statements of income when the eligible hospitals and physician practices have demonstrated meaningful use of certified electronic health record technology during the period and, if applicable, the cost report information for the full cost report year that will determine the final calculation of the incentive payment is available. In addition HCIT incentive payments previously recognized as income are subject to audit and potential recoupment if it is determined that we did not meet the applicable meaningful use standards required in connection with such incentive payments.

During the three months ended March 31, 2013 and 2012, we recognized benefits in our consolidated statements of income of approximately $4.0 million and $4.6 million, respectively, related to the HCIT Programs. Included in our condensed consolidated balance sheets at March 31, 2013 and December 31, 2012 were receivables under the HCIT Programs of $9.6 million and $11.7 million, respectively. The corresponding deferred incentive payment liabilities were $19.0 million and $19.2 million at March 31, 2013 and December 31, 2012, respectively. See Note 2 for information relating to the restatement of these amounts.

4. Long-Term Debt and Capital Lease Obligations

The following discussion of our long-term debt and capital lease obligations should be read in conjunction with Notes 3 and 4 to the audited consolidated financial statements included in our 2012 Form 10-K. The table below summarizes our long-term debt and capital lease obligations by major component (in thousands).


	March 31, 2013			December 31, 2012
Bank borrowings:
Revolving credit facilities	$	—		$	—
Term Loan A (as defined below)		646,750			670,625
Term Loan B (as defined below), net of discounts		1,350,252			1,374,318
7.375% Senior Notes due 2020		875,000			875,000
6.125% Senior Notes due 2016, net of discounts		398,877			398,785
3.75% Convertible Senior Subordinated Notes due 2028, net of discounts		86,545			85,522
Installment notes and other long-term debt		13,482			13,988
Capital lease obligations		146,382			148,377

Long-term debt and capital lease obligations		3,517,288			3,566,615
Less current maturities		(99,093	)		(126,262	)

Long-term debt and capital lease obligations, less current maturities	$	3,418,195		$	3,440,353

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

4.	Long-Term Debt and Capital Lease Obligations (continued)

Bank Borrowings. Our bank borrowings include variable rate senior secured credit facilities with a syndicate of banks (collectively, the “Credit Facilities”) that we entered into on November 18, 2011. At that date, the Credit Facilities consisted of: (i) a $500.0 million five-year revolving credit facility (the “Revolving Credit Agreement”); (ii) a $725.0 million five-year term loan (the “Term Loan A”); and (iii) a $1.4 billion seven-year term loan (the “Term Loan B”). On March 20, 2013, we amended the loan agreement underlying the Credit Facilities (the “Amendment”) in order to, among other things, provide for the refinancing of the then outstanding balance under the Term Loan B. The principal payments were unchanged, however, the Term Loan B is now subject to a prepayment premium equal to 1.0% of the principal amount that is repriced or prepaid on or before September 20, 2013.

We can elect whether interest on borrowings under the Credit Facilities is determined using LIBOR or the Base Rate (as defined in the loan agreement). The effective interest rates on such borrowings, which fluctuate with market changes, include a spread above the base rate that we select. Through March 20, 2013, the effective interest rate for the Term Loan B was subject to a floor of 1.0% and 2.0% (before consideration of the interest rate spread) when using LIBOR and the Base Rate, respectively. The Amendment reduced both such interest rate floors under the Term Loan B by 0.25%. The amount of the interest rate spread is predicated on, among other things, our Consolidated Leverage Ratio (as defined in the loan agreement). The Amendment reduced the interest rate spread on the Term Loan B by 0.75%. We can elect differing interest rates for each of the debt instruments under the Credit Facilities. As of March 31, 2013, the effective interest rates on the Term Loan A and the Term Loan B were 2.8% and 3.5%, respectively. Those rates remained unchanged as of May 1, 2013.

The Revolving Credit Agreement provides that we can borrow, on a revolving basis, up to an aggregate of $500.0 million, as adjusted for outstanding standby letters of credit of up to $75.0 million. During the three months ended March 31, 2013, there were borrowings of $71.4 million under the Revolving Credit Agreement, all of which were repaid prior to March 31, 2013. There were no such borrowings for the three months ended March 31, 2012. On April 1, 2013, we borrowed $210.0 million under the Revolving Credit Agreement to fund the entire purchase price of an acquisition that we completed on that date (see Note 12 for information about such acquisition). As of May 1, 2013, the amount available for borrowing under the Revolving Credit Agreement was approximately $268.6 million, which reflected the then outstanding balance of $178.5 million thereunder and $52.9 million of standby letters of credit in favor of third parties. The effective interest rate on the variable rate Revolving Credit Agreement was approximately 2.8% and 3.0% on March 31, 2013 and May 1, 2013, respectively.

The Credit Facilities are subject to mandatory prepayment in amounts equal to 50% of our Excess Cash Flow (as defined in the amended loan agreement) with step-downs of such percentage based on our Consolidated Leverage Ratio. Based on our Excess Cash Flow for the year ended December 31, 2012, we repaid approximately $31.5 million of additional principal under the Credit Facilities during the three months ended March 31, 2013. As a result of such principal repayment, we wrote off $0.4 million of deferred debt issuance costs.

Other. Cash paid for interest on our long-term debt and capital lease obligations during the three months ended March 31, 2013 and 2012, including amounts that have been capitalized, was approximately $76.3 million and $50.0 million, respectively. We entered into capital leases and other similar arrangements for real property and equipment aggregating $3.3 million and $6.2 million during the three months ended March 31, 2013 and 2012, respectively.

See Note 6 for information regarding the estimated fair values of our long-term debt instruments. Additionally, see Note 13 for summarized financial information in respect of our subsidiaries that provide joint and severable guarantees of payment for certain of our long-term debt obligations.

At March 31, 2013, we were in compliance with all of the covenants contained in our debt agreements.

5.	Earnings Per Share and Related Other

Basic earnings per share is computed based on the weighted average number of outstanding common shares. Diluted earnings per share is computed based on the weighted average number of outstanding common shares plus the dilutive effect of common stock equivalents, primarily computed using the treasury stock method. The table below sets forth the computations of basic and diluted earnings per share for the common stockholders of Health Management Associates, Inc. (in thousands, except per share amounts).

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

5.	Earnings Per Share and Related Other (continued)


	Three Months Ended March 31,
	2013			2012
Numerators:
Income from continuing operations	$	28,353		$	46,110
Income attributable to noncontrolling interests		(4,665	)		(6,906	)

Income from continuing operations attributable to Health Management Associates, Inc. common stockholders		23,688			39,204

Loss from discontinued operations attributable to Health Management Associates, Inc. common stockholders		—			(1,395	)

Net income attributable to Health Management Associates, Inc. common stockholders	$	23,688		$	37,809

Denominators:
Denominator for basic earnings per share-weighted average number of outstanding common shares		256,152			253,316
Dilutive securities: stock-based compensation arrangements		4,398			2,383

Denominator for diluted earnings per share		260,550			255,699

Earnings per share:
Basic
Continuing operations	$	0.09		$	0.15
Discontinued operations		—			—

Net income	$	0.09		$	0.15

Diluted
Continuing operations	$	0.09		$	0.15
Discontinued operations		—			—

Net income	$	0.09		$	0.15

Securities excluded from diluted earnings per share because they were antidilutive or performance conditions were not met:
Stock options		2,225			4,586

Deferred stock and restricted stock		525			967

During the three months ended March 31, 2013, we granted new deferred stock awards to senior executive officers, key managers and independent directors. Underlying those awards were 3.0 million shares of our common stock that will vest 25% per annum if the individual remains an independent director or employee of ours, subject to, in some circumstances, the satisfactory achievement of certain predetermined performance criteria.

6.	Fair Value Measurements, Available-For-Sale Securities and Restricted Funds

General. GAAP defines fair value as the amount that would be received for an asset or paid to transfer a liability (i.e., an exit price) in the principal market for the asset or liability in an orderly transaction between market participants on the measurement date. GAAP also establishes a hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. GAAP describes the following three levels of inputs that may be used:


Level 1:		Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets and liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

Level 2:		Observable prices that are based on inputs not quoted on active markets but corroborated by market data.

Level 3:		Unobservable inputs when there is little or no market data available, thereby requiring an entity to develop its own assumptions. The fair value hierarchy gives the lowest priority to Level 3 inputs.

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

6.	Fair Value Measurements, Available-For-Sale Securities and Restricted Funds (continued)

We recognize transfers between levels within the fair value hierarchy on the date of the change in circumstances that requires such transfer. We began classifying all of our fixed income available-for-sale securities as Level 2 in the first quarter of 2013 and have recast $175.4 million of those securities at December 31, 2012. The table below summarizes the estimated fair values of certain of our financial assets (liabilities) (in thousands).


	Level 1		Level 2			Level 3		Totals
As of March 31, 2013:
Available-for-sale securities, including those in restricted funds	$	52,090	$	151,807		$	—	$	203,897

Interest rate swap contract	$	—	$	(71,785	)	$	—	$	(71,785	)

As of December 31, 2012:
Available-for-sale securities, including those in restricted funds	$	51,156	$	222,007		$	—	$	273,163

Interest rate swap contract	$	—	$	(93,045	)	$	—	$	(93,045	)

The estimated fair values of our Level 1 available-for-sale securities were primarily determined by reference to quoted market prices. Our Level 2 available-for-sale securities primarily consisted of: (i) bonds and notes issued by the United States government and its agencies, domestic and foreign corporations and foreign governments; and (ii) preferred securities issued by domestic and foreign corporations. The estimated fair values of these securities are determined using various valuation techniques, including a multi-dimensional relational model that incorporates standard observable inputs and assumptions such as benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids/offers and other pertinent reference data.

The estimated fair value of our interest rate swap contract, which is discussed at Note 3(a) to the audited consolidated financial statements included in our 2012 Form 10-K, was determined using a model that considers various inputs and assumptions, including LIBOR swap rates, cash flow activity, forward yield curves and other relevant economic measures, all of which are observable market inputs that are classified under Level 2 of the fair value hierarchy. The model also incorporates valuation adjustments for credit risk. The table below summarizes our balance sheet classification of the estimated fair values of our interest rate swap contract liabilities (in thousands).


	March 31, 2013		December 31, 2012
Accrued expenses and other liabilities	$	71,785	$	84,277
Other long-term liabilities		—		8,768

Totals	$	71,785	$	93,045

Cash and cash equivalents, net accounts receivable, accounts payable and accrued expenses and other liabilities are reflected in the condensed consolidated balance sheets at their estimated fair values primarily due to their short-term nature.

The estimated fair values of our long-term debt instruments, which are discussed at Note 4, are determined by reference to quoted market prices and/or bid and ask prices in the relevant market. The following table summarizes the estimated fair values of our debt securities (in thousands) and indicates their corresponding level within the fair value hierarchy.


	March 31, 2013		December 31, 2012
Level 1:
6.125% Senior Notes due 2016	$	441,000	$	434,000
7.375% Senior Notes due 2020		962,500		945,000
3.75% Convertible Senior Subordinated Notes due 2028		120,299		100,948
Level 2:
Term Loan A		649,143		672,704
New Term Loan B/Term Loan B		1,375,681		1,397,227

The estimated fair values of our other long-term debt instruments reasonably approximate their carrying amounts in the condensed consolidated balance sheets.

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

6.	Fair Value Measurements, Available-For-Sale Securities and Restricted Funds (continued)

Available-For-Sale Securities (including those in restricted funds). Supplemental information regarding our available-for-sale securities (all of which had no withdrawal restrictions) is set forth in the table below (in thousands).


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Values
As of March 31, 2013:
Debt securities and debt-based mutual funds
Government	$	49,053	$	520	$	(307	)	$	49,266
Corporate		88,939		3,501		(47	)		92,393
Equity securities and equity-based mutual funds
Domestic		35,379		6,598		(137	)		41,840
International		17,122		2,168		(296	)		18,994
Commodity-based mutual fund		1,458		—		(54	)		1,404

Totals	$	191,951	$	12,787	$	(841	)	$	203,897

As of December 31, 2012:
Debt securities and debt-based mutual funds
Government	$	120,415	$	692	$	(321	)	$	120,786
Corporate		85,843		3,271		(10	)		89,104
Equity securities and equity-based mutual funds
Domestic		37,825		4,307		(234	)		41,898
International		18,005		1,766		(219	)		19,552
Commodity-based mutual fund		1,823		—		—			1,823

Totals	$	263,911	$	10,036	$	(784	)	$	273,163

As of March 31, 2013 and December 31, 2012, investments with aggregate estimated fair values of approximately $55.1 million (146 investments) and $123.8 million (195 investments), respectively, generated the gross unrealized losses disclosed in the above table. We concluded that other-than-temporary impairment charges were not necessary for such gross unrealized losses at either of the balance sheet dates because of, among other things, recent declines in the value of the affected securities and/or our brief holding period (i.e., most of such securities have been held for less than one year), as well as our ability to hold the securities for a reasonable period of time sufficient for a projected recovery of fair value. We will continue to monitor and evaluate the recoverability of our available-for-sale securities.

The contractual maturities of debt-based securities held by us as of March 31, 2013, excluding mutual fund holdings, are set forth in the table below. Expected maturities will differ from contractual maturities because the issuers of the debt securities may have the right to prepay their obligations without prepayment penalties.


	Amortized Cost		Estimated Fair Values
	(in thousands)
Within 1 year	$	306	$	323
After 1 year and through year 5		9,761		10,110
After 5 years and through year 10		9,804		10,386
After 10 years		13,952		14,252

The weighted average cost method is used to calculate the historical cost basis of securities that are sold. Gross realized gains and losses on sales of available-for-sale securities and other investment income, which includes interest and dividends, are summarized in the table below (in thousands).


	Three Months Ended March 31,
	2013			2012
Realized gains	$	2,342		$	875
Realized losses		(338	)		(558	)
Investment income		1,565			1,422

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

6.	Fair Value Measurements, Available-For-Sale Securities and Restricted Funds (continued)

Restricted Funds. Our restricted funds, which consisted solely of available-for-sale securities at both March 31, 2013 and December 31, 2012, are held by a wholly owned captive insurance subsidiary that is domiciled in the Cayman Islands. The assets of such subsidiary are effectively limited to use in its proprietary operations. Supplemental information regarding the available-for-sale securities that are included in restricted funds is set forth in the table below (in thousands).


	Three Months Ended March 31,
	2013		2012
Proceeds from sales	$	15,502	$	10,001
Purchases		11,363		9,241

7.	Acquisitions, Joint Ventures and Other Activity

Acquisition Activity. The acquisitions described below were in furtherance of the part of our business strategy that calls for the acquisition of hospitals and other ancillary health care businesses in non-urban communities. Additionally, see Note 12 for discussion of an acquisition that we completed subsequent to March 31, 2013. Our acquisitions are typically financed using a combination of available cash balances, proceeds from sales of available-for-sale securities, borrowings under revolving credit agreements and other long-term financing arrangements. The operating results of entities that are acquired by our subsidiaries are included in our consolidated financial statements from the date of acquisition.

During the three months ended March 31, 2013 and 2012, certain of our subsidiaries acquired ancillary health care businesses for aggregate cash consideration of approximately $1.5 million and $4.5 million, respectively.

Effective April 1, 2012, one of our subsidiaries acquired from a subsidiary of INTEGRIS Health, Inc. (“Integris”) an 80% interest in five Oklahoma-based general acute care hospitals with a total of 218 beds and certain related health care operations. A subsidiary of Integris retained a 20% interest in each of these entities. The net purchase price for our 80% interest was approximately $61.9 million in cash. However, the gross purchase price (representing ownership of 100% of the affected entities) and certain other amounts that pertained to this acquisition, all of which aggregated $77.1 million, were deposited by us into an escrow account during March 2012.

Other. Our acquisitions are accounted for using the purchase method of accounting. We use estimated exit price fair values as of the date of acquisition to (i) allocate the related purchase price to the assets acquired and liabilities assumed and (ii) record noncontrolling interests. We use a variety of techniques to estimate exit price fair values, including, but not limited to, valuation methodologies that derive fair values using a market approach based on comparable transactions and an approach based on depreciated replacement cost. We recorded incremental goodwill during each of the three months ended March 31, 2013 and 2012 because the final negotiated purchase price in certain of our completed acquisitions exceeded the fair value of the net tangible and intangible assets acquired. Most of the goodwill that was added during those periods is expected to be tax deductible.

Acquisition-related costs have been included in other operating expenses in the consolidated statements of income; however, such costs for each of the three months ended March 31, 2013 and 2012 were not material.

Joint Ventures and Redeemable Equity Securities. As of March 31, 2013, we had established joint ventures to own/lease and operate 28 of our hospitals. Local physicians and/or other health care entities own minority equity interests in each of the joint ventures and participate in the related hospital’s governance. We own a majority of the equity interests in each joint venture and manage the related hospital’s day-to-day operations.

When completing a joint venture transaction, our subsidiary that is a party to the joint venture customarily issues equity securities that provide the noncontrolling shareholders with certain rights to require our subsidiary to redeem such securities. Redeemable equity securities with redemption features that are not solely within our control are classified outside of permanent equity. Those securities are initially recorded at their estimated fair value on the date of issuance. Securities that are currently redeemable or redeemable after the passage of time are adjusted to their redemption value as changes occur. If it is unlikely that a redeemable equity security will ever require redemption then subsequent adjustments to the initially recorded amount will only be recognized in the period that a redemption becomes probable.

As recorded in the condensed consolidated balance sheets, redeemable equity securities represent the minimum amounts that can be unilaterally redeemed for cash by noncontrolling shareholders in respect of their subsidiary equity holdings or the initial unadjusted estimated fair values of contingent rights held by certain noncontrolling shareholders. Through May 1, 2013, the mandatory redemptions requested by noncontrolling shareholders in respect of their subsidiary equity holdings have been nominal. A rollforward of our redeemable equity securities is summarized in the table below (in thousands).

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

7.	Acquisitions, Joint Ventures and Other Activity (continued)


	Three Months Ended March 31,
	2013			2012
Balances at the beginning of the period	$	212,458		$	200,643
Investments by noncontrolling shareholders		—			1,786
Purchases of subsidiary shares from and distributions to noncontrolling shareholders		(250	)		(4,256	)

Balances at the end of the period	$	212,208		$	198,173

Upon the occurrence of certain events that are defined in the underlying operating agreements, some noncontrolling shareholders may require our affected subsidiary to purchase their minority equity holdings. We believe that it is not probable that the contingent rights of such noncontrolling shareholders will vest because there are no circumstances known to us that would trigger such equity repurchase obligations of our subsidiaries. Accordingly, insofar as the contingent rights are concerned, the carrying values of the related redeemable equity securities have not been adjusted since being initially recorded.

8.	Discontinued Operations and Assets Held for Sale

Our discontinued operations during the periods presented herein included: (i) the 172-bed Woman’s Center at Dallas Regional Medical Center in Mesquite, Texas, which was closed in 2008 and the related real property of which was sold on May 21, 2012; (ii) 25-bed St. Mary’s Medical Center of Scott County in Oneida, Tennessee, which was returned to the lessor on May 24, 2012; and (iii) the 293-bed idle Riverside hospital campus (“Riverside”) in Knoxville, Tennessee. The operating results and cash flows of discontinued operations are included in our consolidated financial statements up to the date of disposition. Additionally, as required by GAAP, the operating results and cash flows of the abovmentioned entities have been separately presented as discontinued operations in the interim condensed consolidated financial statements. Long-lived assets to be disposed of are reported at the lower of their carrying amount or estimated fair value, less costs to sell. The estimates of fair value are based on recent sales of similar assets, market analyses, pending disposition transactions and market responses based on discussions with, and offers received from, potential buyers (i.e., Level 2 inputs under the GAAP fair value hierarchy described at Note 6).

One of our subsidiaries acquired Riverside on September 30, 2011. The hospital at the Riverside location was closed prior to our acquisition. Although we are currently evaluating various disposal alternatives, the timing of a divestiture of Riverside has not yet been determined. At both March 31, 2013 and December 31, 2012, the assets held for sale in our condensed consolidated balance sheets were comprised of the remaining property, plant and equipment at the location.

The table below sets forth the underlying details of our discontinued operations (in thousands) during the three months ended March 31, 2012 (there was no such activity during the three months ended March 31, 2013).


Net revenue before the provision for doubtful accounts	$	4,334
Provision for doubtful accounts		(549	)

Net revenue		3,785

Salaries and benefits		2,174
Depreciation and amortization		1,373
Other operating expenses		2,516

		6,063

Loss before income taxes		(2,278	)
Income tax benefit		883

Loss from discontinued operations	$	(1,395	)

9.	Income Taxes

Our effective income tax rates were approximately 30.5% and 34.0% during the three months ended March 31, 2013 and 2012, respectively. Net income attributable to noncontrolling interests, which is not tax-effected in our consolidated financial statements, reduced our effective income tax rates by approximately 390 basis points and 370 basis points during the three months ended March 31, 2013 and 2012, respectively.

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

9.	Income Taxes (continued)

Our provision for income taxes during the three months ended March 31, 2013 was favorably impacted by the satisfactory conclusion of certain state tax audits and examinations.

Our net federal and state income tax payments during the three months ended March 31, 2013 and 2012 approximated $3.4 million and $2.8 million, respectively.

10.

Accumulated Other Comprehensive Income (Loss)

GAAP defines comprehensive income as the change in equity of a business enterprise from transactions and other events and circumstances that relate to non-owner sources. Rollforwards of our accumulated other comprehensive income (loss) are presented in the table below (in thousands).


	Unrealized Gains (Losses) on Available-for-Sale Securities			Interest Rate Swap Contract			Totals
Balances at January 1, 2013, net of income taxes of $27,192	$	6,017		$	(47,957	)	$	(41,940	)
Unrealized gains (losses) on available-for-sale securities, net of income taxes of $1,444		2,676			—			2,676
Adjustments for net (gains) losses reclassified into net income, net of income taxes of $(499)		(928	)		—			(928	)
Reclassification adjustments for amortization of expense into net income, net of income taxes of $7,125		—			11,231			11,231

Balances at March 31, 2013, net of income taxes of $19,122	$	7,765		$	(36,726	)	$	(28,961	)

Balances at January 1, 2012, net of income taxes of $60,635	$	831		$	(96,271	)	$	(95,440	)
Unrealized gains (losses) on available-for-sale securities, net of income taxes of $1,792		3,327			—			3,327
Adjustments for net (gains) losses reclassified into net income, net of income taxes of $92		172			—			172
Reclassification adjustments for amortization of expense into net income, net of income taxes of $7,940		—			12,513			12,513

Balances at March 31, 2012, net of income taxes of $50,811	$	4,330		$	(83,758	)	$	(79,428	)

Supplemental information about our accumulated other comprehensive income (loss) reclassification adjustments is summarized in the table below (in thousands).


	Three Months Ended March 31,						Affected Line Item in the Consolidated Statements of Income
	2013			2012
Available-for-sale securities	$	(1,427	)	$	264		Other
Income tax expense		499			(92	)	Provision for income taxes

Available-for-sale securities, net reclassification	$	(928	)	$	172		Consolidated net income

Interest rate swap contract	$	18,356		$	20,453		Interest expense
Income tax expense		(7,125	)		(7,940	)	Provision for income taxes

Interest rate swap contract, net reclassification	$	11,231		$	12,513		Consolidated net income

Prior to a debt restructuring that we completed on November 18, 2011, which is discussed at Note 4 herein and at Note 3 to the audited consolidated financial statements included in our 2012 Form 10-K, our interest rate swap contract had been a perfectly effective cash flow hedge instrument that was used to manage the risk of variable interest rate fluctuation on certain long-term debt. Changes in the estimated fair value of our interest rate swap contract were previously recognized as a

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

10.

Accumulated Other Comprehensive Income (Loss) (continued)

component of other comprehensive income (loss). Because of our debt restructuring, the interest rate swap contract is no longer an effective cash flow hedge instrument. Therefore, changes in its estimated fair value subsequent to our debt restructuring are no longer included in other comprehensive income (loss) but are recognized in our consolidated statements of income as a component of interest expense. Future amortization of the accumulated other comprehensive loss attributable to our interest rate swap contract is expected to approximate $60.0 million during the period from April 1, 2013 to the expiration of the interest rate swap contract in February 2014.

11.

Commitments and Contingencies

Physician and Physician Group Guarantees. We are committed to providing financial assistance to physicians and physician groups practicing in the communities that our hospitals serve through certain recruiting arrangements and professional services agreements. At March 31, 2013, we were committed to guarantees of approximately $198.9 million under such arrangements. The actual amounts advanced will depend on the financial results of each physician’s and physician group’s private practice during the related contractual measurement period, which generally approximates one to two years. We believe that the recorded liabilities for physician and physician group guarantees of $72.9 million and $89.7 million at March 31, 2013 and December 31, 2012, respectively, are adequate and reasonable; however, there can be no assurances that the ultimate liability will not exceed our estimates.

Ascension Health Lawsuit. On February 14, 2006, Health Management Associates, Inc. (referred to as “Health Management” for the remainder of this Note 11) announced the termination of non-binding negotiations with Ascension Health (“Ascension”) and the withdrawal of a non-binding offer to acquire Ascension’s St. Joseph Hospital, a general acute care hospital in Augusta, Georgia. On June 8, 2007, certain Ascension subsidiaries filed a lawsuit against Health Management, entitled St. Joseph Hospital, Augusta, Georgia, Inc. et al. v. Health Management Associates, Inc., in Georgia Superior/State Court of Richmond County claiming that Health Management (i) breached an agreement to purchase St. Joseph Hospital and (ii) violated a confidentiality agreement. The plaintiffs claim at least $40 million in damages. Health Management removed the case to the U.S. District Court for the Southern District of Georgia, Augusta Division (Case No. 1:07-CV-00104). On July 13, 2010, the plaintiffs filed a motion for partial summary judgment and Health Management filed a motion for summary judgment. On March 30, 2011, Health Management’s motion for summary judgment was granted as to all of plaintiffs’ claims, except for the breach of confidentiality claim, and plaintiffs’ motion for partial summary judgment was denied. On June 15, 2011, the case was stayed pending resolution of the appellate process. On July 8, 2011, the plaintiffs filed a notice of appeal to the U.S. Court of Appeals for the Eleventh Circuit (Case No. 11-13069). Oral argument was held on May 22, 2012. On January 24, 2013, the U.S. Court of Appeals for the Eleventh Circuit upheld the granting of Health Management’s motion for summary judgment by the U.S. District Court for the Southern District of Georgia, Augusta Division. On February 14, 2013, the plaintiffs filed a petition for a rehearing of their appeal. On March 11, 2013, the U.S. Court of Appeals for the Eleventh Circuit denied plaintiff’s Petition for Rehearing, and the case was remanded back to the U.S. District Court. On April 15, 2013, per the parties’ consent motion, the U.S. District Court issued an order dismissing the remaining claims in the case with prejudice as to plaintiff and entered final judgment.

Medicare/Medicaid Billing Lawsuit. On January 11, 2010, Health Management and one of its subsidiaries were named in a qui tam lawsuit entitled United States of America ex rel. J. Michael Mastej v. Health Management Associates, Inc. et al. in the U.S. District Court for the Middle District of Florida, Tampa Division. The plaintiff’s complaint alleged that, among other things, the defendants erroneously submitted claims to Medicare and that those claims were falsely certified to be in compliance with Section 1877 of the Social Security Act of 1935 (commonly known as the “Stark law”) and the Anti-Kickback Statute. The plaintiff’s complaint further alleged that the defendants’ conduct violated the federal False Claims Act of 1863 (the “False Claims Act”). The plaintiff seeks recovery of all Medicare and Medicaid reimbursement that the defendants received as a result of the alleged false certifications and treble damages under the False Claims Act, as well as a civil penalty for each Medicare and Medicaid claim supported by such alleged false certifications. On August 18, 2010, the plaintiff filed a first amended complaint that was similar to the original complaint. On February 23, 2011, the case was transferred to the U.S. District Court for the Middle District of Florida, Fort Myers Division (Case No. 2:11-cv-00089-JES-DNF). On May 5, 2011, the plaintiff filed a second amended complaint, which was similar to the first amended complaint. On May 17, 2011, the defendants moved to dismiss the second amended complaint for failure to state a claim with the particularity required and failure to state a claim upon which relief can be granted. On January 26, 2012, the United States gave notice of its decision not to intervene in this lawsuit. On February 16, 2012, the court granted the defendants’ motion to dismiss, without prejudice. The court’s order permitted the plaintiff to file an amended complaint. On March 8, 2012, the plaintiff filed a third amended complaint, which is similar to the first amended complaint and the second amended complaint. On March 26, 2012, the defendants moved to dismiss the third amended complaint on the same bases set forth in earlier motions to dismiss. On March 19, 2013, the U.S. District Court for the Middle District of Florida, Tampa Division, dismissed the third amended complaint with prejudice. On March 28, 2013, the United States of America filed a motion to

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

11.

Commitments and Contingencies (continued)

clarify that the dismissal with prejudice did not relate to the United States. On April 4, 2013, the defendants filed an opposition to the United States’ motion for clarification. On April 16, 2013, the plaintiff filed a motion for relief from judgment and for leave to amend the complaint, and a proposed fourth amended complaint. On April 18, 2013, the plaintiff filed a notice of appeal. On May 2, 2013, the defendants filed an opposition to the plaintiff’s motion for relief from judgment and for leave to amend the complaing for the fourth time. We intend to vigorously defend Health Management and its subsidiary against the allegations in this matter. We do not believe that the final outcome of this matter will be material.

Governmental Matters. Several Health Management hospitals received letters during 2009 requesting information in connection with a U.S. Department of Justice (“DOJ”) investigation relating to kyphoplasty procedures. Kyphoplasty is a minimally invasive spinal procedure used to treat vertebral compression fractures. The DOJ is currently investigating hospitals and hospital operators in multiple states to determine whether certain Medicare claims for kyphoplasty were incorrect when billed as an inpatient service rather than as an outpatient service. We believe that the DOJ’s investigation originated with a False Claims Act lawsuit against Kyphon, Inc., the company that developed the kyphoplasty procedure. The requested information has been provided to the DOJ and we are cooperating with the investigation. To date, the DOJ has not asserted any monetary or other claims against the Health Management hospitals in this matter. Based on the aggregate billings for inpatient kyphoplasty procedures during the period under review that were performed at the Health Management hospitals subject to the DOJ’s inquiry, we do not believe that the final outcome of this matter will be material.

During September 2010, Health Management received a letter from the DOJ indicating that an investigation was being conducted to determine whether certain Health Management hospitals improperly submitted claims for the implantation of implantable cardioverter defibrillators (“ICDs”). The DOJ’s investigation covers the period commencing with Medicare’s expansion of coverage for ICDs in 2003 to the present. The letter from the DOJ further indicates that the claims submitted by Health Management’s hospitals for ICDs and related services need to be reviewed to determine if Medicare coverage and payment was appropriate. During 2010, the DOJ sent similar letters and other requests to a large number of unrelated hospitals and hospital operators across the country as part of a nation-wide review of ICD billing under the Medicare program. We are cooperating with the DOJ in its ongoing investigation, which could potentially give rise to claims against Health Management and/or certain of its subsidiary hospitals under the False Claims Act or other statutes, regulations or laws. Additionally, we are conducting an internal review of hospital medical records related to ICDs that are the subject of the DOJ investigation. To date, the DOJ has not asserted any monetary or other claims against Health Management or its hospitals in this matter and, at this time, we are unable to determine the potential impact, if any, that will result from the final resolution of the investigation.

The U.S. Department of Health and Human Services, Office of Inspector General (“HHS-OIG”) and the DOJ, including the Civil Division and U.S. Attorney’s Offices in the Eastern District of Pennsylvania, the Middle District of Florida, the Eastern District of Oklahoma, the Middle District of Tennessee, the Western District of North Carolina, the District of South Carolina and the Middle District of Georgia, are currently investigating Health Management and certain of its subsidiaries (HHS-OIG and the DOJ are collectively referred to as “Government Representatives”). We believe that such investigations relate to the Anti-Kickback Statute, the Stark law and the False Claims Act and are focused on: (i) physician referrals, including financial arrangements with our whole-hospital physician joint ventures; (ii) the medical necessity of emergency room tests and patient admissions, including whether the Pro-Med software that we used led to any medically unnecessary tests or admissions; and (iii) the medical necessity of certain surgical procedures. We further believe that the investigations may have originated as a result of qui tam lawsuits filed on behalf of the United States. In connection with the investigations, HHS-OIG has requested certain records through subpoenas, which apply system-wide, that were served on Health Management on May 16, 2011 and July 21, 2011. Additionally, Government Representatives have interviewed certain of our current and former employees. We are conducting internal investigations and have met with Government Representatives on numerous occasions to respond to their inquiries. We intend to cooperate with the Government Representatives during their investigations. At this time, we are unable to determine the potential impact, if any, that will result from the final resolution of these investigations.

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

11.

Commitments and Contingencies (continued)

documents relating to employees, physicians and therapists who were involved with the IOP services provided by Allegiance at the Health Management hospitals; and (v) other documents related to Allegiance, including leases, contracts, policies and procedures, training documents, budgets and financial analyses. The period of time covered by the subpoenas is January 1, 2008 through the date of subpoena compliance. We believe that HHS-OIG has served similar subpoenas on other non-Health Management hospitals that had contracts with Allegiance. We intend to cooperate with the investigations. At this time, we are unable to determine the potential impact that will result from the final resolution of these investigations.

On April 25, 2013, Health Management received a subpoena from the SEC, issued pursuant to an investigation, requesting documents related to accounts receivable, billing write-downs, contractual adjustments, reserves for doubtful accounts, and accounts receivable aging and revenue from Medicare, Medicaid and from privately insured or uninsured patients. We are cooperating with the SEC’s investigation. We are unable to determine the potential impact, if any, of this investigation.

In addition to the abovementioned subpoenas and investigations, certain of our hospitals have received other requests for information from state and federal agencies. We are cooperating with all of the ongoing investigations by collecting and producing the requested materials. Because a large portion of our government investigations are in their early stages, we are unable to evaluate the outcome of such matters or determine the potential impact, if any, that could result from their final resolution.

Class Action Lawsuits. On April 30, 2012, two class action lawsuits that were brought against Health Management and certain of its executive officers, one of whom is a director, were consolidated in the U.S. District Court for the Middle District of Florida under the caption In Re: Health Management Associates, Inc. et al. (Case No. 2:12-cv-00046-JES-DNF) and three pension fund plaintiffs were appointed as lead plaintiffs. On July 30, 2012, the plaintiffs filed an amended consolidated complaint purportedly on behalf of stockholders who purchased our common stock during the period from July 27, 2009 through January 9, 2012. The amended consolidated complaint (i) alleges that Health Management made false and misleading statements in certain public disclosures regarding its business and financial results and (ii) asserts claims for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. Among other things, the plaintiffs claim that Health Management inflated its earnings by engaging in fraudulent Medicare billing practices that entailed admitting patients to observation status when they should not have been admitted at all and to inpatient status when they should have been admitted to observation status. The plaintiffs seek unspecified monetary damages. On October 22, 2012, the defendants moved to dismiss the plaintiffs’ amended consolidated complaint for failure to state a claim or plead facts required by the Private Securities Litigation Reform Act. The plaintiffs filed an unopposed stipulation and proposed order to suspend briefing on the defendants’ motion to dismiss because they intended to seek leave of court to file a proposed second amended consolidated complaint. On December 15, 2012, the court entered an order approving the stipulation and providing a schedule for briefing with respect to the proposed amended pleadings. On February 11, 2013, the defendants were served with the second amended consolidated complaint, which asserts the same claims as the amended consolidated complaint. On May 3, 2013, the defendants moved to dismiss the second amended complaint for failure to state a claim and plead facts required by the Private Securities Litigation Reform Act. We intend to vigorously defend against the allegations in this lawsuit. Because this lawsuit is in its early stages, we are unable to predict the outcome or determine the potential impact, if any, that could result from its final resolution.

Derivative Action. On January 22, 2013, a putative shareholder derivative action entitled The City of Haverhill Retirement System v. Dauten et al. (Case No. 8:13-cv-00213) was filed in the U.S. District Court for the Middle District of Florida, Tampa Division, purportedly on behalf of Health Management against its directors. Health Management was also named as a nominal defendant. The complaint alleges that, among other things, the defendants breached their fiduciary duties to Health Management and its stockholders by supposedly causing Health Management to undertake a scheme to defraud Medicare by improperly admitting certain emergency room patients as “inpatients” in violation of the False Claims Act and then issuing false and misleading public statements about Health Management’s financial outlook and compliance with laws and regulations. The complaint also alleges that the defendants breached their fiduciary duties by exposing Health Management to potentially significant civil and criminal penalties as a result of the aforementioned investigations by HHS-OIG and the DOJ as well as the stockholder class action and other ongoing litigation. The complaint seeks monetary damages from the defendants, other than Health Management. On February 8, 2013, the case was transferred to the U.S. District Court for the Middle District of Florida, Fort Myers Division (Case No. 2:13-cv-00092). On April 10, 2013 the plaintiffs filed an amended compliant which asserts the same claims as its prior complaint. We intend to vigorously defend against the allegations in this lawsuit. Because this lawsuit is in its early stages, we are unable to predict the outcome or determine the potential impact, if any, that could result from its final resolution.

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

11.

Commitments and Contingencies (continued)

Other. We are also a party to various other legal actions arising out of the normal course of our business. Due to the inherent uncertainties of litigation and dispute resolution, we are unable to estimate the ultimate losses, if any, relating to each of our outstanding legal actions and other loss contingencies. Should an unfavorable outcome occur in some or all of our legal and other related matters, there could be a material adverse effect on our financial position, results of operations and liquidity.

12.

Subsequent Event

On April 1, 2013, one of our subsidiaries acquired an 80% interest in Bayfront Health System, which includes Bayfront Medical Center, a tertiary and teaching hospital in St. Petersburg, Florida that is licensed to operate 480 beds, and certain related health care operations. A not-for-profit organization affiliated with Bayfront Health System, Bayfront Health, Education and Research Organization, retained a 20% interest in such entities. The total purchase price for our 80% interest was approximately $162.0 million in cash, plus a working capital adjustment. The acquired assets and assumed liabilities included, among other things, supply inventories, property, plant and equipment and certain long-term lease obligations. We funded the entire purchase price of this acquisition with borrowings under the Revolving Credit Agreement, which is discussed at Note 4.

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

13.

Supplemental Condensed Consolidating Financial Statements

Health Management Associates, Inc. (referred to as the “Parent Issuer” for the remainder of this Note 13) is the primary obligor under the Credit Facilities, as well as our 6.125% Senior Notes due 2016 and our 7.375% Senior Notes due 2020. Certain of the Parent Issuer’s material domestic subsidiaries that are 100% owned (the “Guarantor Subsidiaries”) provide joint and several unconditional guarantees as to payment for borrowings under such long-term debt arrangements; however, other Parent Issuer subsidiaries (the “Non-Guarantor Subsidiaries”) have not been required to provide any such guarantees. See Note 4 herein and Note 3 to the audited consolidated financial statements included in our 2012 Form 10-K for further information regarding our long-term debt arrangements. Below and on the pages that follow are schedules presenting condensed consolidating financial statements as of March 31, 2013 and December 31, 2012, as well as the three months ended March 31, 2013 and 2012. However, this financial information may not necessarily be indicative of the results of operations, cash flows or financial position of the Parent Issuer, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries if they had operated as independent entities. The tables have been updated to reflect the restatement as described in Note 2.

Health Management Associates, Inc.

Condensed Consolidating Statement of Income

Three Months Ended March 31, 2013

(in thousands)


	Parent Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net revenue before the provision for doubtful accounts	$	—		$	1,059,479		$	664,549		$	—		$	1,724,028
Provision for doubtful accounts		—			(144,557	)		(91,642	)		—			(236,199	)

Net revenue		—			914,922			572,907			—			1,487,829

Salaries and benefits		—			337,499			348,179			—			685,678
Supplies		—			162,788			72,980			—			235,768
Rent expense		—			21,267			20,814			—			42,081
Other operating expenses		—			182,697			141,393			—			324,090
Medicare and Medicaid HCIT incentive payments		—			(3,035	)		(947	)		—			(3,982	)
Equity in the earnings of consolidated subsidiaries		(72,591	)		—			—			72,591			—
Depreciation and amortization		6,611			54,971			32,244			—			93,826
Interest expense		67,239			2,713			1,539			—			71,491
Other		683			(101	)		(2,473	)		—			(1,891	)

		1,942			758,799			613,729			72,591			1,447,061

Income from continuing operations before income taxes		(1,942	)		156,123			(40,822	)		(72,591	)		40,768
Income tax (expense) benefit		25,630			(53,687	)		15,642			—			(12,415	)

Income from continuing operations		23,688			102,436			(25,180	)		(72,591	)		28,353
Loss from discontinued operations, net of income taxes		—			—			—			—			—

Consolidated net income		23,688			102,436			(25,180	)		(72,591	)		28,353
Net income attributable to noncontrolling interests		—			—			(4,665	)		—			(4,665	)

Net income (loss) attributable to Health Management Associates, Inc.	$	23,688		$	102,436		$	(29,845	)	$	(72,591	)	$	23,688

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

13.

Supplemental Condensed Consolidating Financial Statements (continued)

Health Management Associates, Inc.

Condensed Consolidating Statement of Comprehensive Income

Three Months Ended March 31, 2013

(in thousands)


	Parent Issuer			Guarantor Subsidiaries		Non- Guarantor Subsidiaries			Eliminations			Consolidated
Consolidated net income	$	23,688		$	102,436	$	(25,180	)	$	(72,591	)	$	28,353
Components of other comprehensive income before income taxes attributable to:
Available-for-sale securities:
Unrealized gains (losses), net		—			—		4,120			—			4,120
Adjustments for net (gains) losses reclassified into net income		—			—		(1,427	)		—			(1,427	)
Interest rate swap contract:
Reclassification adjustments for amortization into net income		18,356			—		—			—			18,356

Other comprehensive income before income taxes		18,356			—		2,693			—			21,049
Income tax expense related to items of other comprehensive income		(7,125	)		—		(945	)		—			(8,070	)

Other comprehensive income, net		11,231			—		1,748			—			12,979

Total consolidated comprehensive income		34,919			102,436		(23,432	)		(72,591	)		41,332
Total comprehensive income attributable to noncontrolling interests		—			—		(4,665	)		—			(4,665	)

Total comprehensive income attributable to Health Management Associates, Inc. common stockholders	$	34,919		$	102,436	$	(28,097	)	$	(72,591	)	$	36,667

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

13.

Supplemental Condensed Consolidating Financial Statements (continued)

Health Management Associates, Inc.

Condensed Consolidating Statement of Income

Three Months Ended March 31, 2012

(in thousands)


	Parent Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net revenue before the provision for doubtful accounts	$	—		$	1,037,631		$	647,637		$	—		$	1,685,268
Provision for doubtful accounts		—			(124,545	)		(76,716	)		—			(201,261	)

Net revenue		—			913,086			570,921			—			1,484,007

Salaries and benefits		—			343,552			314,685			—			658,237
Supplies		—			161,453			72,990			—			234,443
Rent expense		—			23,855			21,095			—			44,950
Other operating expenses		—			183,206			128,995			—			312,201
Medicare and Medicaid HCIT incentive payments		—			(2,430	)		(2,160	)		—			(4,590	)
Equity in the earnings of consolidated subsidiaries		(92,423	)		—			—			92,423			—
Depreciation and amortization		2,695			47,072			28,580			—			78,347
Interest expense		85,281			2,087			1,497			—			88,865
Other		(202	)		(38	)		1,880			—			1,640

		(4,649	)		758,757			567,562			92,423			1,414,093

Income from continuing operations before income taxes		4,649			154,329			3,359			(92,423	)		69,914
Income tax (expense) benefit		33,160			(58,268	)		1,304			—			(23,804	)

Income from continuing operations		37,809			96,061			4,663			(92,423	)		46,110
Loss from discontinued operations, net of income taxes		—			—			(1,395	)		—			(1,395	)

Consolidated net income		37,809			96,061			3,268			(92,423	)		44,715
Net income attributable to noncontrolling interests		—			(95	)		(6,811	)		—			(6,906	)

Net income (loss) attributable to Health Management Associates, Inc.	$	37,809		$	95,966		$	(3,543	)	$	(92,423	)	$	37,809

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

13.

Supplemental Condensed Consolidating Financial Statements (continued)

Health Management Associates, Inc.

Condensed Consolidating Statement of Comprehensive Income

Three Months Ended March 31, 2012

(in thousands)


	Parent Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Consolidated net income	$	37,809		$	96,061		$	3,268		$	(92,423	)	$	44,715
Components of other comprehensive income before income taxes attributable to:
Available-for-sale securities:
Unrealized gains (losses), net		—			—			5,119			—			5,119
Adjustments for net (gains) losses reclassified into net income		—			—			264			—			264
Interest rate swap contract:
Reclassification adjustments for amortization into net income		20,453			—			—			—			20,453

Other comprehensive income before income taxes		20,453			—			5,383			—			25,836
Income tax expense related to items of other comprehensive income		(7,940	)		—			(1,884	)		—			(9,824	)

Other comprehensive income, net		12,513			—			3,499			—			16,012

Total consolidated comprehensive income		50,322			96,061			6,767			(92,423	)		60,727
Total comprehensive income attributable to noncontrolling interests		—			(95	)		(6,811	)		—			(6,906	)

Total comprehensive income attributable to Health Management Associates, Inc. common stockholders	$	50,322		$	95,966		$	(44	)	$	(92,423	)	$	53,821

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

13.	Supplemental Condensed Consolidating Financial Statements (continued)


Health Management Associates, Inc.
Condensed Consolidating Balance Sheet
March 31, 2013
(in thousands)

	Parent Issuer		Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations			Consolidated
Current assets:
Cash and cash equivalents	$	19,932	$	9,275	$	8,151	$	—		$	37,358
Available-for-sale securities		—		—		52,207		—			52,207
Accounts receivable, net		—		617,658		373,369		—			991,027
Supplies, prepaid expenses and other assets		5,311		136,294		79,900		—			221,505
Prepaid and recoverable income taxes		64,498		—		—		—			64,498
Restricted funds		—		—		25,109		—			25,109
Assets held for sale		—		—		6,250		—			6,250

Total current assets		89,741		763,227		544,986		—			1,397,954
Property, plant and equipment, net		120,506		2,308,208		1,028,304		—			3,457,018
Investments in consolidated subsidiaries		3,789,842		—		—		(3,789,842	)		—
Restricted funds		—		—		126,581		—			126,581
Intercompany receivables		834,139		118,702		—		(952,841	)		—
Goodwill		—		654,500		371,323		—			1,025,823
Deferred charges and other assets		80,788		111,389		110,046		—			302,223

Total assets	$	4,915,016	$	3,956,026	$	2,181,240	$	(4,742,683	)	$	6,309,599

Current liabilities:
Accounts payable	$	16,639	$	101,412	$	51,662	$	—		$	169,713
Accrued expenses and other current liabilities		101,266		229,992		225,516		—			556,774
Deferred income taxes		27,086		—		—		—			27,086
Current maturities of long-term debt and capital lease obligations		72,907		20,902		5,284		—			99,093

Total current liabilities		217,898		352,306		282,462		—			852,666
Deferred income taxes		324,157		—		—		—			324,157
Long-term debt and capital lease obligations, less current maturities		3,284,518		83,470		50,207		—			3,418,195
Intercompany payables		—		—		952,841		(952,841	)		—
Other long-term liabilities		61,214		95,292		311,352		—			467,858

Total liabilities		3,887,787		531,068		1,596,862		(952,841	)		5,062,876

Redeemable equity securities		—		—		212,208		—			212,208
Stockholders’ equity:
Total Health Management Associates, Inc. stockholders’ equity		1,027,229		3,424,958		364,884		(3,789,842	)		1,027,229
Noncontrolling interests		—		—		7,286		—			7,286

Total stockholders’ equity		1,027,229		3,424,958		372,170		(3,789,842	)		1,034,515

Total liabilities and stockholders’ equity	$	4,915,016	$	3,956,026	$	2,181,240	$	(4,742,683	)	$	6,309,599

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

13.	Supplemental Condensed Consolidating Financial Statements (continued)

Health Management Associates, Inc.

Condensed Consolidating Balance Sheet

December 31, 2012

(in thousands)


	Parent Issuer		Guarantor Subsidiaries		Non- Guarantor Subsidiaries		Eliminations			Consolidated
Current assets:
Cash and cash equivalents	$	23,214	$	24,823	$	11,136	$	—		$	59,173
Available-for-sale securities		65,376		—		55,730		—			121,106
Accounts receivable, net		—		587,754		370,164		—			957,918
Supplies, prepaid expenses and other assets		4,459		136,078		80,347		—			220,884
Prepaid and recoverable income taxes		60,438		—		—		—			60,438
Restricted funds		—		—		26,525		—			26,525
Assets held for sale		—		—		6,250		—			6,250

Total current assets		153,487		748,655		550,152		—			1,452,294
Property, plant and equipment, net		118,699		2,322,678		1,024,513		—			3,465,890
Investments in consolidated subsidiaries		3,768,249		—		—		(3,768,249	)		—
Restricted funds		—		—		125,532		—			125,532
Intercompany receivables		827,770		24,838		—		(852,608	)		—
Goodwill		—		654,500		370,637		—			1,025,137
Deferred charges and other assets		80,118		125,144		112,239		—			317,501

Total assets	$	4,948,323	$	3,875,815	$	2,183,073	$	(4,620,857	)	$	6,386,354

Current liabilities:
Accounts payable	$	42,093	$	112,643	$	56,651	$	—		$	211,387
Accrued expenses and other current liabilities		120,598		239,281		249,853		—			609,732
Deferred income taxes		29,026		—		—		—			29,026
Current maturities of long-term debt and capital lease obligations		100,542		20,091		5,629		—			126,262

Total current liabilities		292,259		372,015		312,133		—			976,407
Deferred income taxes		301,237		—		—		—			301,237
Long-term debt and capital lease obligations, less current maturities		3,304,667		82,871		52,815		—			3,440,353
Intercompany payables		—		—		852,608		(852,608	)		—
Other long-term liabilities		71,755		96,250		292,881		—			460,886

Total liabilities		3,969,918		551,136		1,510,437		(852,608	)		5,178,883

Redeemable equity securities		—		—		212,458		—			212,458

Stockholders’ equity:
Total Health Management Associates, Inc. stockholders’ equity		978,405		3,324,679		443,570		(3,768,249	)		978,405
Noncontrolling interests		—		—		16,608		—			16,608

Total stockholders’ equity		978,405		3,324,679		460,178		(3,768,249	)		995,013

Total liabilities and stockholders’ equity	$	4,948,323	$	3,875,815	$	2,183,073	$	(4,620,857	)	$	6,386,354

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

13.	Supplemental Condensed Consolidating Financial Statements (continued)

Health Management Associates, Inc.

Condensed Consolidating Statement of Cash Flows

Three Months Ended March 31, 2013

(in thousands)


	Parent Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidated
Net cash provided by (used in) continuing operating activities	$	(74,921	)	$	105,608		$	(11,446	)	$	19,241

Cash flows from investing activities:
Additions to property, plant and equipment		(9,360	)		(32,910	)		(18,770	)		(61,040	)
Acquisitions of hospitals and other ancillary health care businesses		—			—			(1,525	)		(1,525	)
Proceeds from sales of assets and insurance recoveries		—			321			251			572
Purchases of available-for-sale securities		(405,916	)		—			(10,860	)		(416,776	)
Proceeds from sales of available-for-sale securities		472,063			—			15,564			487,627
Decrease in restricted funds, net		—			—			3,253			3,253

Net cash provided by (used in) continuing investing activities		56,787			(32,589	)		(12,087	)		12,111

Cash flows from financing activities:
Proceeds from long-term debt borrowings		71,400			—			—			71,400
Principal payments on debt and capital lease obligations		(120,182	)		(4,971	)		(1,175	)		(126,328	)
Payments of debt issuance costs		(1,588	)		—			—			(1,588	)
Proceeds from exercises of stock options		13,197			—			—			13,197
Cash payments to noncontrolling shareholders		—			—			(14,236	)		(14,236	)
Changes in intercompany balances, net		47,637			(83,596	)		35,959			—
Equity compensation excess income tax benefits		4,388			—			—			4,388

Net cash provided by (used in) continuing financing activities		14,852			(88,567	)		20,548			(53,167	)

Net increase (decrease) in cash and cash equivalents		(3,282	)		(15,548	)		(2,985	)		(21,815	)
Cash and cash equivalents at the beginning of the period		23,214			24,823			11,136			59,173

Cash and cash equivalents at the end of the period	$	19,932		$	9,275		$	8,151		$	37,358

HEALTH MANAGEMENT ASSOCIATES, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

13.

Supplemental Condensed Consolidating Financial Statements (continued)

Health Management Associates, Inc.

Condensed Consolidating Statement of Cash Flows

Three Months Ended March 31, 2012

(in thousands)


	Parent Issuer			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidated
Net cash provided by (used in) continuing operating activities	$	(9,025	)	$	87,285		$	(16,200	)	$	62,060

Cash flows from investing activities:
Additions to property, plant and equipment		(13,169	)		(52,593	)		(15,028	)		(80,790	)
Acquisitions of hospitals and other ancillary health care businesses		—			(800	)		(80,817	)		(81,617	)
Proceeds from sales of assets and insurance recoveries		—			—			808			808
Purchases of available-for-sale securities		(431,273	)		—			(8,428	)		(439,701	)
Proceeds from sales of available-for-sale securities		512,969			—			8,217			521,186
Decrease in restricted funds, net		—			—			782			782

Net cash provided by (used in) continuing investing activities		68,527			(53,393	)		(94,466	)		(79,332	)

Cash flows from financing activities:
Principal payments on debt and capital lease obligations		(17,236	)		(2,498	)		(1,065	)		(20,799	)
Cash received from noncontrolling shareholders		—			—			1,786			1,786
Cash payments to noncontrolling shareholders		—			(1,127	)		(16,759	)		(17,886	)
Changes in intercompany balances, net		(87,354	)		(45,154	)		132,508			—
Equity compensation excess income tax benefits		1,400			—			—			1,400

Net cash provided by (used in) continuing financing activities		(103,190	)		(48,779	)		116,470			(35,499	)

Net increase (decrease) in cash and cash equivalents before discontinued operations		(43,688	)		(14,887	)		5,804			(52,771	)
Net cash used in discontinued operations		—			—			(2,976	)		(2,976	)

Net increase (decrease) in cash and cash equivalents		(43,688	)		(14,887	)		2,828			(55,747	)
Cash and cash equivalents at the beginning of the period		28,611			44,541			(9,009	)		64,143

Cash and cash equivalents at the end of the period	$	(15,077	)	$	29,654		$	(6,181	)	$	8,396

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Restatement and Revision of Previously Reported Consolidated Financial Information

This Item 2 has been amended and restated to give effect to the restatement of our consolidated financial statements for the quarterly periods ended March 31, 2013 and 2012 due to an accounting error in the Company’s application of the requirements for certifying its electronic health record (“EHR”) technology under various Medicare and Medicaid incentive programs and correct certain unrelated immaterial errors. See Note 2 to the consolidated financial statements in Item 1 of this report for additional information.

Results of Operations

Overview

As of March 31, 2013, Health Management Associates, Inc. by and through its subsidiaries (collectively, “we,” “our” or “us”) operated 70 hospitals with a total of 10,585 licensed beds in non-urban communities in Alabama, Arkansas, Florida, Georgia, Kentucky, Mississippi, Missouri, North Carolina, Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas, Washington and West Virginia. See Note 12 to the Interim Condensed Consolidated Financial Statements in Item 1 for information about an acquisition that we completed subsequent to March 31, 2013. The operating results of hospitals and other ancillary health care businesses that we acquire are included in our consolidated financial statements subsequent to the date of acquisition.

Unless specifically indicated otherwise, the following discussion excludes our discontinued operations, which are identified at Note 8 to the Interim Condensed Consolidated Financial Statements in Item 1. Discontinued operations were not material to our consolidated results of operations during the periods presented herein.

During March 2010, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the “Health Care Reform Act”) were signed into law by President Obama. The primary goals of the Health Care Reform Act are to: (i) provide coverage by January 1, 2014 to an estimated 32 to 34 million Americans who currently do not have health insurance; (ii) reform the health care delivery system to improve quality; and (iii) lower the overall costs of providing health care. To accomplish the goal of expanding coverage, such legislation mandates that all Americans maintain a minimum level of health care coverage. To that end, the Health Care Reform Act expands Medicaid coverage, provides federal subsidies to assist low-income individuals when they obtain health insurance and establishes insurance exchanges through which individuals and small employers can purchase health insurance. Health care cost savings under the Health Care Reform Act are expected to come from: (i) reductions in Medicare and Medicaid reimbursement payments to health care providers, including hospital operators; (ii) initiatives to reduce fraud, waste and abuse in government reimbursement programs; and (iii) other reforms to federal and state reimbursement systems. Although certain aspects of the Health Care Reform Act have already become effective, it will be several years before most of the far-reaching and innovative provisions of the legislation are fully implemented. While we continue to evaluate the provisions of the Health Care Reform Act, its overall effect on our business cannot be determined at the present time because, among other things, the legislation is very broad in scope and uncertainties exist regarding the interpretation and future implementation of many of the regulations mandated under the Health Care Reform Act. Additionally, the Health Care Reform Act remains subject to significant legislative debate, including the possible amendment and/or defunding of some of its provisions. For further discussion of the Health Care Reform Act and its possible impact on our business and results of operations, see “Business – Sources of Revenue” in Item 1 of Part I and “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2012.

Income from continuing operations before income taxes was $40.8 million during the quarter ended March 31, 2013, a decrease of 41.7% from $69.9 million for the same period in the prior year’s first quarter. A decrease in same three month hospital inpatient admissions of 8.8% substantially impacted our income from continuing operations before income taxes. We believe that a significant portion of the inpatient admission decrease in the first quarter was attributable to a decrease in uninsured inpatient volumes and a substantial increase in observation stays, in each case compared to the prior year’s first quarter. Observation stays for the quarter ended March 31, 2013, which are reimbursed at significantly lower amounts than inpatient admissions, increased approximately 14.1%, and observation stays greater than 48 hours increased by more than 50.0%, in each case compared to the prior year’s first quarter. The primary contributor to the increase in observation stays was an increase in Medicare/Medicaid advantage business as compared to traditional Medicare business during the quarter ended March 31, 2013.

During the three months ended March 31, 2013 we experienced growth in our net revenue before the provision for doubtful accounts over the three months ended March 31, 2012 of approximately 2.3%. Such growth principally resulted from our acquisition of an 80% interest in each of five Oklahoma-based general acute care hospitals with a total of 218 licensed beds and certain related health care operations (collectively, the “Integris Hospitals”) in April 2012 and improvements in reimbursement rates that resulted primarily from renegotiated agreements with certain commercial health insurance providers. Items that adversely affected our operations and profitability during the first quarter of 2013 included (i) declines in admissions, as discussed above, adjusted admissions and surgery volume resulting primarily from increased efforts by managed care/commercial payors to reduce inpatient utilization, as well as the ongoing impact of recovery audit contractor (“RAC”) audits and governmental investigations impacting physician practice patterns; (ii) increases in the provision for doubtful accounts; and (iii) certain increased operating costs associated with seasonal contracts and regionalization efforts.

In light of the Health Care Reform Act, we have designed our strategic operational objectives to, among other things, increase patient volume and achieve greater operational efficiencies. Our specific plans focus on center-led capabilities and include, among other things, utilizing experienced local and regional management teams, modifying physician employment agreements, renegotiating payor and vendor contracts, developing action plans responsive to feedback from patient, physician and employee satisfaction surveys and maintaining cost effective home office and regional service center operations. Based on the needs of the communities that we serve, we also seek opportunities for market service development, including, among other things, establishing ambulatory surgical centers, urgent care centers, cardiac cath labs, angiography suites and orthopedic, cardiology and neurology/neurosurgery centers of excellence. Furthermore, we are investing significant resources in physician recruitment and retention, emergency room operations, advanced robotic surgical systems, replacement hospital construction and other capital projects. For example, we have deployed new MAKOplasty^® and da Vinci^® robotic surgical systems at many of our hospitals and, in January 2013, we opened a newly constructed general acute care hospital in Poplar Bluff, Missouri to replace our north campus facility in that marketplace. We believe that our strategic initiatives, coupled with appropriate executive management oversight, centralized support and innovative marketing campaigns, will enhance patient, physician and employee satisfaction, improve clinical outcomes and yield increased surgical volume, emergency room visits and admissions. Additionally, as we consider potential acquisitions, joint ventures and partnerships in 2013 and beyond, we believe that continually improving our existing operations provides us with a fundamentally sound infrastructure upon which we can add hospitals and other ancillary health care businesses.

We have also taken steps that we believe are necessary to achieve industry leadership in patient safety and quality. Our goal is to be one of the highest rated health care providers of any hospital system in the country, as measured by Medicare. We measure key performance objectives, maintain accountability for achieving those objectives and recognize the leaders whose quality indicators and clinical outcomes demonstrate improvement. As most recently reported by the Centers for Medicare and Medicaid Services, all four of our core measure care areas (i.e., myocardial infarction, congestive heart failure, pneumonia and surgical care improvement project) have dramatically improved since the commencement of our clinical quality initiatives and we are now one of the top ranked systems in core measures amongst large for-profit hospital companies. Additionally, The Joint Commission, a leading independent not-for-profit organization that accredits and certifies health care organizations in the United States, recently named 64% of our hospitals as Top Performers on Key Quality Measures, which compared to a nationwide achievement rate of approximately 18%. Moreover, 77% of our hospitals that were top performers during 2010 were once again recognized by The Joint Commission during 2012 based on 2011 quality performance statistics. To determine top performers, The Joint Commission aggregates certain evidence-based accountability data, including core measurement performance data.

Outpatient services continue to play an important role in the delivery of health care in our markets, with more than half of our net revenue before the provision for doubtful accounts generated on an outpatient basis. Recognizing the importance of these services, we have improved many of our health care facilities to accommodate the outpatient needs of the communities that they serve. We have also invested substantial capital in many of our hospitals and physician practices during the past several years, resulting in improvements and enhancements to our diagnostic imaging and ambulatory surgical services.

During the past several years, various economic and other factors have resulted in a large number of uninsured and underinsured patients seeking health care in the United States. Self-pay admissions as a percent of total admissions at our hospitals were approximately 5.9% and 6.6% during the three months ended March 31, 2013 and 2012, respectively. We continue to take various measures to address the impact of uninsured and underinsured patients on our business. Additionally, one of the primary goals of the Health Care Reform Act is to provide health insurance coverage to more Americans. Nevertheless, there can be no assurances that our self-pay admissions will not grow in future periods, especially in light of the prolonged downturn in the economy and correspondingly higher levels of unemployment in many of the markets served by our hospitals. Therefore, we regularly evaluate our self-pay patient policies and programs and consider changes or modifications as circumstances warrant.

Critical Accounting Policies and Estimates Update

General. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. We consider a critical accounting policy to be one that requires us to make significant judgments and estimates when we prepare our consolidated financial statements. Such critical accounting policies and estimates, which are more fully described in Note 4 to the Interim Condensed Consolidated Financial Stetments included in Item 1 of this report and in Item 7 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2012, include (i) revenue; (ii) the provision for doubtful accounts; (iii) impairments of long-lived assets and goodwill; (iv) income taxes; (v) professional liability risks and other self-insured programs; and (vi) loss contingencies. There were no material changes to our critical accounting policies and estimates in 2013.

Goodwill. We test our goodwill for impairment on an annual basis on October 1 and whenever circumstances indicate that a possible impairment might exist. Our judgment regarding the existence of impairment indicators is based on many qualitative and quantitative factors, including market conditions and operational performance. When performing the

goodwill impairment test, among other things, we compare the estimated fair values of the net assets of our reporting units to the corresponding carrying amounts on our consolidated balance sheet. If the estimated fair value of one of our reporting unit’s net assets is less than the balance sheet carrying amount, we determine the implied fair value of the reporting unit’s goodwill, compare such fair value to the corresponding carrying amount and, if necessary, record a goodwill impairment charge. We do not believe that any of our reporting units are currently at risk of requiring a goodwill impairment charge.

Three Months ended March 31, 2013 Compared to the Three Months ended March 31, 2012

The tables below summarize our operating results for the applicable periods. Hospitals that were owned/leased and operated by us for one year or more as of March 31, 2013 are referred to as our same three month hospitals. For all year-over-year comparative discussions herein, the operating results of our same three month hospitals are only considered to the extent that there was a similar period of operation in both years.


	Three Months Ended March 31,
	2013						2012
	Amount			Percent of Net Revenue			Amount			Percent of Net Revenue
	(in thousands)						(in thousands)
	(restated)						(restated)
Net revenue before the provision for doubtful accounts	$	1,724,028					$	1,685,268
Provision for doubtful accounts		(236,199	)					(201,261	)

Net revenue		1,487,829			100.0	%		1,484,007			100.0	%

Salaries and benefits		685,678			46.1			658,237			44.4
Supplies		235,768			15.8			234,443			15.8
Rent expense		42,081			2.9			44,950			3.0
Other operating expenses		324,090			21.8			312,201			21.0
Medicare and Medicaid HCIT incentive payments		(3,982	)		(0.3	)		(4,590	)		(0.3	)
Depreciation and amortization		93,826			6.3			78,347			5.3
Interest expense		71,491			4.8			88,865			6.0
Other		(1,891	)		(0.1	)		1,640			0.1

		1,447,061			97.3			1,414,093			95.3

Income from continuing operations before income taxes		40,768			2.7			69,914			4.7
Provision for income taxes		(12,415	)		(0.8	)		(23,804	)		(1.6	)

Income from continuing operations	$	28,353			1.9	%	$	46,110			3.1	%



	Three Months Ended March 31,										Percent Change
	2013			2012			Change				Percent Change
Same Three Month Hospitals*
Occupancy		42.1	%		44.7	%		(260	)	bps**		n/a
Patient days		375,917			401,105			(25,188	)			(6.3	)%
Admissions		85,182			93,378			(8,196	)			(8.8	)%
Adjusted admissions †		167,575			177,815			(10,240	)			(5.8	)%
Emergency room visits		432,264			428,184			4,080				1.0	%
Surgeries		94,571			100,206			(5,635	)			(5.6	)%
Outpatient revenue percent ¿		55.6	%		53.1	%		250		bps		n/a
Inpatient revenue percent ¿		44.4	%		46.9	%		(250	)	bps		n/a

Total Hospitals
Occupancy		41.5	%		44.7	%		(320	)	bps		n/a
Patient days		379,366			401,105			(21,739	)			(5.4	)%
Admissions		86,279			93,378			(7,099	)			(7.6	)%
Adjusted admissions †		170,209			177,815			(7,606	)			(4.3	)%
Emergency room visits		444,873			428,184			16,689				3.9	%
Surgeries		95,596			100,206			(4,610	)			(4.6	)%
Outpatient revenue percent ¿		55.7	%		53.1	%		260		bps		n/a
Inpatient revenue percent ¿		44.3	%		46.9	%		(260	)	bps		n/a

*	Includes acquired hospitals to the extent we operated them for comparable periods

**	basis points

†	Admissions adjusted for outpatient volume

¿	Determined by reference to net revenue before the provision for doubtful accounts

Net revenue before the provision for doubtful accounts during the quarter ended March 31, 2013 was approximately $1,724.0 million as compared to $1,685.3 million during the quarter ended March 31, 2012. This change represented an increase of $38.7 million, or 2.3%. Our same three month hospitals contributed $19.0 million, or 49.1%, of the increase in net revenue before the provision for doubtful accounts and such increase was primarily the result of improvements in reimbursement rates. This increase was partially offset by declines in hospital admissions and adjusted admissions. The remaining 2013 increase in our net revenue before the provision for doubtful accounts was due to our acquisition of the Integris Hospitals, which we completed in April 2012.

Our provision for doubtful accounts during the first quarter increased 180 basis points to 13.7% of net revenue before the provision for doubtful accounts as compared to 11.9% of net revenue before the provision for doubtful accounts during the prior year. This change was primarily due to an increase in revenue from uninsured self-pay patients and amounts considered to be patient responsibility including deductibles, co-payments and other amounts not covered by insurance.

Our consistently applied accounting policy is that accounts written off as charity and indigent care are not recognized in net revenue before the provision for doubtful accounts and, accordingly, such amounts have no impact on our provision for doubtful accounts. However, as a measure of our fiscal performance, we routinely aggregate amounts pertaining to our (i) provision for doubtful accounts, (ii) uninsured self-pay patient discounts and (iii) foregone/unrecognized revenue for charity and indigent care and divide the resulting total by the sum of our (a) net revenue before the provision for doubtful accounts, (b) uninsured self-pay patient discounts and (c) foregone/unrecognized revenue for charity and indigent care. We believe that this fiscal measure, which we refer to as our Uncompensated Patient Care Percentage, provides us with key information regarding the aggregate level of patient care for which we do not receive remuneration. During the three months ended March 31, 2013 and 2012, our Uncompensated Patient Care Percentage was 28.4% and 26.1%, respectively. This 230 basis point increase during the current period primarily reflects increased outpatient self-pay volume, particularly in our emergency rooms, and greater uninsured self-pay patient revenue discounts.

Salaries and benefits as a percent of net revenue after the provision for doubtful accounts (hereinafter referred to as “net revenue”) increased from 44.4% during 2012 to 46.1% during 2013. This increase was primarily due to increased physician employment and investments in personnel as a part of centralization efforts at regional service centers in early 2013. Such costs were partially offset by adjustments in staffing corresponding to changes in inpatient and outpatient volume, as well as the outsourcing of certain hospital support services.

Other operating expenses as a percent of net revenue increased from 21.0% during the first quarter of 2012 to 21.8% during the same period in 2013. This increase was primarily due to disproportionately higher costs at our recent acquisitions and certain support services at our hospitals that have been outsourced and/or contracted to third parties.

Depreciation and amortization increased approximately $15.5 million during comparable periods. This increase resulted from: (i) our recent acquisitions; (ii) depreciation associated with hospitals that were replaced in early 2013 and 2012; and (iii) an increase in capitalized equipment.

Interest expense decreased from approximately $88.9 million during the quarter ended March 31, 2012 to $71.5 million during the 2013 quarter. Such decrease was primarily due to non-cash interest expense of $17.7 million in the 2013 quarter attributable to our interest rate swap contract (i.e., accumulated other comprehensive loss amortization and net fair value adjustment expense) that we recognized in our consolidated statement of income, as compared to $36.7 million of corresponding non-cash interest expense during the 2012 quarter. See “Liquidity, Capital Resources and Capital Expenditures” below and Note 4 to the Interim Condensed Consolidated Financial Statements in Item 1 for further information regarding our long-term debt arrangements and capital lease obligations.

Our effective income tax rates were approximately 30.5% and 34.0% during the three months ended March 31, 2013 and 2012, respectively. Net income attributable to noncontrolling interests, which is not tax-effected in our consolidated financial statements, reduced our effective income tax rates by approximately 390 basis points and 370 basis points during 2013 and 2012, respectively. In addition, our 2013 provision for income taxes was favorably impacted by the satisfactory conclusion of certain state tax audits and examinations.

Liquidity, Capital Resources and Capital Expenditures

Liquidity

Our cash flows from continuing operating activities provide the primary source of cash for our ongoing business needs. Additionally, at March 31, 2013 we had approximately $447.1 million of borrowing capacity under our $500.0 million long-term revolving credit facility available for general business purposes, including acquisitions. As discussed at Note 12 to the Interim Condensed Consolidated Financial Statements in Item 1, subsequent to March 31, 2013, we funded the entire purchase price of our acquisition of an 80% interest in a 480-bed Florida-based hospital and certain related health care

operations (collectively, “Bayfront Health System”) with a net borrowing of approximately $162.0 million under our long-term revolving credit facility. We believe that our various sources of cash are adequate to meet our foreseeable operating, capital expenditure, business acquisition and debt service needs.

The table below summarizes our recent cash flow activity (in thousands).


	Three Months Ended March 31,
	2013			2012
Sources (uses) of cash and cash equivalents:
Operating activities	$	19,241		$	62,060
Investing activities		12,111			(79,332	)
Financing activities		(53,167	)		(35,499	)
Discontinued operations		—			(2,976	)

Net decreases in cash and cash equivalents	$	(21,815	)	$	(55,747	)

Operating Activities

Our cash flows from continuing operating activities decreased approximately $42.8 million, or 69.0%, during the quarter ended March 31, 2013 as compared to the quarter ended March 31, 2012. The decrease primarily related to (i) an overall decline in net income during 2013 as compared to 2012; (ii) higher collections of acquisition related receivables during the three months ended March 31, 2012 due to the receipt of tie-in notices in the period; (iii) an increase in our interest payments during 2013 when compared to 2012; and (iv) a net increase in our liabilities during 2012 as compared to 2013.

We believe that our cash flows from continuing operating activities may be adversely impacted through 2013 by delayed cash collections on accounts receivable at Bayfront Health System. However, our $500.0 million long-term revolving credit facility, which is described under “Capital Resources” below and Note 4 to the Interim Condensed Consolidated Financial Statements in Item 1, is available to provide post-acquisition working capital, if necessary, while we await the necessary approvals for our Medicare and Medicaid provider numbers for Bayfront Health System and the ultimate collection of the related accounts receivable. We also believe that the professional and other costs of our ongoing government investigations, while difficult to predict, will continue and will vary throughout the duration of such investigations. We expect that those costs will be paid with our cash flows from continuing operating activities. See Note 11 to the Interim Condensed Consolidated Financial Statements in Item 1 for information regarding such government investigations. Although subject to change due to a variety of factors beyond our control, we project that (i) during the twelve months ending March 31, 2014 we will pay approximately $71.8 million to the counterparties of our interest rate swap contract, which is discussed at Note 3(a) to the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2012 and (ii) we will receive additional reimbursement under the meaningful use measurement standard of the HCIT Programs ranging from $70 million to $80 million during the year ending December 31, 2013.

Investing Activities

Cash used in investing activities during 2013 included approximately $61.0 million of additions to property, plant and equipment, consisting primarily of new medical equipment, renovation and expansion projects at certain of our facilities and replacement hospital construction (including a 250-bed hospital that opened on January 26, 2013 to replace the north campus facility at Poplar Bluff Regional Medical Center in Poplar Bluff, Missouri). Excluding the available-for-sale securities in restricted funds, we had net cash proceeds of $70.9 million from buying and selling such securities during 2013.

Cash used in investing activities during 2012 included: (i) approximately $80.8 million of additions to property, plant and equipment, consisting primarily of new medical equipment, renovation and expansion projects at certain of our facilities and replacement hospital construction (including a replacement hospital in Monroe, Georgia that opened on April 22, 2012 and the abovementioned 250-bed hospital in Poplar Bluff, Missouri); and (ii) $77.1 million to fund the gross purchase price and certain related items pertaining to our April 1, 2012 acquisition of an 80% interest in each of five Oklahoma-based general acute care hospitals (the Integris Hospitals). Excluding the available-for-sale securities in restricted funds, we had net cash proceeds of $81.5 million from buying and selling such securities during 2012.

Financing Activities

During the first quarter of 2013, we borrowed $71.4 million under our $500.0 million long-term revolving credit facility, which we used for working capital. Additionally, we made principal payments on our other long-term debt and capital lease obligations of approximately $126.3 million during such period, including a $31.5 million excess cash flow payment as required under our Credit Facilities described below, as well as repayments of amounts borrowed thereunder. We also paid $14.2 million to noncontrolling shareholders for recurring distributions and purchases of their shares in certain of our subsidiaries. Partially offsetting these cash outlays were: (i) $13.2 million of cash proceeds from exercises of stock

options and (ii) $4.4 million of excess income tax benefits from our stock-based compensation arrangements. See Note 4 to the Interim Condensed Consolidated Financial Statements in Item 1 for further information regarding our long-term debt arrangements and capital lease obligations.

During the first quarter of 2012, we made principal payments on long-term debt and capital lease obligations of approximately $20.8 million. We also paid $17.9 million to noncontrolling shareholders for recurring distributions and purchases of their shares in certain of our subsidiaries. Partially offsetting these cash outlays were: (i) $1.4 million of excess income tax benefits from our stock-based compensation arrangements and (ii) $1.8 million that we received from noncontrolling shareholders to acquire minority equity interests in one of our existing joint ventures.

Discontinued Operations

Cash used by our discontinued operations during 2012 was approximately $3.0 million. We do not believe that the exclusion of such amounts from our consolidated cash flows in future periods will have a material effect on our liquidity or financial position. See Note 8 to the Interim Condensed Consolidated Financial Statements in Item 1 for further information regarding our discontinued operations.

Days Sales Outstanding

To calculate days sales outstanding, or DSO, we initially divide quarterly net revenue before the provision for doubtful accounts by the number of days in the quarter. The result is divided into the net patient accounts receivable balance at the end of the quarter to obtain our DSO. We believe that this statistic is an important measure of collections on our accounts receivable, as well as our liquidity. Our DSO was 50 days at March 31, 2013, which compares to 50 days at December 31, 2012 and 52 days at March 31, 2012.

Income Taxes

Other than certain state net operating loss carryforwards, we believe that it is more likely than not that reversals of existing taxable temporary differences, future taxable income and carrybacks will allow us to realize the deferred tax assets that are recognized in our condensed consolidated balance sheets.

Capital Resources

Senior Secured Credit Facilities. Our long-term debt includes, among other things, variable rate senior secured credit facilities with a syndicate of banks (collectively, the “Credit Facilities”) that we entered into on November 18, 2011. At that date, the Credit Facilities consisted of: (i) a $500.0 million five-year revolving credit facility (the “Revolving Credit Agreement”); (ii) a $725.0 million five-year term loan (the “Term Loan A”); and (iii) a $1.4 billion seven-year term loan (the “Term Loan B”). On March 20, 2013, we amended the loan agreement underlying the Credit Facilities (the “Amendment”) in order to, among other things, provide for the refinancing of the then outstanding balance under the Term Loan B. The principal payments on the Term Loan B are unchanged, however, that it is subject to a prepayment premium equal to 1.0% of the principal amount of the Term Loan B that is repriced or prepaid on or before September 20, 2013.

We can elect whether interest on borrowings under the Credit Facilities is determined using LIBOR or the Base Rate (as defined in the amended loan agreement). The effective interest rates on such borrowings, which fluctuate with market changes, include a spread above the base rate that we select. Through March 20, 2013, the effective interest rate for the Term Loan B was subject to a floor of 1.0% and 2.0% (before consideration of the interest rate spread) when using LIBOR and the Base Rate, respectively. The Amendment reduced both such interest rate floors under the Term Loan B by 0.25%. The amount of the interest rate spread is predicated on, among other things, our Consolidated Leverage Ratio (as defined in the amended loan agreement). The Amendment reduced the interest rate spread on the Term Loan B by 0.75%. We can elect differing interest rates for each of the debt instruments under the Credit Facilities. Interest is payable in arrears at the end of a calendar quarter or on the date that the selected interest duration period ends.

Our mandatory principal payments under the Credit Facilities for the twelve months ending March 31, 2014 are approximately $72.9 million. Except as described above in respect of the Term Loan B, we have the right to prepay amounts outstanding under the Credit Facilities at any time without penalty. As of March 31, 2013, the effective interest rates on the Term Loan A and the Term Loan B were 2.8% and 3.5%, respectively. Those rates remained unchanged as of May 1, 2013.

Throughout the Revolving Credit Agreement’s five-year term, we are obligated to pay commitment fees based on the amounts available for borrowing. The Revolving Credit Agreement provides that we can borrow, on a revolving basis, up to an aggregate of $500.0 million, as adjusted for outstanding standby letters of credit of up to $75.0 million. During the 2013 quarter, there were borrowings of $71.4 million thereunder. On April 1, 2013, we borrowed $210.0 million under the Revolving Credit Agreement to fund the acquisition of Bayfront Health System, which we completed on that date (see Note 12 to the Interim Condensed Consolidated Financial Statements in Item 1 for information about such acquisition). As of May 1, 2013, the amount available for borrowing under the Revolving Credit Agreement was approximately $268.6 million, which reflected the then outstanding balance of $178.5 million thereunder and $52.9 million of standby letters of credit in favor of third parties. The effective interest rate on the variable rate Revolving Credit Agreement was approximately 3.0% on May 1, 2013.

The Credit Facilities are generally subject to mandatory prepayment in amounts equal to: (i) 100% of the net cash proceeds received from certain asset sales, including insurance recoveries and condemnation events, subject to reinvestment provisions and the ratable offer requirements of other pari passu secured debt; (ii) 100% of the net cash proceeds from our issuance of certain new debt; and (iii) 50% of our Excess Cash Flow (as defined in the loan agreement) with step-downs of such percentage based on our Consolidated Leverage Ratio. Based on our Excess Cash Flow for the year ended December 31, 2012, we repaid approximately $31.5 million of additional principal under the Credit Facilities during the three months ended March 31, 2013.

We intend to fund the required principal and interest payments under the Credit Facilities with available cash balances, cash provided by operating activities, proceeds from sales of available-for-sale securities and, if necessary, borrowings under the Revolving Credit Agreement.

Demand Promissory Note. We maintain a $10.0 million secured demand promissory note in favor of a bank for use as a working capital line of credit in conjunction with our cash management program. Pursuant to the terms and conditions of the demand promissory note, we may borrow, on a revolving basis, up to the principal face amount of the note. All principal and accrued interest under the demand promissory note will be immediately due and payable upon the bank’s written demand. We did not borrow under this credit facility during the three months ended March 31, 2013. The demand promissory note’s effective interest rate on May 1, 2013 was approximately 2.3%; however, there were no amounts outstanding thereunder on such date.

Debt Covenants

The Credit Facilities and the indentures governing our 3.75% Convertible Senior Subordinated Notes due 2028, 7.375% Senior Notes due 2020 and 6.125% Senior Notes due 2016 contain covenants that, among other things, require us to maintain compliance with certain financial ratios. At March 31, 2013, we were in compliance with all of the covenants contained in those debt agreements. Although there can be no assurances, we believe that we will continue to be in compliance with all of our debt covenants. Should we fail to comply with one or more of our debt covenants in the future and are unable to remedy the matter, an event of default may result. In that circumstance, we would seek a waiver from our lenders or renegotiate the related debt agreement; however, such renegotiations could, among other things, subject us to higher interest and financing costs on our debt obligations and our credit ratings could be adversely affected.

Dividends

The Credit Facilities and the indentures for certain of our other debt agreements restrict our ability to pay cash dividends.

Standby Letters of Credit

As of May 1, 2013, we maintained approximately $52.9 million of standby letters of credit in favor of third parties with various expiration dates through May 17, 2014. Should any or all of these letters of credit be drawn upon, we intend to satisfy such obligations with available cash balances, cash provided by operating activities, proceeds from sales of available-for-sale securities and, if necessary, borrowings under the Revolving Credit Agreement.

Interest Rate Swap Contract

As required by a former credit facility, we entered into a seven-year receive variable/pay fixed interest rate swap contract during February 2007. As part of a restructuring of our long-term debt on November 18, 2011, our former credit facility was terminated but the interest rate swap contract was not. Although we are exposed to financial risk in the event of nonperformance by one or more of the counterparties to the contract, we do not anticipate nonperformance because our interest rate swap contract is in a liability position and would require us to make settlement payments to the counterparties in the event of a contract termination. The interest rate swap contract provides for us to pay interest on the contract’s notional amount, which was originally expected to reasonably approximate the declining principal balance of a term loan under the former credit facility. Interest payable to the counterparties is determined by reference to, among other things, LIBOR rates. As of March 31, 2013, the notional amount of the interest rate swap contract was approximately $1,780.0 million. The estimated fair value of our liability for the interest rate swap contract on such date was $71.8 million and we project that such amount will be payable to the counterparties during the twelve months ending March 31, 2014. However, our aggregate payments through the contract’s expiration in February 2014 are subject to change based on, among other things, future LIBOR rates. See Note 6 to the Interim Condensed Consolidated Financial Statements in Item 1 for further information regarding the estimated fair value of our interest rate swap contract.

Net interest payable or receivable is settled between us and the counterparties at the end of each calendar quarter. We intend to fund any net interest payable to the counterparties with available cash balances, cash provided by operating activities, proceeds from sales of available-for-sale securities and, if necessary, borrowings under the Revolving Credit Agreement.

Capital Expenditures and Other

We believe that our capital expenditures for property, plant and equipment will range from 4.5% to 5.5% of our net revenue after the provision for doubtful accounts for the year ending December 31, 2013. As of March 31, 2013, we had undertaken several hospital renovation and expansion projects and various information technology hardware and software upgrades. We do not believe that any of our construction, renovation and/or expansion projects are individually significant or that they represent, in the aggregate, a material commitment of our resources.

Part of our strategic business plan calls for us to acquire hospitals and other ancillary health care businesses in non-urban communities that are aligned with our business model, available at a reasonable price and otherwise meet our strict acquisition criteria. We typically fund acquisitions, replacement hospital construction and other recurring capital expenditures with available cash balances, cash provided by operating activities, proceeds from sales of available-for-sale securities, amounts available under revolving credit agreements and proceeds from long-term debt issuances, or a combination thereof. Specifically, subsequent to March 31, 2013, we funded the entire purchase price of our acquisition of an 80% interest in a 480-bed Florida-based hospital and certain related health care operations with borrowings under the Revolving Credit Agreement. This acquisition is discussed at Note 12 to the Interim Condensed Consolidated Financial Statements in Item 1.

Divestiture of Idle Property

We intend to sell the former Riverside hospital campus that we acquired as part of a 2011 acquisition transaction. However, the timing of such divestiture has not yet been determined. We intend to use the proceeds therefrom for general business purposes. See Note 8 to the Interim Condensed Consolidated Financial Statements in Item 1 for further information about this idle facility.

Contractual Obligations and Off-Balance Sheet Arrangements

During 2013, there were no material changes to the contractual obligation and off-balance sheet information presented in Item 7 of Part II of our Annual Report on Form 10-K/A for the year ended December 31, 2012. However, see Note 4 to the Interim Condensed Consolidated Financial Statements in Item 1 for a discussion of certain modifications to the Credit Facilities during 2013 that affect the determination of the variable interest rates thereunder.

Forward-Looking Statements

Certain statements contained in this Quarterly Report on Form 10-Q/A, including, without limitation, statements containing the words “believe,” “anticipate,” “intend,” “expect,” “may,” “could,” “plan,” “pending,” “designed,” “continue,” “should,” “project,” “estimate” and words of similar import, constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements may include projections of revenue, provisions for doubtful accounts, income or loss, capital expenditures, debt structure, principal payments on debt, capital structure, the amount and timing of funds under the meaningful use measurement standard of various Healthcare Information Technology incentive programs, other financial items and operating statistics, statements regarding our plans and objectives for future operations, the impact of changes in observation stays, our ability to achieve operational efficiencies, factors we believe may have an impact on our deductibles and copays, acquisitions, acquisition financing, divestitures, joint ventures, market service development and other transactions, statements of future economic performance, statements regarding our legal proceedings and other loss contingencies (including, but not limited to, the timing and estimated costs of such matters), statements regarding market risk exposures, statements regarding our ability to achieve cost efficiencies and/or reductions, statements regarding the effects and/or interpretations of recently enacted or future health care laws and regulations, statements regarding the potential impact of healthcare exchanges, statements of the beliefs or assumptions underlying or relating to any of the foregoing statements, and statements that are other than statements of historical fact.

Forward-looking statements are based on our current plans and expectations and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance, achievements or industry results to be materially different from any future results, performance or achievements expressed or implied by our forward-looking statements. Such factors include, among other things, the risks and uncertainties identified by us under the heading “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K/A for the year ended December 31, 2012. Furthermore, we operate in a continually changing business and regulatory environment and new risk factors emerge from time to time. We cannot predict what these new risk factors may be, nor can we assess the impact, if any, of such new risk factors on our business or results of operations or the extent to which any factor or combination of factors may cause our actual results to differ materially from those expressed or implied by any of our forward-looking statements.

Undue reliance should not be placed on our forward-looking statements. Except as required by law, we disclaim any obligation to update our risk factors or to publicly announce updates to the forward-looking statements contained in this Quarterly Report on Form 10-Q/A to reflect new information, future events or other developments.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

During the three months ended March 31, 2013, there were no material changes to the quantitative and qualitative disclosures about market risks that were presented in Item 7A of Part II of our Annual Report on Form 10-K for the year ended December 31, 2012. However, see Note 4 to the Interim Condensed Consolidated Financial Statements in Item 1 for a discussion of certain modifications to the Credit Facilities during the three months ended March 31, 2013 that affect the determination of the variable interest rates thereunder.

Item 4. Controls and Procedures.

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Our President and Chief Executive Officer (principal executive officer) and our Executive Vice President and Chief Financial Officer (principal financial officer) evaluated our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by our originally filed Quarterly Report on Form 10-Q. Based on this evaluation, our President and Chief Executive Officer and our Executive Vice President and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of such date.

Subsequent to that evaluation, in connection with the restatement discussed in Note 2 to the consolidated financial statements included in Item 1 of this Amendment, management, under the supervision of our Interim President and Chief Executive Officer and our Senior Vice President and Interim Chief Financial Officer, re-evaluated the effectiveness of our internal control over financial reporting. Based on its reevaluation, management identified the following material weakness as of March 31, 2013: management failed to design and maintain a effective controls over the administration, oversight and accounting for the Company’s EHR enrollment process. Specifically, management did not design effective controls to properly apply the requirements for certifying its EHR technology under the HCIT programs and, as a result, certain of the hospitals it had enrolled in the programs did not meet the “meaningful use” criteria necessary to qualify for HCIT payments. Based on this evaluation, our Interim President and Chief Executive Officer and our Senior Vice President and Interim Chief Financial Officer concluded that, solely as a result of this material weakness, our disclosure controls and procedures were not effective at the reasonable assurance level.

The Company has corrected its accounting treatment for HCIT payments and is in the process of implementing new controls that management believes will remediate the material weakness in internal control over financial reporting described above. The Company has engaged Ober Kaler, a national law firm providing regulatory services to healthcare organizations, to assist in the oversight and provide independent validation of all processes related to HCIT certification and attestation. The Company will test the operating effectiveness of the new controls in future periods. The material weakness cannot be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q/A that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

We operate in a highly regulated and litigious industry. As a result, we have been, and expect to continue to be, subject to various claims, lawsuits, government investigations and regulatory proceedings. The ultimate resolution of these matters, individually or in the aggregate, could have a materially adverse effect on our business, financial condition, results of operations and/or cash flows. We are currently a party to a number of legal and regulatory proceedings, including those described below.

Ascension Health Lawsuit. On February 14, 2006, Health Management Associates, Inc. (referred to as “Health Management” for the remainder of this Item 1) announced the termination of non-binding negotiations with Ascension Health (“Ascension”) and the withdrawal of a non-binding offer to acquire Ascension’s St. Joseph Hospital, a general acute care hospital in Augusta, Georgia. On June 8, 2007, certain Ascension subsidiaries filed a lawsuit against Health Management, entitled St. Joseph Hospital, Augusta, Georgia, Inc. et al. v. Health Management Associates, Inc., in Georgia Superior/State Court of Richmond County claiming that Health Management (i) breached an agreement to purchase St. Joseph Hospital and (ii) violated a confidentiality agreement. The plaintiffs claim at least $40 million in damages. Health Management removed the case to the U.S. District Court for the Southern District of Georgia, Augusta Division (Case No. 1:07-CV-00104). On July 13, 2010, the plaintiffs filed a motion for partial summary judgment and Health Management filed a motion for summary judgment. On March 30, 2011, Health Management’s motion for summary judgment was granted as to all of plaintiffs’ claims, except for the breach of confidentiality claim, and plaintiffs’ motion for partial summary judgment was denied. On June 15, 2011, the case was stayed pending resolution of the appellate process. On July 8, 2011, the plaintiffs filed a notice of appeal to the U.S. Court of Appeals for the Eleventh Circuit (Case No. 11-13069). Oral argument was held on May 22, 2012. On January 24, 2013, the U.S. Court of Appeals for the Eleventh Circuit upheld the granting of Health Management’s motion for summary judgment by the U.S. District Court for the Southern District of Georgia, Augusta Division. On February 14, 2013, the plaintiffs filed a petition for a rehearing of their appeal. On March 11, 2013, the U.S. Court of Appeals for the Eleventh Circuit denied plaintiff’s Petition for Rehearing, and the case was remanded back to the U.S. District Court. On April 15, 2013, per the parties’ consent motion, the U.S. District Court issued an order dismissing the remaining claims in the case with prejudice as to plaintiff and entered final judgment.

Medicare/Medicaid Billing Lawsuits. On January 11, 2010, Health Management and one of its subsidiaries were named in a qui tam lawsuit entitled United States of America ex rel. J. Michael Mastej v. Health Management Associates, Inc. et al. in the U.S. District Court for the Middle District of Florida, Tampa Division. The plaintiff’s complaint alleged that, among other things, the defendants erroneously submitted claims to Medicare and that those claims were falsely certified to be in compliance with Section 1877 of the Social Security Act of 1935 (commonly known as the “Stark law”) and the Anti-Kickback Statute. The plaintiff’s complaint further alleged that the defendants’ conduct violated the federal False Claims Act of 1863 (the “False Claims Act”). The plaintiff seeks recovery of all Medicare and Medicaid reimbursement that the defendants received as a result of the alleged false certifications and treble damages under the False Claims Act, as well as a civil penalty for each Medicare and Medicaid claim supported by such alleged false certifications. On August 18, 2010, the plaintiff filed a first amended complaint that was similar to the original complaint. On February 23, 2011, the case was transferred to the U.S. District Court for the Middle District of Florida, Fort Myers Division (Case No. 2:11-cv-00089-JES-DNF). On May 5, 2011, the plaintiff filed a second amended complaint, which was similar to the first amended complaint. On May 17, 2011, the defendants moved to dismiss the second amended complaint for failure to state a claim with the particularity required and failure to state a claim upon which relief can be granted. On January 26, 2012, the United States gave notice of its decision not to intervene in this lawsuit. On February 16, 2012, the court granted the defendants’ motion to dismiss, without prejudice. The court’s order permitted the plaintiff to file an amended complaint. On March 8, 2012, the plaintiff filed a third amended complaint, which is similar to the first amended complaint and the second amended complaint. On March 26, 2012, the defendants moved to dismiss the third amended complaint on the same bases set forth in earlier motions to dismiss. On March 19, 2013, the U.S. District Court for the Middle District of Florida, Tampa Division, dismissed the third amended complaint with prejudice. On March 28, 2013, the United States of America filed a motion to clarify that the dismissal with prejudice did not relate to the United States. On April 4, 2013, the defendants filed an opposition to the United States’ motion for clarification. On April 16, 2013, the plaintiff filed a motion for relief from judgment and for leave to amend the complaint, and a proposed fourth amended complaint. On April 18, 2013, the plaintiff filed a notice of appeal. On May 2, 2013, the defendants filed an opposition to the plaintiff’s motion for relief from judgment and for leave to amend the complaing for the fourth time. We intend to vigorously defend Health Management and its subsidiary against the allegations in this matter. We do not believe that the final outcome of this matter will be material.

On March 14, 2012, the U.S. District Court for the Southern District of Florida ordered the unsealing and amendment of a qui tam lawsuit filed on February 8, 2010, captioned United States of America ex rel. Bruce L. Boros, M.D.

and Joseph E. O’Lear, M.D. v. Health Management Associates, Inc. and Key West HMA, LLC (Case No. 2010:10-cv-10013-KMM). Also on March 14, 2012, the court unsealed the United States’ notice of its intention not to intervene with respect to the remaining claims at that time. On or about March 27, 2012, the plaintiffs filed a second amended complaint. In the second amended complaint, the plaintiffs allege that the defendants performed unnecessary and improper cardiac catheterization procedures at our Lower Keys Medical Center in Key West, Florida and presented false or fraudulent claims for reimbursement to Medicare and other health care programs funded by the federal government for such allegedly unnecessary and improper procedures. The plaintiffs seek recovery under the False Claims Act in the amount of triple the amount of the actual damages that the United States has allegedly sustained as a result of the defendants’ actions, plus civil penalties of not less than $5,000 and not more than $11,000 for each violation, and other relief. On August 14, 2012, the plaintiffs filed a third amended complaint, which is similar to the second amended complaint. On August 31, 2012, the defendants moved to dismiss the third amended complaint for failure to state a claim with the particularity required and failure to state a claim upon which relief can be granted. On October 24, 2012, the defendants’ motion to dismiss was granted. On December 28, 2012, the court allowed the plaintiffs to file a fourth amended complaint, which was similar to the third amended complaint. On January 18, 2013, the defendants moved to dismiss the fourth amended complaint on the same bases set forth in their previous motion to dismiss. On March 1, 2013, the U.S. District Court granted the defendants’ motion to dismiss the fourth amended complaint with prejudice. On March 29, 2013, the U.S. District Court, in response to a motion filed by the United States of America, entered an order clarifying that its March 1, 2013 order granting defendants’ motion to dismiss was without prejudice to the United States of America. On April 2, 2013, the defendants filed a motion to vacate the court’s March 29, 2013 order. We intend to vigorously defend Health Management and its subsidiary against the allegations in this matter. We do not believe that the final outcome of this matter will be material.

On February 22, 2012 and February 24, 2012, HHS-OIG served subpoenas on certain Health Management hospitals relating to those hospitals’ relationships with Allegiance Health Management, Inc. (“Allegiance”). Allegiance, which is unrelated to Health Management, is a post acute health care management company that provides intensive outpatient psychiatric (“IOP”) services to patients. The Health Management hospitals that were served subpoenas were: (i) Central Mississippi Medical Center in Jackson, Mississippi; (ii) Crossgates River Oaks Hospital in Brandon, Mississippi; (iii) Davis Regional Medical Center in Statesville, North Carolina; (iv) Lake Norman Regional Medical Center in Mooresville, North Carolina; (v) the Medical Center of Southeastern Oklahoma in Durant, Oklahoma; and (vi) Natchez Community Hospital in Natchez, Mississippi. Each of those hospitals has or had a contract with Allegiance. Among other things, the subpoenas seek: (i) documents related to the hospitals’ financial relationships with Allegiance; (ii) documents related to patients who received IOP services from Allegiance at the Health Management hospitals, including their patient medical records; (iii) documents relating to complaints or concerns regarding Allegiance’s IOP services at the Health Management hospitals; (iv) documents relating to employees, physicians and therapists who were involved with the IOP services provided by Allegiance at the Health Management hospitals; and (v) other documents related to Allegiance, including leases, contracts, policies and procedures, training documents, budgets and financial analyses. The period of time covered by the subpoenas is January 1, 2008 through the date of subpoena compliance. We believe that HHS-OIG has served similar subpoenas on other non-Health Management hospitals that had contracts with Allegiance. We intend to cooperate with the investigations. At this time, we are unable to determine the potential impact that will result from the final resolution of these investigations.

On April 25, 2013, Health Management received a subpoena from the Securities and Exchange Commission (the “SEC”), issued pursuant to an investigation, requesting documents related to accounts receivable, billing write-downs, contractual adjustments, reserves for doubtful accounts, and accounts receivable aging and revenue from Medicare, Medicaid and from privately insured or uninsured patients. We are cooperating with the SEC’s investigation. We are unable to determine the potential impact, if any, of this investigation.

damages from the defendants, other than Health Management. On February 8, 2013, the case was transferred to the U.S. District Court for the Middle District of Florida, Fort Myers Division (Case No. 2:13-cv-00092). On April 10, 2013 the plaintiffs filed an amended compliant which asserts the same claims as its prior complaint. We intend to vigorously defend against the allegations in this lawsuit. Because this lawsuit is in its early stages, we are unable to predict the outcome or determine the potential impact, if any, that could result from its final resolution.

Wrongful Termination Lawsuit. On or about October 19, 2011, a wrongful termination action was commenced against us by Paul Meyer, our former Director of Compliance. That litigation, entitled Meyer v. Health Management Associates, Inc., was commenced in the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County, Florida (Case No. 11-25334(09)). The plaintiff seeks unspecified compensatory and punitive damages. Mr. Meyer was terminated after insubordinately refusing to cooperate with our efforts to comply with our obligations under a government subpoena by refusing to return documents belonging to us that were in his possession. Moreover, Mr. Meyer’s failure to cooperate with us in response to a subpoena was contrary to both the intent and purpose of our compliance department and our company-wide compliance program. We have filed a counterclaim against Mr. Meyer for breach of contract, conversion and breach of duty of loyalty. We intend to vigorously defend against the wrongful termination allegations made by Mr. Meyer and we do not believe that the final outcome of this matter will be material.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

The table below summarizes the number of shares of our common stock that were withheld to satisfy the tax withholding obligations for our stock-based compensation awards that vested during the three months ended March 31, 2013.


Month Ended	Total Number of Shares Purchased		Average Price Per Share
January 31, 2013		4,166	$	9.32
February 28, 2013		3,264		10.76
March 31, 2013		1,031,459		10.90

Total		1,038,889

Item 6. Exhibits.

See Index to Exhibits on page 49 of this Quarterly Report on Form 10-Q/A.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	HEALTH MANAGEMENT ASSOCIATES, INC.

Date: November 13, 2013	By:	/s/ Gary S. Bryant
		Gary S. Bryant
		Senior Vice President and Interim Chief Financial Officer
		(Principal Financial and Accounting Officer)

INDEX TO EXHIBITS


*10.1		Certain executive officer compensation information, including stock-based compensation under the Health Management Associates, Inc. Amended and Restated 1996 Executive Incentive Compensation Plan, previously filed on the Company’s Current Report on Form 8-K dated February 19, 2013, is incorporated herein by reference.

*10.2		Form of Deferred Stock Award and Cash Performance Award Notice for the year ending December 31, 2013 under the Health Management Associates, Inc. Amended and Restated 1996 Executive Incentive Compensation Plan (section 14(a) therein is not applicable for attorneys), previously filed and included as Exhibit 10.2 to the Original Form 10-Q and is incorporated herein by reference.

*10.3		Deferred Stock Award granted to Steven E. Clifton under the Health Management Associates, Inc. Amended and Restated 1996 Executive Incentive Compensation Plan, previously filed and included as Exhibit 10.3 to the Original Form 10-Q and is incorporated herein by reference.

*10.4		Offer of Employment letter to Steven Clifton, the Company’s Senior Vice President and General Counsel, dated as of July 17, 2012, previously filed and included as Exhibit 10.4 to the Original Form 10-Q and is incorporated herein by reference.

10.5		First Amendment to Credit Agreement, dated as of March 20, 2013, among the Company, as Borrower, Wells Fargo Bank, National Association, as Administrative Agent, Collateral Agent, Swing Line Lender, Letter of Credit Issuer and a Lender, and the other parties thereto, previously filed on the Company’s Current Report on Form 8-K dated March 20, 2013, is incorporated herein by reference.

31.1		Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer.

31.2		Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer.

32.1		Section 1350 Certifications.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

*	Management contract or compensatory plan or arrangement