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LIFEPOINT HOSPITALS, INC. – 10-Q – Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Edgar Online, Inc.

We recommend that you read this discussion together with our unaudited condensed consolidated financial statements and related notes included elsewhere in this report, as well as our Annual Report on Form 10-K for the year ended December 31, 2012 (the "2012 Annual Report on Form 10-K"). Unless otherwise indicated, all relevant financial and statistical information included herein relates to our continuing operations. Additionally, unless the context indicates otherwise, LifePoint Hospitals, Inc. and its subsidiaries are referred to in this section as "we," "our," or "us."

We make forward-looking statements in this report, other reports and in statements we file with the United States Securities and Exchange Commission (the "SEC") and/or release to the public. In addition, our senior management makes forward-looking statements orally to analysts, investors, the media and others. Broadly speaking, forward-looking statements include: projections of our revenues, net income, earnings per share, capital expenditures, cash flows, debt repayments, interest rates, operating statistics and data or other financial items; efforts to reduce the cost of providing healthcare while increasing quality; descriptions of plans or objectives of our management for future operations, services or growth plans including acquisitions, divestitures, business strategies, core strategies and other initiatives, including our relationship with Duke University Medical Center through Duke LifePoint Healthcare; interpretations of Medicare and Medicaid laws and regulations and their effect on our business; and descriptions of assumptions underlying or relating to any of the foregoing.

In this report, for example, we make forward-looking statements, including statements discussing our expectations about: future financial performance and condition; future liquidity and capital resources; future cash flows; existing and future debt; our business strategy and operating philosophy; effects of competition in a hospital's market; costs of providing care to our patients; changes in interest rates; our compliance with new and existing laws and regulations as well as costs and benefits associated with compliance; the impact of national healthcare reform; other income from electronic health records ("EHR"); anticipated capital expenditures, including investments in information systems and to add new technologies, modernize facilities and expand services available at our facilities and the expectation that capital commitments could be a significant component of future acquisitions; implementation of supply chain management and revenue cycle functions; impact of accounting methodologies; increasing professional fees; industry and general economic trends; patient shifts to lower cost healthcare plans which generally provide lower reimbursement; reimbursement changes, including changes for cost containment and policy considerations and changes resulting from state budgetary restrictions; timing of the receipt and the amount of reimbursement payments under the New Mexico state program; patient volumes and related revenues; claims and legal actions relating to professional liabilities, governmental investigations; and physician recruiting and retention.

Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements often include words such as "can," "could," "may," "should," "believe," "will," "would," "expect," "project," "estimate," "seek," "anticipate," "intend," "target," "continue" or similar expressions. You should not unduly rely on forward-looking statements, which give our expectations about the future and are not guarantees. Forward-looking statements speak only as of the date they are made. We operate in a continually changing business environment, and new risk factors emerge from time to time. We cannot predict such new risk factors nor can we assess the impact, if any, of such new risk factors on our business or the extent to which any factor or combination of factors may cause actual results to differ materially from those expressed or implied by any forward-looking statement. We do not undertake any obligation to update our forward-looking statements to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events.

There are several factors, some beyond our control that could cause results to differ significantly from our expectations. Some of these factors, as well as other factors such as market, operational, liquidity, interest rate and other risks, are described in Part I, Item 1A. Risk Factors and Part II, Item 7A. Quantitative and Qualitative Disclosures about Market Risk of the 2012 Annual Report on Form 10-K. Any factor described in this report and in the 2012 Annual Report on Form 10-K could by itself, or together with one or more factors, adversely affect our business, results of operations and/or financial condition. There may be factors not described in this report or in the 2012 Annual Report on Form 10-K that could also cause results to differ from our expectations.

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    Overview

We operate general acute care hospitals primarily in non-urban communities in the United States ("U.S."). At June 30, 2013, on a consolidated basis, we operated 57 hospital campuses in 20 states, having a total of 6,565 licensed beds. We generate revenues primarily through hospital services offered at our facilities. We generated revenues of $894.9 million and $827.3 million during the three months ended June 30, 2013 and 2012, respectively, and $1,826.0 million and $1,678.3 million during the six months ended June 30, 2013 and 2012, respectively. We derived revenues from the Medicare and Medicaid programs, collectively of 46.2% and 50.4% during the three months ended June 30, 2013 and 2012, respectively, and 47.1% and 50.4% during the six months ended June 30, 2013 and 2012, respectively. Payments made to our hospitals pursuant to the Medicare and Medicaid programs for services rendered rarely exceed our costs for such services. As a result, we rely largely on payments made by private or commercial payors, together with certain limited services provided to Medicare recipients, to generate an operating profit. The hospital industry continues to endure a period where the costs of providing care are rising faster than reimbursement rates from government or private commercial payors. This places a premium on efficient operation, the ability to reduce or control costs and the need to leverage the benefits of our organization across all of our hospitals.

Competitive and Structural Environment

The environment in which our hospitals operate is extremely competitive. In addition to competitive concerns, many of our communities are experiencing slow growth, and in some cases, population losses. We believe this trend has occurred primarily as a result of challenging economic conditions because the economies in the non-urban communities in which our hospitals primarily operate are often dependent on a small number of larger employers, especially manufacturing or other facilities. This causes the economies of our communities to be more sensitive to economic downturns in the manufacturing sector than other parts of the U.S., generally.

Our hospitals face competition from other acute care hospitals, including larger tertiary hospitals located in larger markets and/or affiliated with universities; specialty hospitals that focus on one or a small number of very lucrative service lines but that are not required to operate emergency departments; stand-alone centers at which surgeries or diagnostic tests can be performed; and physicians on the medical staffs of our hospitals. In many cases, our competitors focus on the service lines that offer the highest margins. By doing so, our competitors can potentially draw the best-paying business out of our hospitals. This, in turn, can reduce the overall operating profit of our hospitals as we are often obligated to offer service lines that operate at a loss or that have much lower profit margins. We continue to see the shift of increasingly complex procedures from the inpatient to the outpatient setting and have also seen growth in the general shift of lower acuity procedures to physician offices and other non-hospital outpatient settings. These trends have, to some extent, offset our efforts to improve equivalent admission rates at many of our hospitals.

Our hospitals also face extreme competition in their efforts to recruit and retain physicians on their medical staffs. It is widely recognized that the U.S. has a shortage of physicians in certain practice areas, including primary care physicians and specialists such as cardiologists, oncologists, urologists and orthopedists, in various areas of the country. This fact, and our ability to overcome these shortages, is directly relevant to our growth strategies because cardiologists, oncologists, urologists and orthopedists are often the physicians in highest demand in communities where our hospitals are located. Larger tertiary medical centers are acquiring physician practices and employing physicians in some of our communities. While physicians in these practices may continue to be members of the medical staffs of our hospitals, they may be less likely to refer patients to our hospitals over time.

We believe other key factors in our competition for patients is the quality of our patient care and the perception of that quality in the communities where our hospitals are located, which may be influenced by, among other things, the technology, service lines and capital improvements made at our facilities and by the skills and experience of our non-physician employees involved in patient care.

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    Business Strategy

In order to achieve growth in patient volumes, revenues and profitability given the competitive and structural environment, we continue to focus our business strategy on the following:

· Measurement and improvement of quality of patient care and perceptions of such

quality in communities where our hospitals are located;

· Targeted recruiting of primary care physicians and physicians in key

specialties;

· Retention of physicians and efforts to improve physician satisfaction,

including employing a greater number of primary care physicians as well as

physicians in certain specialties;

· Retention and, where needed, recruitment of non-physician employees involved in

patient care and efforts to improve employee satisfaction;

· Targeted investments in new technologies, new service lines and capital

improvements at our facilities;

· Improvements in management of expenses and revenue cycle;

· Negotiation of improved reimbursement rates with non-governmental payors;

· Strategic growth through acquisition and integration of hospitals and other

  healthcare facilities where valuations are attractive and we can identify   opportunities for improved financial performance through our management or   ownership; and

· Developing strategic partnerships with not-for-profit healthcare providers to

  achieve growth in new regions.

As part of our ongoing efforts to further manage costs and improve the results of our revenue cycle, we have entered into agreements with a third party to provide certain nonclinical business functions, including payroll processing, supply chain management and revenue cycle functions. We believe this model of sharing centralized resources to support common business functions across multi-facility enterprises provides us efficiencies and is the most cost effective approach to managing these nonclinical business functions. We fully implemented our payroll processing function in 2011. We expect to complete the implementations of the supply chain management and revenue cycle functions over the next 9 to 15 months.

Regulatory Environment

Our business and our hospitals are highly regulated, and the penalties for noncompliance are severe. We are required to comply with extensive, extremely complicated and overlapping government laws and regulations at the federal, state and local levels. These laws and regulations govern every aspect of how our hospitals conduct their operations, from what service lines must be offered in order to be licensed as an acute care hospital, to whether our hospitals may employ physicians, and to how (and whether) our hospitals may receive payments pursuant to the Medicare and Medicaid programs. The failure to comply with these laws and regulations can result in severe penalties including criminal penalties, civil sanctions, and the loss of our ability to receive reimbursements through the Medicare and Medicaid programs.

Not only are our hospitals heavily regulated, but the rules, regulations and laws to which they are subject often change, with little or no notice, and are often interpreted and applied differently by various regulatory agencies with authority to enforce such requirements. Each change or conflicting interpretation may require our hospitals to make changes in their facilities, equipment, personnel or services, and may also require that standard operating policies and procedures be re-written and re-implemented. The cost of complying with such laws and regulations is a significant component of our overall expenses. Further, this expense has grown in recent periods because of new regulatory requirements and the severity of the penalties associated with non-compliance. Management anticipates that compliance expenses will continue to grow in the foreseeable future. The healthcare industry has seen a number of ongoing investigations related to patient referrals, physician recruiting practices, cost reporting and billing practices, laboratory and home healthcare services, physician ownership of hospitals and other healthcare providers, and joint ventures involving hospitals and physicians. Hospitals continue to be one of the primary focal areas of the Office of the Inspector General ("OIG"), the Department of Justice ("DOJ") and other governmental fraud and abuse programs.

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    Health Care Reform

The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (collectively, the "Affordable Care Act") dramatically alters the U.S. healthcare system and is intended to decrease the number of uninsured Americans and reduce the overall cost of healthcare. The Affordable Care Act attempts to achieve these goals by, among other things, requiring most Americans to obtain health insurance, expanding Medicaid eligibility, reducing Medicare and Medicaid disproportionate share hospital ("DSH") payments to providers, expanding the Medicare program's use of value-based purchasing programs, tying hospital payments to the satisfaction of certain quality criteria, bundling payments to hospitals and other providers, and instituting certain private health insurance reforms. Although a majority of the measures contained in the Affordable Care Act do not take effect until 2013 and 2014, certain of the reductions in Medicare spending, such as negative adjustments to the Medicare hospital inpatient and outpatient prospective payment system market basket updates and the incorporation of productivity adjustments to the Medicare program's annual inflation updates, became effective prior to 2013. Although the expansion of health insurance coverage should increase revenues from providing care to certain previously uninsured individuals, many of these provisions of the Affordable Care Act will not become effective until 2014 or later. The impact of such expansion remains uncertain, may be gradual and may not offset scheduled decreases in reimbursement.

On June 28, 2012, the U.S. Supreme Court upheld the constitutionality of the Affordable Care Act, including the "individual mandate" provisions of the Affordable Care Act that generally require all individuals to obtain healthcare insurance or pay a penalty. However, the U.S. Supreme Court also held that the provision of the Affordable Care Act that authorized the Secretary of the Department of Health and Human Services ("HHS") to penalize states that choose not to participate in the expansion of the Medicaid program by removing all of their existing Medicaid funding was unconstitutional. In response to the ruling, a number of states, including some of those states in which we operate, have indicated that they will not expand their Medicaid programs and are considering alternatives to Medicaid expansion, either of which could result in the Affordable Care Act not providing coverage to some low-income persons in those states. In addition, several bills have been and may continue to be introduced in Congress to repeal or amend all or significant provisions of the Affordable Care Act.

The Affordable Care Act changes how healthcare services are covered, delivered, and reimbursed. The net effect of the Affordable Care Act on our business is subject to numerous variables, including the law's complexity, lack of complete implementing regulations and interpretive guidance, gradual implementation and possible amendment, as well as the uncertainty as to the extent to which states will choose to participate in the expanded Medicaid program. In addition, a number of the provisions of the Affordable Care Act that were supposed to become effective in 2014, such as the employer mandate, the Small Business Health Option Program, and the state run exchange verification of income and Medicaid agency electronic notification of eligibility for tax credit and subsidy requirements, have been delayed until 2015, and additional delays in the implementation of these or other provisions of the Affordable Care Act could be imposed in the future. As a result, we are unable to predict the net effect on our business, financial condition or results of operations of the expected increases in insured individuals using our facilities, the reductions in government healthcare reimbursement spending, and numerous other provisions of the Affordable Care Act that may affect us. We are also unable to predict how providers, payors, employers and other market participants will respond to the various reform provisions because many provisions will not be implemented for several years under the Affordable Care Act's implementation schedule. Further, we are unable to predict the outcome of new or remaining court challenges and the impact of continued legislative efforts to delay implementation of or amend the Affordable Care Act.

Medicare and Medicaid Reimbursement

Medicare payment methodologies have been, and are expected to continue to be, revised significantly based on cost containment and policy considerations.

The Centers for Medicare and Medicaid Services ("CMS") has already begun to implement some of the Medicare reimbursement reductions required by the Affordable Care Act. These revisions will likely be more frequent and significant as more of the Affordable Care Act's changes and cost-saving measures become effective. Additionally, the Middle Class Tax Relief and Job Creation Act of 2012 and the American Taxpayer Relief Act of 2012 ("ATRA") require further reductions in Medicare payments, and the Budget Control Act of 2011 ("BCA") imposes a 2% reduction in Medicare spending effective as of April 1, 2013.

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On April 10, 2013, President Obama released his proposed budget for federal fiscal year ("FFY") 2014 (the "Proposed Budget"). The Proposed Budget would replace the BCA's automatic spending reductions for the Medicare Program for 2014 with $400 billion in Medicare and Medicaid spending cuts over the next 10 years. The Proposed Budget would achieve these reductions by, among other things, reducing Medicare coverage of bad debts, reducing payments to critical access hospitals, reducing payments to inpatient rehabilitation and skilled nursing facilities, and increasing financial liabilities for certain Medicare beneficiaries. We cannot predict whether the Proposed Budget will be implemented in whole or in part or whether Congress will take other legislative action to reduce spending on the Medicare and Medicaid programs. Additionally, future efforts to reduce the federal deficit may result in additional revisions to and payment reductions for the amounts we receive for our services.

On May 10, 2013, CMS published its hospital inpatient patient prospective system ("IPPS") proposed rule for FFY 2014, which begins on October 1, 2013. Among other things, the proposed rule provides a payment rate increase of 0.8% for hospitals that successfully report the quality measures for the Hospital Inpatient Quality Reporting Program (formerly the Reporting Hospital Quality Data for Annual Payment Update Program) and a payment rate reduction of 1.2% for hospitals that do not. The rate increase is based on a proposed hospital market basket increase of 2.5%, which is reduced by (i) a multi-factor productivity adjustment of 0.4%, (ii) a 0.3% reduction required by the Affordable Care Act, (iii) a 0.8% documentation and coding recoupment adjustment required by the ATRA, and (iv) a 0.2% adjustment to offset the cost of proposed changes to the Medicare program's inpatient admission and medical review criteria for hospital inpatient services. Under those proposed changes, inpatient admissions spanning at least two midnights would presumptively qualify for payment under Medicare Part A. With respect to the documentation and coding recoupment adjustment required by the ATRA, CMS indicated in the proposed rule that it expects to make similar adjustments in FFYs 2015, 2016, and 2017 in order to recoup the entire $11 billion that it is required to recover by the ATRA to offset the additional increase in aggregate payments to hospitals that Congress believes occurred from FFY 2008 through FFY 2013 solely as a result of the transition to the MS-DRG system and that was not recaptured by the adjustments that were mandated by the Transitional Medical Assistance, Abstinence Education, and Qualifying Individuals Programs Extension Act of 2007.

In addition to establishing the payment rate update, the IPPS proposed rule for FFY 2014 also implements the Affordable Care Act's modifications to the Medicare program's DSH payment methodology. Under the proposed rule, in FFY 2014, DSH hospitals will receive 25% of the amount they would have received under the current statutory formula for Medicare DSH payments. The remaining amount, which is equal to 75% of what otherwise would have been paid as Medicare DSH payments under the current statutory formula, will be reduced by the percentage change in uninsured individuals under the age of 65 from 2013 to 2014 (currently estimated by CMS to be 11%) minus 0.1% and then paid as additional payments to DSH hospitals based on the amount of uncompensated care provided by each hospital relative to the amount of uncompensated care provided by all hospitals receiving DSH payments during the applicable time period. However, instead of actually measuring the amount of uncompensated care that is provided by DSH hospitals, CMS is proposing to use Medicaid days and Medicare Supplemental Security Income ("SSI") days as proxies for determining levels of uncompensated care. While difficult to predict, the use of Medicaid and Medicare SSI days to approximate levels of uncompensated care could have an adverse effect on DSH hospitals that are located in states that have opted to not expand their Medicaid programs. CMS estimates that the proposed changes will reduce Medicare DSH payments to hospitals by approximately 11% or $1 billion in FFY 2014.

On May 13, 2013, CMS issued a proposed rule regarding the Medicaid state DSH allotment reductions that are required by the Affordable Care Act. The proposed rule sets forth the methodology that will be used to implement the required $500 million and $600 million in Medicaid DSH allocation reductions in FFY 2014 and FFY 2015, respectively, but it does not set forth the methodology that will be used to implement the Medicaid DSH allocation reductions required in FFYs 2016 beyond. CMS has indicated that the methodology used to implement those reductions will be the subject of a future rulemaking. Both the Proposed Budget and the DSH Reduction Relief Act of 2013 (H.R. 1920) (the "DSH Reduction Relief Act") would delay the cuts to the Medicare and Medicaid DSH programs. However, we cannot predict whether the Proposed Budget, the DSH Reduction Relief Act, or any other legislation postponing or reducing the cuts to the Medicare and Medicaid DSH programs will be approved by Congress.

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On July 19, 2013, CMS published its hospital outpatient prospective payment system ("OPPS") proposed rule for calendar year ("CY") 2014, which begins on January 1, 2014. Among other things, the proposed rule provides for a payment rate increase of 1.8% percent for hospitals that meet the reporting requirements of the Medicare Hospital Outpatient Quality Reporting ("OQR") Program and a payment rate decrease of 0.2% for hospitals that do not. The proposed rate increase is based on a proposed hospital market basket increase of 2.5%, which is reduced by a multi-factor productivity adjustment of 0.4% and an additional 0.3% reduction required by the Affordable Care Act. The proposed rule also makes several other changes to the OPPS, including packaging seven new categories of supporting items and services that will now be included in the Medicare program's payment for the primary service, collapsing the current five levels of outpatient visit codes to one unique code for each type of outpatient hospital visits (i.e., clinic, 24-hour emergency department visit, and non-24 hour emergency department visit), and adding five new reporting measures to the OQR Program.

    Physician Services

Physician services are reimbursed under the Medicare physician fee schedule ("PFS") system, under which CMS has assigned a national relative value unit ("RVU") to most medical procedures and services that reflects the various resources required by a physician to provide the services relative to all other services. Each RVU is calculated based on a combination of work required in terms of time and intensity of effort for the service, practice expense (overhead) attributable to the service and malpractice insurance expense attributable to the service. These three elements are each modified by a geographic adjustment factor to account for local practice costs then aggregated. The aggregated amount is multiplied by a conversion factor that accounts for inflation and targeted growth in Medicare expenditures (as calculated by the sustainable growth rate ("SGR")) to arrive at the payment amount for each service.

The PFS rates are adjusted each year, and reductions in both current and future payments are anticipated. The SGR formula has resulted in payment decreases to physicians every year since 2002. However, all but one of those payment decreases has been averted by Congressional action. For CY 2013, CMS issued a final rule that would have applied the SGR and resulted in an aggregate reduction of 26.5% to all physician payments under the PFS for CY 2013. The ATRA delayed application of the SGR and extended CY 2011 PFS payment rates through December 31, 2013.

On July 8, 2013, CMS published the PFS proposed rule for CY 2014. Under the proposed rule, payment rates to physicians would be reduced by 24.4% based on the application of the SGR. We cannot predict whether Congress will pass legislation to avert the proposed rate cut in CY 2014 or will otherwise adopt a permanent fix for the issues that are created by the application of the SGR. If the payment reduction contained in the proposed rule is not averted, the reimbursement received by our employed physicians, the physicians to whom our hospitals have provided recruitment assistance, and the physician members of our medical staffs would be adversely affected.

Adoption of Electronic Health Records

The Health Information Technology for Economic and Clinical Health Act (the "HITECH Act") was enacted into law on February 17, 2009 as part of the American Recovery and Reinvestment Act of 2009 ("ARRA"). The HITECH Act includes provisions designed to increase the use of EHR by both physicians and hospitals. EHR meaningful use objectives and measures that hospitals and physicians must meet in order to qualify for incentive payments will be implemented in three stages. Stage 1 has been in effect since 2011; however, on September 4, 2012, HHS released final requirements for Stage 2, which will take effect starting in 2014. We strive to comply with the EHR meaningful use requirements of the HITECH Act in time to qualify for the maximum available incentive payments. Our compliance has and will continue to result in significant costs including business process changes, professional services focused on successfully designing and implementing our EHR solutions along with costs associated with the hardware and software components of the project. We currently estimate that at a minimum total costs incurred to comply will be recovered through the total EHR incentive payments over the projected lifecycle of this initiative.

An important component of the effective implementation of our EHR initiatives involves our uninterrupted access to reliable information systems. In late 2011, we entered into an agreement with a third party technology provider to design and operate a hosted data center for our critical third party information systems. In addition to providing a hosted data center, the third party technology provider will offer help desk end-user support for certain clinical information systems, provide help desk and support functions for certain clinical information system applications, perform backups and recoveries of certain critical data, and monitor critical systems to facilitate the identifications of and rapid responses to certain system issues. We

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believe this agreement will provide us with a single technology platform for the delivery of critical third party information systems for the majority of our hospitals and will improve the effectiveness and efficiency of key information support functions in a cost-effective and high quality manner.

Privacy and Security Requirements and Administrative Simplification Provisions

We are subject to the privacy and security requirements of the Health Insurance Portability and Accountability Act of 1996 ("HIPAA") that are designed to protect the confidentiality, availability and integrity of health information. The privacy standards apply to individually identifiable information held or disclosed by a covered entity in any form, whether communicated electronically, on paper or orally, impose extensive administrative requirements on us, require our compliance with rules governing the use and disclosure of this health information, and require us to impose these rules, by contract, on any business associate to whom we disclose such information in order to perform functions on our behalf. The security standards require us to establish and maintain reasonable and appropriate administrative, technical and physical safeguards to ensure the integrity, confidentiality and the availability of electronic health and related financial information. In addition, our facilities will continue to remain subject to any state laws that are more restrictive than the privacy regulations issued under HIPAA.

The HITECH Act, among other things, strengthened the HIPAA privacy and security requirements, significantly increased the penalties for violations of the HIPAA privacy and security regulations, imposed varying civil monetary penalties and created a private cause of action for state attorneys general for certain HIPAA violations, extended HIPAA's security provisions to business associates, and created new security breach notification requirements. The HITECH Act also created a federal breach notification law that mirrors protections that many states have passed in recent years. In 2011, HHS initiated a pilot audit program that ran through December 2012 in the first phase of HHS implementation of the HITECH Act's requirements of periodic audits of covered entities and business associates to ensure their compliance with the HIPAA privacy and security regulations. We cannot predict whether our hospitals will be selected for an audit or the results of such an audit.

On January 17, 2013, HHS issued a final HIPAA omnibus rule (the "Final HIPAA Rule"), which became effective on March 26, 2013, that modified prior HIPAA regulations. Our facilities must comply with the applicable requirements of the Final HIPAA Rule by September 23, 2013, except that some existing agreements with business associates may qualify for an extended compliance date of September 23, 2014. The Final HIPAA Rule modifications include: making our facilities' business associates directly liable for compliance with certain of the privacy and security rules' requirements; making our facilities' liable for violations by their business associates if HHS determines an agency relationship exists between the facility and the business associate under federal agency law; adding limitations on the use and disclosure of health information for marketing and fundraising purposes, and prohibiting the sale of health information without individual authorization; expanding our patients' rights to receive electronic copies of their health information and to restrict disclosures to a health plan concerning treatment for which our patient has paid out of pocket in full; requiring modifications to, and redistribution of, our facilities' notice of privacy practices; rules addressing enforcement of noncompliance with HIPAA due to willful neglect; an increased and tiered civil money penalty structure; and modifications to the breach notification rules that replace the "risk of harm" standard with a "low probability of compromise" standard, which would require our facilities to prepare a four factor risk assessment for impermissible uses and disclosures of health information. We cannot predict the financial impact to our hospitals in implementing the provisions of the Final HIPAA Rule.

In addition to the privacy and security requirements, we also are subject to the administrative simplification provisions of HIPAA, which require the use of uniform electronic data transmission standards for healthcare claims and payment transactions submitted or received electronically. These provisions are intended to encourage electronic commerce in the healthcare industry. In January 2009, CMS published its 10th revision of International Statistical Classification of Diseases and Related Health Problems ("ICD-10") and related changes to the formats used for certain electronic transactions. ICD-10 contains significantly more diagnostic and procedural codes than the existing ICD-9 coding system, and as a result, the coding for the services provided in our hospitals and clinics will require much greater specificity. Implementation of ICD-10 will require a significant investment in technology and training. We may experience delays in reimbursement while our facilities and the payors from which we seek reimbursement make the transition to ICD-10. On August 24, 2012, CMS released a final rule that revised the effective date of the ICD-10 transition to October 1, 2014. If any of our hospitals fail to implement the new coding system by the deadline, the affected hospital will not be paid for services. We are not able to predict the overall financial impact of our transition to ICD-10.

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    Revenue Sources

Our hospitals generate revenues by providing healthcare services to our patients. Depending upon the patient's medical insurance coverage, we are paid for these services by governmental Medicare and Medicaid programs, commercial insurance, including managed care organizations, and directly by the patient. The amounts we are paid for providing healthcare services to our patients vary depending upon the payor. Governmental payors generally pay significantly less than the hospital's customary charges for the services provided. Insured patients are generally not responsible for any difference between customary hospital charges and the amounts received from commercial insurance payors. However, insured patients are responsible for payments not covered by insurance, such as exclusions, deductibles and co-payments.

Revenues from governmental payors, such as Medicare and Medicaid, are controlled by complex rules and regulations that stipulate the amount a hospital is paid for providing healthcare services. We must comply with these rules and regulations to continue to be eligible to participate in the Medicare and Medicaid programs. These rules and regulations are subject to frequent changes as a result of legislative and administrative action and annual payment adjustments on both the federal and the state levels. These changes will likely become more frequent and significant as the provisions of the Affordable Care Act are implemented.

Revenues from health maintenance organizations ("HMOs"), preferred provider organizations ("PPOs") and other private insurers are subject to contracts and other arrangements that require us to discount the amounts we customarily charge for healthcare services. These discounted arrangements often limit our ability to increase charges in response to increasing costs. We actively negotiate with these payors in an effort to maintain or increase the pricing of our healthcare services; however, we have no control over patients switching their healthcare coverage to a payor with which we have negotiated less favorable reimbursement rates. In recent years, an increasing number of our patients have moved to lower cost healthcare coverage plans, and such plans generally provide lower reimbursement rates and require patients to pay an increased portion of the costs of case through deductibles, co-payments or exclusions. We expect this trend to continue in the coming years.

Self-pay revenues are primarily generated through the treatment of uninsured patients. Our hospitals have experienced an increase in self-pay revenues over the past several years as a result of the impact of pricing increases and due to a combination of broad economic factors, including rising unemployment in many of our markets, reductions in state Medicaid budgets and increasing numbers of individuals and employers who choose not to purchase insurance. Additionally, certain of our hospitals participate in federal, state and local programs that provide for supplemental support and funding for the care of indigent patients and changes in these programs can impact our financial position and results of operations. For example, during the three and six months ended June 30, 2013, we recognized a net reduction to revenues of approximately $4.8 million and revenues of approximately $2.3 million, respectively, as a result of changes made to one such program in New Mexico, the Sole Community Provider Program ("New Mexico SCPP"). This is in comparison to revenues of approximately $9.9 million and $19.8 million during the three and six months ended June 30, 2012, respectively. This represents a net period over period decrease in revenues of $14.7 million and $17.5 million during the three and six months ended June 30, 2013, respectively, as compared to the same periods of the prior year. This change impacted almost entirely our hospital, Memorial Medical Center of Las Cruces, New Mexico ("MMC"). We currently anticipate that the New Mexico SCPP reimbursement for the second half of 2013 will approximate $7.0 million per quarter which is in accordance with our original financial plan. Aspects of the New Mexico SCPP are currently being reviewed and evaluated by governmental officials. In a meeting on July 24, 2013, representatives from the State of New Mexico verbally articulated a preliminary reimbursement proposal that, if adopted for 2014, would negatively impact payments made to MMC. MMC opposes this proposal and intends to work with other providers of indigent care in New Mexico to advocate for improvements in this proposal. We do expect that the New Mexico SCPP will be reconfigured effective January 1, 2014. Any change to the New Mexico SCPP, for whatever reason, could have a material adverse effect on our financial position or results of operations in the period the changes occur.

To provide for accounts receivable that could become uncollectible in the future, we establish an allowance for doubtful accounts to reduce the carrying value of such receivables to their estimated net realizable value. Our provision for doubtful accounts serves to reduce our reported revenues.

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    Results of Operations

The following definitions apply throughout the remaining portion of Management's Discussion and Analysis of Financial Condition and Results of Operations:

Admissions. Represents the total number of patients admitted (in the facility for a period in excess of 23 hours) to our hospitals and used by management and investors as a general measure of inpatient volume.

bps. Basis point change.

Continuing operations. Continuing operations information includes the results of (i) our hospital support center, (ii) our same-hospital operations, (iii) the results of Scott Memorial Hospital ("Scott Memorial"), which we acquired effective January 1, 2013 though our joint venture with Norton Healthcare, Inc., (iv) Marquette General Health System ("Marquette General"), which we acquired effective September 1, 2012, Twin County Regional Hospital ("Twin County"), in which we acquired an 80% interest effective April 1, 2012, each through Duke LifePoint Healthcare, in which we own a controlling interest with a wholly-controlled affiliate of Duke University Health System, Inc. and (v) Woods Memorial Hospital ("Woods Memorial"), which we acquired effective July 1, 2012. Continuing operations information excludes the results of our hospitals that have previously been disposed.

Effective tax rate. Provision for income taxes as a percentage of income from continuing operations before income taxes less net income attributable to noncontrolling interests.

Emergency room visits. Represents the total number of hospital-based emergency room visits.

Equivalent admissions. Management and investors use equivalent admissions as a general measure of combined inpatient and outpatient volume. We compute equivalent admissions by multiplying admissions (inpatient volume) by the outpatient factor (the sum of gross inpatient revenue and gross outpatient revenue and then dividing the resulting amount by gross inpatient revenue). The equivalent admissions computation "equates" outpatient revenue to the volume measure (admissions) used to measure inpatient volume resulting in a general measure of combined inpatient and outpatient volume.

Medicare case mix index. Refers to the acuity or severity of illness of an average Medicare patient at our hospitals.

N/A. Not applicable.

Net revenue days outstanding. We compute net revenue days outstanding by dividing our accounts receivable net of allowance for doubtful accounts, by our revenue per day. Our revenue per day is calculated by dividing our quarterly revenues by the number of calendar days in the quarter.

Outpatient surgeries. Outpatient surgeries are those surgeries that do not require admission to our hospitals.

Revenues. Revenues represent amounts recognized from all payors for the delivery of healthcare services, net of contractual discounts and the provision for doubtful accounts.

Same-hospital. Same-hospital information includes the results of our hospital support center and the same 53 hospitals operated during the three and six months ended June 30, 2013 and 2012. Same-hospital information excludes the results of Scott Memorial, Marquette General, Twin County, Woods Memorial and our hospitals that have previously been disposed.

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For the Three Months Ended June 30, 2013 and 2012

Operating Results Summary

The following table summarizes the results of operations for the three months ended June 30, 2013 and 2012 (dollars in millions):

                                                         Three Months Ended June 30,                                                      2013                    2012                                                            % of                    % of                                               Amount     Revenues     Amount     Revenues Revenues before provision for doubtful accounts                                    $ 1,075.7     120.2  %   $  980.1     118.5  % Provision for doubtful accounts                 180.8      20.2         152.8      18.5 Revenues                                        894.9     100.0         827.3     100.0  Salaries and benefits                           422.1      47.2         369.9      44.7 Supplies                                        144.1      16.1         124.4      15.0 Other operating expenses                        222.9      24.8         195.7      23.7 Other income                                    (11.0)     (1.2)         (1.5)     (0.2) Depreciation and amortization                    55.9       6.3          46.9       5.7 Interest expense, net                            22.6       2.5          25.7       3.1 Gain on settlement of pre-acquisition contingent obligation                            (5.6)     (0.6)             -         -                                                 851.0      95.1         761.1      92.0  Income from continuing operations before income taxes                                     43.9       4.9          66.2       8.0 Provision for income taxes                       16.7       1.9          24.3       2.9 Income from continuing operations                27.2       3.0          41.9       5.1 Less: Net income attributable to noncontrolling interests                         (0.1)         -         (1.7)     (0.2) Income from continuing operations attributable to LifePoint Hospitals, Inc.                   $    27.1       3.0  %   $   40.2       4.9  %     Revenues

The following table presents the components of revenues for the three months ended June 30, 2013 and 2012 (dollars in millions):

                                                Three Months Ended                                                June 30,             Increase     % Increase                                           2013          2012       (Decrease)    (Decrease) Continuing operations: Revenues before provision for doubtful accounts                                $ 1,075.7$   980.1$    95.6         9.8  % Provision for doubtful accounts             180.8        152.8           28.0        18.3 Revenues                                $   894.9$   827.3$    67.6         8.2

Same-hospital:

 Revenues before provision for doubtful accounts                                $   963.9$   964.8$    (0.9)       (0.1) % Provision for doubtful accounts             169.6        150.2           19.4        12.9 Revenues                                $   794.3$   814.6$   (20.3)       (2.5)                                            37

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     Our revenues before provision for doubtful accounts by payor and approximate percentages of revenues were as follows for the three months ended June 30, 2013 and 2012 (in millions):                                                         Three Months Ended June 30,                                                  2013                      2012                                                         % of                     % of                                           Amount      Revenues     Amount      Revenues Medicare                                $   289.4      32.3  %    $  284.4      34.4  % Medicaid                                    124.4      13.9          132.0      16.0

HMOs, PPOs and other private insurers 466.6 52.2 391.2 47.3 Self-pay

                                    176.5      19.7          160.9      19.4 Other                                        18.8       2.1           11.6       1.4 Revenues before provision for doubtful accounts                                  1,075.7     120.2          980.1     118.5 Provision for doubtful accounts            (180.8)    (20.2)        (152.8)    (18.5) Revenues                                $   894.9     100.0  %    $  827.3     100.0  %   Our revenues per equivalent admission from continuing operations and on a same-hospital basis were as follows for the three months ended June 30, 2013 and 2012:                                                    Three Months Ended                                                   June 30,            Increase     % Increase                                               2013         2012      (Decrease)    (Decrease) Revenues per equivalent admission - continuing operations                       $   7,648$  7,526$    122$   7,429$  7,568$   (139)        (1.8)

Revenues Before Provision for Doubtful Accounts

The following table shows the key drivers of our revenues before provision for doubtful accounts for the three months ended June 30, 2013 and 2012:

                                     Three Months Ended                                     June 30,          Increase    % Increase                                 2013        2012     (Decrease)   (Decrease) Continuing operations: Admissions                      49,220     48,072        1,148          2.4 Equivalent admissions          117,017    109,923        7,094          6.5 Medicare case mix index           1.36       1.30         0.06          4.6 Average length of stay (days)      4.5        4.4          0.1          2.3 Inpatient surgeries             13,292     13,120          172          1.3 Outpatient surgeries            45,860     43,024        2,836          6.6 Emergency room visits          288,516    284,612        3,904          1.4 Outpatient factor                 2.38       2.29         0.09          3.9  Same-hospital: Admissions                      45,565     47,137       (1,572)        (3.3) Equivalent admissions          106,914    107,639         (725)        (0.7) Medicare case mix index           1.33       1.30         0.03          2.3 Average length of stay (days)      4.3        4.4         (0.1)        (2.3) Inpatient surgeries             11,985     12,868         (883)        (6.9) Outpatient surgeries            41,431     42,296         (865)        (2.0) Emergency room visits          270,680    278,836       (8,156)        (2.9) Outpatient factor                 2.35       2.28         0.07          3.1                                          38

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For the three months ended June 30, 2013, our same-hospital revenues before provision for doubtful accounts decreased $0.9 million, or 0.1%, to $963.9 million as compared to $964.8 million for the same period last year. Our same-hospital revenues before provision for doubtful accounts for the three months ended June 30, 2013 were negatively impacted by recent reimbursement changes to the New Mexico SCPP, lower admissions and equivalent admissions, decreases in Medicare reimbursement as a result of certain provisions of the Budget Control Act of 2011 that were effective April 1, 2013 as well as the absence during the current period of certain favorable amounts that were recognized during the same period of the prior year. The negative impact of these matters was partially offset by pricing increases, higher contracted rates as well as an improvement in our appeal success results relating to recovery audit contractor ("RAC") audits as compared to the same period last year.

During the three months ended June 30, 2013, we recognized a net reduction to revenues of approximately $4.8 million in accordance with the New Mexico SCPP as compared to approximately $9.9 million of revenue recognized during the three months ended June 30, 2012, representing a net period over period decrease in revenues of $14.7 million. The $4.8 million net reduction to revenues recognized during the three months ended June 30, 2013 included adjustments to our reimbursement under the New Mexico SCPP for the current period and for the three immediately preceding quarters. We currently anticipate that the New Mexico SCPP reimbursement for the second half of 2013 will approximate $7.0 million per quarter which is in accordance with our original financial plan. Aspects of the New Mexico SCPP are currently being reviewed and evaluated by governmental officials. In a meeting on July 24, 2013, representatives from the State of New Mexico verbally articulated a preliminary reimbursement proposal that, if adopted for 2014, would negatively impact payments made to MMC. MMC opposes this proposal and intends to work with other providers of indigent care in New Mexico to advocate for improvements in this proposal. We do expect that the New Mexico SCPP will be reconfigured effective January 1, 2014. Any change to the New Mexico SCPP, for whatever reason, could have a material adverse effect on our financial position or results of operations in the period the changes occur.

Our same-hospital admissions decreased 3.3% during the three months ended June 30, 2013 as compared to the same period last year primarily because of a continued decline in our one day stay admissions and a decrease in emergency room visits which can result in subsequent admissions or inpatient surgeries. Additionally, our same-hospital equivalent admissions decreased 0.7% during the three months ended June 30, 2013 as compared to the same period last year as a result of a 2.9% decrease in emergency room visits and a 2.0% decrease in outpatient surgeries.

Finally, during the three months ended June 30, 2012, on a same-hospital basis, we recognized additional revenues before provision for doubtful accounts of approximately $13.7 million as a result of our participation in two new supplemental payment programs in the states of North Carolina and West Virginia and $1.7 million in connection with the Rural Floor Settlement. We did not experience similar favorable amounts during the three months ended June 30, 2013. The amount and timing of revenue recognized for supplemental payment programs are often dependent upon a variety of factors including state budgetary limitations, program approval procedures and other factors.

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Provision for Doubtful Accounts

The following table summarizes the key drivers and key indicators of our provision for doubtful accounts for the three months ended June 30, 2013 and 2012 (dollars in millions):

                                         Three Months Ended June 30,                                           % of                    % of                               2013      Revenues      2012      Revenues     Increase    % Increase Continuing operations: Related key indicators: Charity care write-offs     $   39.5       4.4  %   $   25.1       3.0  %    $   14.4        57.1  % Self-pay revenues, net of charity care write-offs and uninsured discounts                   $  176.5      19.7  %   $  160.9      19.4  %    $   15.6         9.7  % Net revenue days outstanding (at end of period)              57.7        N/A         52.9        N/A           4.8         9.1  %  Same-hospital: Related key indicators: Charity care write-offs     $   38.5       4.8  %   $   24.7       3.0  %    $   13.8        55.8  % Self-pay revenues, net of charity care write-offs and uninsured discounts                   $  168.8      21.3  %   $  159.2      19.5  %    $    9.6         6.0  % Net revenue days outstanding (at end of period)              59.8        N/A         52.5        N/A           7.3        13.9  %

For the three months ended June 30, 2013, our provision for doubtful accounts increased by $28.0 million, or 18.3%, to $180.8 million on a continuing operations basis and by $19.4 million, or 12.9%, to $169.6 million on a same-hospital basis as compared to the same period last year. This increase was primarily the result of increases in self-pay revenues during the three months ended June 30, 2013. Same-hospital self-pay revenues increased by $9.6 million over the same period last year and represented 21.3% of revenues. Self-pay revenues continued to increase for both our inpatient and outpatient services, which were primarily driven by higher self-pay volumes. Additionally, as a result of a decrease in our reimbursement under the New Mexico SCPP, we have experienced an increase of approximately $14.7 million in our charity care write-offs during the three months ended June 30, 2013, as compared to the same period in the prior year.

Our increased provision for doubtful accounts was partially offset by an increase in up-front cash collections for the three months ended June 30, 2013, as compared to the same period last year. The provision for doubtful accounts relates principally to self-pay amounts due from patients. The provision and allowance for doubtful accounts are critical accounting estimates and are further discussed in Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, "Critical Accounting Estimates," in the 2012 Annual Report on Form 10-K.

We have changed our historical calculation of net revenue days outstanding in the table above to be consistent with our current period computation and presentation. Specifically, the impact of certain non-healthcare services revenues has been excluded from our calculation of revenue per day, the denominator in this computation. The recognition of certain non-healthcare services revenues does not generally result in accounts receivable from third-party payors or patients. Accordingly, we have determined that it is appropriate to exclude these non-healthcare services revenues from our revenue per day calculation. This change had the impact of decreasing our revenue per day calculation and resulted in an overall higher computation of net revenue days outstanding as of period end. This change had no impact on our historical results of operations.

Our net revenue days outstanding at June 30, 2013 increased on a continuing operations basis, 4.8 days or 9.1% to 57.7 from 52.9 as of June 30, 2012. This increase was primarily the result of lower revenue per day as a result of recent reimbursement changes to the New Mexico SCPP, the transition of a number of our hospitals into our shared centralized resources revenue cycle function, an increase in the payment lag times for certain of our payors and the overall impact of higher levels of prepayment Medicare audit withholdings.

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    Expenses and Other Income    Salaries and Benefits

The following table summarizes our salaries and benefits, man-hours per equivalent admission and salaries and benefits per equivalent admission for the three months ended June 30, 2013 and 2012:

                                          Three Months Ended June 30,                                            % of                   % of                                 2013     Revenues      2012     Revenues     Increase    % Increase Salaries and benefits (dollars in millions)         $ 422.1      47.2  %   $ 369.9      44.7  %    $   52.2        14.1  % Man-hours per equivalent admission                       106.0        N/A       102.0        N/A           4.0         3.9  % Salaries and benefits per equivalent admission                     $ 3,608        N/A     $ 3,364        N/A      $    244         7.3  %

For the three months ended June 30, 2013, our salaries and benefits expense increased to $422.1 million, or 14.1%, as compared to $369.9 million for the same period last year primarily a result of our recent acquisitions and the impact of an increasing number of employed physicians and their related support staff.

  Supplies

The following table summarizes our supplies and supplies per equivalent admission for the three months ended June 30, 2013 and 2012:

                                           Three Months Ended June 30,                                           % of                    % of                               2013      Revenues      2012      Revenues     Increase    % Increase Supplies (dollars in millions)                   $  144.1      16.1  %   $  124.4      15.0  %    $   19.7        15.8  % Supplies per equivalent admission                   $  1,231        N/A     $  1,133        N/A      $     98         8.6  %

For the three months ended June 30, 2013, our supplies expense increased to $144.1 million, or 15.8%, as compared to $124.4 million for the same period last year and our supplies per equivalent admission increased to $1,231, or 8.6%, as compared to $1,133 for the same period last year primarily as a result of our recent acquisitions.

    Other Operating Expenses

The following table summarizes our other operating expenses for the three months ended June 30, 2013 and 2012 (dollars in millions):

                                      Three Months Ended June 30,                                      % of                   % of       Increase     % Increase                           2013     Revenues      2012     Revenues    (Decrease)    (Decrease) Professional fees       $  35.6       4.0  %   $  28.5       3.4  %     $    7.1        25.0  % Utilities                  17.2       1.9         15.3       1.8             1.9        12.9 Repairs and maintenance    24.1       2.7         20.2       2.4             3.9        19.2 Rents and leases            9.9       1.1          7.9       1.0             2.0        23.4 Insurance                   9.4       1.1         10.2       1.2            (0.8)       (6.3) Physician recruiting        6.8       0.8          7.3       0.9            (0.5)       (8.1) Contract services          63.5       7.1         50.5       6.1            13.0        25.7 Non-income taxes           24.5       2.7         26.3       3.2            (1.8)       (7.3) Other                      31.9       3.4         29.5       3.7             2.4         8.4                         $ 222.9      24.8      $ 195.7      23.7        $   27.2        13.9  %                                          41

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For the three months ended June 30, 2013, our other operating expenses increased to $222.9 million, or 13.9%, as compared to $195.7 million for the same period last year primarily as a result of our recent acquisitions. Additionally, our same-hospital other operating expenses increased primarily as a result of increases in professional fees and contract services, partially offset by a decrease in non-income taxes.

As a shortage of physicians continues to become more acute, we have experienced increasing professional fees on both a continuing operations and same-hospital basis in areas such as emergency room physician coverage and hospitalists. We expect this trend to continue and that professional fees as a percentage of revenues will increase in future periods.

Our same-hospital contract services expense increased primarily as a result of increased fees and expenses related to the implementation of our shared centralized resource initiatives at several of our hospitals.

Finally, our same-hospital non-income taxes were higher during the three months ended June 30, 2012 as compared to the same period in the current year as a result of an increase in state provider tax assessments for certain additional supplemental payments recognized during the three months ended June 30, 2012.

    Other Income

We recognize EHR incentive payments received or anticipated to be received under the HITECH Act as other income when our eligible hospitals and physician practices have demonstrated meaningful use of certified EHR technology for the applicable period and when the cost report information for the full cost report year that determines the final calculation of the EHR incentive payment is available. For the three months ended June 30, 2013, we recognized $7.0 million and $4.0 million in Medicare and Medicaid EHR incentive payments, respectively, as compared to $1.5 million in Medicaid EHR incentive payments recognized in the same period last year. We did not recognize any Medicare EHR incentive payments during the three months ended June 30, 2012.

Depreciation and Amortization

For the three months ended June 30, 2013, our depreciation and amortization expense increased by $9.0 million, or 19.4% to $55.9 million, or 6.3% of revenues, as compared to $46.9 million, or 5.7% of revenues for the same period last year. Our depreciation and amortization expense increased primarily as a result of our recent acquisitions as well as a result of significant increases in our spending related to information systems as the result of various initiatives and requirements, including compliance with the HITECH Act. We anticipate that our depreciation and amortization expense as a percentage of revenues will continue to increase in future periods.

   Interest Expense

Our interest expense decreased by $3.1 million, or 12.0%, to $22.6 million for the three months ended June 30, 2013, as compared to $25.7 million for the same period in the prior year. Effective July 24, 2012, we replaced our credit agreement with Citicorp North America, Inc., as administrative agent, and a syndicate of lenders (the "Prior Credit Agreement") with a new senior secured credit agreement with, among others, Citibank, N.A., as administrative agent, and the lenders party thereto (the "Senior Credit Agreement"). Additionally, on February 6, 2013, we amended our Senior Credit Agreement pursuant to which we issued incremental term loans (the "Incremental Term Loans"). The proceeds from the Incremental Term Loans were used to repurchase our 3¼% convertible senior subordinated debentures due August 15, 2025 (the "3¼% Debentures"). The decrease in our interest expense is primarily attributable to a decrease in the applicable effective interest on the Senior Credit Agreement for the three months ended June 30, 2013 as compared to the applicable effective interest on the Prior Credit Agreement and the 3¼% Debentures for the same period last year. For a further discussion of our debt and corresponding interest rates, see "Liquidity and Capital Resources - Debt."

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Gain on Settlement of Pre-Acquisition Contingent Obligation

In connection with an acquisition completed in 2012, we made reasonable estimates and recorded an estimated obligation representing the fair values of our potential contingent obligations to the seller pursuant to the asset purchase agreement. Subsequently, the seller finalized its settlement of certain of these obligations at an amount that was less than we originally estimated. As a result, during the three months ended June 30, 2013, we reduced our originally recorded contingent obligations and recognized a gain of approximately $5.6 million.

  Provision for Income Taxes

Our provision for income taxes was $16.7 million, or 1.9% of revenues, for the three months ended June 30, 2013, as compared to $24.3 million, or 2.9% of revenues, for the same period last year. The decrease in our provision for income taxes was primarily attributable to lower income from continuing operations before income taxes in the three months ended June 30, 2013, as compared to the same period last year. The effective tax rate increased to 38.1% for the three months ended June 30, 2013, as compared to 37.7% for the three months ended June 30, 2012, primarily as a result of additional deferred state tax provision resulting from an increase in our unitary state apportionment percentage attributable to the full year operational impact of our recent acquisition of Marquette General.

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For the Six Months Ended June 30, 2013 and 2012

On April 5, 2012, a settlement agreement (the "Rural Floor Settlement") was signed between HHS, the Secretary of HHS, CMS and a large number of healthcare service providers, including our hospitals. The Rural Floor Settlement is intended to resolve all claims that have been brought or could have been brought relating to CMS's calculation of the rural floor budget neutrality adjustment that was created by the Balanced Budget Act of 1997 from federal fiscal year 1998 through and including federal fiscal year 2011 for healthcare service providers that participated in certain court cases and group appeals. As a result of the Rural Floor Settlement, we recognized $33.0 million of additional Medicare revenue for the six months ended June 30, 2012.

Operating Results Summary

The following table summarizes the results of operations for the six months ended June 30, 2013 and 2012 (dollars in millions):

                                                           Six Months Ended June 30,                                                      2013                     2012                                                            % of                     % of                                               Amount     Revenues      Amount     Revenues Revenues before provision for doubtful accounts                                    $ 2,175.9     119.2  %   $ 1,978.2     117.9  % Provision for doubtful accounts                 349.9      19.2          299.9      17.9 Revenues                                      1,826.0     100.0        1,678.3     100.0  Salaries and benefits                           855.3      46.8          739.9      44.1 Supplies                                        288.8      15.8          253.4      15.1 Other operating expenses                        444.4      24.4          384.2      22.9 Other income                                    (16.7)     (0.9)          (2.7)     (0.2) Depreciation and amortization                   111.7       6.2           92.0       5.4 Interest expense, net                            46.5       2.5           51.2       3.1 Gain on settlement of pre-acquisition contingent obligation                            (5.6)     (0.3)              -         - Debt extinguishment costs                         4.4       0.2               -         - Impairment charge                                    -         -           3.1       0.2                                               1,728.8      94.7        1,521.1      90.6  Income from continuing operations before income taxes                                     97.2       5.3          157.2       9.4 Provision for income taxes                       37.0       2.0           58.4       3.5 Income from continuing operations                60.2       3.3           98.8       5.9 Less: Net income attributable to noncontrolling interests                         (0.8)         -          (2.6)     (0.2) Income from continuing operations attributable to LifePoint Hospitals, Inc.                   $    59.4       3.3  %   $    96.2       5.7  %                                            44

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    Revenues

The following table presents the components of revenues for the six months ended June 30, 2013 and 2012 (dollars in millions):

                                                Six Months Ended                                               June 30,             Increase     % Increase                                           2013         2012       (Decrease)    (Decrease) Continuing operations: Revenues before provision for doubtful accounts                               $ 2,175.9$ 1,978.2$   197.7        10.0  % Provision for doubtful accounts            349.9        299.9           50.0        16.7 Revenues                               $ 1,826.0$ 1,678.3$   147.7         8.8

Same-hospital:

 Revenues before provision for doubtful accounts                               $ 1,955.1$ 1,962.9$    (7.8)       (0.4) % Provision for doubtful accounts            330.4        297.3           33.1        11.1 Revenues                               $ 1,624.7$ 1,665.6$   (40.9)       (2.5)     The following table shows the sources of our revenues before provision for doubtful accounts by payor, including adjustments to estimated reimbursement amounts and provision for doubtful accounts, for the six months ended June 30, 2013 and 2012 (in millions):                                                           Six Months Ended June 30,                                                  2013                      2012                                                         % of                      % of                                           Amount      Revenues      Amount      Revenues Medicare                                $   607.6      33.3  %    $   602.1      35.9  % Medicaid                                    251.2      13.8           243.6      14.5 HMOs, PPOs and other private insurers       924.2      50.6           788.1      47.0 Self-pay                                    357.9      19.6           320.7      19.1 Other                                        35.0       1.9            23.7       1.4 Revenues before provision for doubtful accounts                                  2,175.9     119.2         1,978.2     117.9 Provision for doubtful accounts            (349.9)    (19.2)         (299.9)    (17.9) Revenues                                $ 1,826.0     100.0  %    $ 1,678.3     100.0  %   Our revenues per equivalent admission from continuing operations and on a same-hospital basis were as follows for the six months ended June 30, 2013 and 2012:                                                     Six Months Ended                                                   June 30,                                               2013        2012       Increase    % Increase Revenues per equivalent admission - continuing operations                       $  7,821$  7,552$    269          3.6 Revenues per equivalent admission - same-hospital                               $  7,601$  7,573$     28          0.4                                          45

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Revenues Before Provision for Doubtful Accounts

The following table shows the key drivers of our revenues before provision for doubtful accounts for the six months ended June 30, 2013 and 2012:

                                     Six Months Ended                                    June 30,          Increase    % Increase                                 2013       2012     (Decrease)   (Decrease) Continuing operations: Admissions                    101,469     99,560        1,909          1.9 Equivalent admissions         233,480    222,218       11,262          5.1 Medicare case mix index          1.37       1.30         0.07          5.4 Average length of stay (days)     4.6        4.4          0.2          4.5 Inpatient surgeries            26,832     26,725          107          0.4 Outpatient surgeries           89,896     86,023        3,873          4.5 Emergency room visits         580,600    557,525       23,075          4.1 Outpatient factor                2.30       2.23         0.07          3.1  Same-hospital: Admissions                     94,040     98,625       (4,585)        (4.6)

Equivalent admissions 213,753 219,934 (6,181) (2.8) Medicare case mix index 1.34 1.30 0.04 3.1 Average length of stay (days) 4.4 4.4

             -            - Inpatient surgeries            24,201     26,473       (2,272)        (8.6) Outpatient surgeries           81,458     85,295       (3,837)        (4.5) Emergency room visits         544,649    551,749       (7,100)        (1.3) Outpatient factor                2.27       2.23         0.04          1.8

For the six months ended June 30, 2013, our same-hospital revenues before provision for doubtful accounts decreased $7.8 million, or 0.4%, to $1,955.1 million as compared to $1,962.9 million for the same period last year. Our same-hospital revenues before provision for doubtful accounts for the six months ended June 30, 2013 were negatively impacted by the absence during the current period of certain favorable amounts that were recognized during the same period in the prior year, recent reimbursement changes to the New Mexico SCPP, lower admissions and equivalent admissions as well as decreases in Medicare reimbursement as a result of certain provisions of the Budget Control Act of 2011 that were effective April 1, 2013. The negative impact of these matters was partially offset by pricing increases, higher contracted rates as well as an improvement in our appeal success results relating to RAC audits as compared to the same period last year.

During the six months ended June 30, 2012, on a same-hospital basis, we recognized additional revenues before provision for doubtful accounts of approximately $33.0 million in connection with the Rural Floor Settlement and $10.2 million as a result of our participation in two new supplemental payment programs in the states of North Carolina and West Virginia. We did not experience similar favorable amounts during the six months ended June 30, 2013. The amount and timing of revenue recognized for supplemental payment programs are often dependent upon a variety of factors including state budgetary limitations, program approval procedures and other factors.

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During the six months ended June 30, 2013, we recognized net revenues of approximately $2.3 million in accordance with the New Mexico SCPP as compared to approximately $19.8 million of revenue recognized during the six months ended June 30, 2012, representing a net period over period decrease in revenues of $17.5 million. Included in the $2.3 million in net revenues recognized during the six months ended June 30, 2013 are adjustments to our reimbursement under the New Mexico SCPP for the current six month period and for the two immediately preceding quarters. We currently anticipate that the New Mexico SCPP reimbursement for the second half of 2013 will approximate $7.0 million per quarter which is in accordance with our original financial plan. Aspects of the New Mexico SCPP are currently being reviewed and evaluated by governmental officials. In a meeting on July 24, 2013, representatives from the State of New Mexico verbally articulated a preliminary reimbursement proposal that, if adopted for 2014, would negatively impact payments made to MMC. MMC opposes this proposal and intends to work with other providers of indigent care in New Mexico to advocate for improvements in this proposal. We do expect that the New Mexico SCPP will be reconfigured effective January 1, 2014. Any change to the New Mexico SCPP, for whatever reason, could have a material adverse effect on our financial position or results of operations in the period the changes occur.

Our same-hospital admissions decreased 4.6% during the six months ended June 30, 2013 as compared to the same period last year primarily because of a continued decline in our one day stay admissions and a decrease in emergency room visits which can result in subsequent admissions or inpatient surgeries. Additionally, our same-hospital equivalent admissions decreased 2.8% during the six months ended June 30, 2013 as compared to the same period last year as a result of a 1.3% decrease in emergency room visits and a 4.5% decrease in outpatient surgeries.

Provision for Doubtful Accounts

    The following table summarizes the key drivers and key indicators of our provision for doubtful accounts for the six months ended June 30, 2013 and 2012 (dollars in millions):                                             Six Months Ended June 30,                                           % of                    % of                               2013      Revenues      2012      Revenues     Increase    % Increase Continuing operations: Related key indicators: Charity care write-offs     $   72.2       4.0  %   $   51.1       3.0  %    $   21.1        41.3  % Self-pay revenues, net of charity care write-offs and uninsured discounts                   $  357.9      19.6  %   $  320.7      19.1  %    $   37.2        11.6  % Net revenue days outstanding (at end of period)              57.7        N/A         52.9        N/A           4.8         9.1  %  Same-hospital: Related key indicators: Charity care write-offs     $   70.0       4.3  %   $   50.7       3.0  %    $   19.3        38.0  % Self-pay revenues, net of charity care write-offs and uninsured discounts                   $  344.2      21.2  %   $  319.0      19.2  %    $   25.2         7.9  % Net revenue days outstanding (at end of period)              59.8        N/A         52.5        N/A           7.3        13.9  %

For the six months ended June 30, 2013, our provision for doubtful accounts increased by $50.0 million, or 16.7%, to $349.9 million on a continuing operations basis and by $33.1 million, or 11.1%, to $330.4 million on a same-hospital basis as compared to the same period last year. This increase was primarily the result of increases in self-pay revenues during the six months ended June 30, 2013. Same-hospital self-pay revenues increased by $25.2 million over the same period last year and represented 21.2% of revenues. Self-pay revenues continued to increase for both our inpatient and outpatient services, which were primarily driven by higher self-pay volumes. Additionally, as a result of a decrease in our reimbursement under the New Mexico SCPP, we have experienced an increase of approximately $17.5 million in our charity care write-offs during the six months ended June 30, 2013, as compared to the same period in the prior year.

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Our increased provision for doubtful accounts was partially offset by an increase in up-front cash collections for the six months ended June 30, 2013, as compared to the same period last year. The provision for doubtful accounts relates principally to self-pay amounts due from patients. The provision and allowance for doubtful accounts are critical accounting estimates and are further discussed in Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, "Critical Accounting Estimates," in the 2012 Annual Report on Form 10-K.

We have changed our historical calculation of net revenue days outstanding in the table above to be consistent with our current period computation and presentation. Specifically, the impact of certain non-healthcare services revenues has been excluded from our calculation of revenue per day, the denominator in this computation. The recognition of certain non-healthcare services revenues does not generally result in accounts receivable from third-party payors or patients. Accordingly, we have determined that it is appropriate to exclude these non-healthcare services revenues from our revenue per day calculation. This change had the impact of decreasing our revenue per day calculation and resulted in an overall higher computation of net revenue days outstanding as of period end. This change had no impact on our historical results of operations.

Our net revenue days outstanding at June 30, 2013 increased on a continuing operations basis, 4.8 days or 9.1% to 57.7 from 52.9 as of June 30, 2012. This increase was primarily the result of lower revenue per day as a result of recent reimbursement changes to the New Mexico SCPP, the transition of a number of our hospitals into our shared centralized resources revenue cycle function, an increase in the payment lag times for certain of our payors and the overall impact of higher levels of prepayment Medicare audit withholdings.

 Expenses and Other Income    Salaries and Benefits

The following table summarizes our salaries and benefits, man-hours per equivalent admission and salaries and benefits per equivalent admission for the six months ended June 30, 2013 and 2012:

                                             Six Months Ended June 30,                                            % of                   % of                                 2013     Revenues      2012     Revenues     Increase    % Increase Salaries and benefits (dollars in millions)         $ 855.3      46.8  %   $ 739.9      44.1  %    $  115.4        15.6  % Man-hours per equivalent admission                       107.0        N/A       100.3        N/A           6.7         6.7  % Salaries and benefits per equivalent admission                     $ 3,675        N/A     $ 3,326        N/A      $    349        10.5  %

For the six months ended June 30, 2013, our salaries and benefits expense increased to $855.3 million, or 15.6%, as compared to $739.9 million for the same period last year primarily as a result of our recent acquisitions and the impact of an increasing number of employed physicians and their related support staff. Additionally, our same-hospital salaries and benefits expense increased by approximately $3.5 million as a result of severance costs related to our hospital support center reorganization during the six months ended June 30, 2013.

  Supplies

The following table summarizes our supplies and supplies per equivalent admission for the six months ended June 30, 2013 and 2012:

                                            Six Months Ended June 30,                                           % of                    % of                               2013      Revenues      2012      Revenues     Increase    % Increase Supplies (dollars in millions)                   $  288.8      15.8  %   $  253.4      15.1  %    $   35.4        14.0  % Supplies per equivalent admission                   $  1,237        N/A     $  1,141        N/A      $     96         8.4  %                                            48

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For the six months ended June 30, 2013, our supplies expense increased to $288.8 million, or 14.0%, as compared to $253.4 million for the same period last year and our supplies per equivalent admission increased to $1,237, or 8.4%, as compared to $1,141 for the same period last year as a result of our recent acquisitions. This increase was partially offset by a decrease in our same-hospital supplies expense for pharmacy and other supplies as a result of our continuing efforts to effectively manage our supply costs and increased cost savings associated with participation in a group purchasing organization.

   Other Operating Expenses

The following table summarizes our other operating expenses for the six months ended June 30, 2013 and 2012 (dollars in millions):

                                       Six Months Ended June 30,                                      % of                   % of       Increase     % Increase                           2013     Revenues      2012     Revenues    (Decrease)    (Decrease) Professional fees       $  67.4       3.7  %   $  55.9       3.3  %     $   11.5        20.7  % Utilities                  34.1       1.9         29.7       1.8             4.4        15.1 Repairs and maintenance    47.7       2.6         41.8       2.5             5.9        14.3 Rents and leases           19.1       1.0         16.2       1.0             2.9        17.1 Insurance                  18.8       1.0         20.4       1.2            (1.6)       (7.6) Physician recruiting       14.0       0.8         14.7       0.9            (0.7)       (5.1) Contract services         128.0       7.0        102.5       6.1            25.5        24.9 Non-income taxes           49.6       2.7         45.5       2.7             4.1         8.8 Other                      65.7       3.7         57.5       3.4             8.2        14.3                         $ 444.4      24.4      $ 384.2      22.9        $   60.2        15.7  %

For the six months ended June 30, 2013, our other operating expenses increased to $444.4 million, or 15.7%, as compared to $384.2 million for the same period last year primarily as a result of our recent acquisitions. Additionally, our same-hospital other operating expenses increased primarily as a result of increases in professional fees and contract services, partially offset by a decrease in non-income taxes.

As a shortage of physicians continues to become more acute, we have experienced increasing professional fees on both a continuing operations and same-hospital basis in areas such as emergency room physician coverage and hospitalists. We expect this trend to continue and that professional fees as a percentage of revenues will increase in future periods.

Our same-hospital contract services expense increased primarily as a result of increased fees and expenses related to our conversion of the clinical and patient accounting information system applications as well as the implementation of our shared centralized resource initiatives at several of our hospitals.

Finally, our same-hospital non-income taxes were higher during the six months ended June 30, 2012 as compared to the same period in the current year as a result of an increase in state provider tax assessments for certain additional supplemental payments recognized during the six months ended June 30, 2012.

   Other Income

We recognize EHR incentive payments received or anticipated to be received under the HITECH Act as other income when our eligible hospitals and physician practices have demonstrated meaningful use of certified EHR technology for the applicable period and when the cost report information for the full cost report year that determines the final calculation of the EHR incentive payment is available. For the six months ended June 30, 2013, we recognized $11.3 million and $5.4 million in Medicare and Medicaid EHR incentive payments, respectively, as compared to $2.7 million in Medicaid EHR incentive payments recognized in the same period last year. We did not recognize any Medicare EHR incentive payments during the six months ended June 30, 2012.

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Depreciation and Amortization

For the six months ended June 30, 2013, our depreciation and amortization expense increased by $19.7 million, or 21.5% to $111.7 million, or 6.2% of revenues, as compared to $92.0 million, or 5.4% of revenues for the same period last year. Our depreciation and amortization expense increased primarily as a result of our recent acquisitions as well as a result of significant increases in our spending related to information systems as the result of various initiatives and requirements, including compliance with the HITECH Act. We anticipate that our depreciation and amortization expense as a percentage of revenues will continue to increase in future periods.

Interest Expense

Our interest expense decreased by $4.7 million, or 9.1%, to $46.5 million for the six months ended June 30, 2013, as compared to $51.2 million for the same period in the prior year. Effective July 24, 2012, we replaced the Prior Credit Agreement with the Senior Credit Agreement. Additionally, on February 6, 2013, we amended our Senior Credit Agreement pursuant to which we issued the Incremental Term Loans. The proceeds from the Incremental Term Loans were used to repurchase the 3¼% Debentures. The decrease in our interest expense is primarily attributable to a decrease in the applicable effective interest on the Senior Credit Agreement for the six months ended June 30, 2013 as compared to the applicable effective interest on the Prior Credit Agreement and the 3¼% Debentures for the same period last year. For a further discussion of our debt and corresponding interest rates, see "Liquidity and Capital Resources - Debt."

Gain on Settlement of Pre-Acquisition Contingent Obligation

In connection with an acquisition completed in 2012, we made reasonable estimates and recorded an estimated obligation representing the fair values of our potential contingent obligations to the seller pursuant to the asset purchase agreement. Subsequently, the seller finalized its settlement of certain of these obligations at an amount that was less than we originally estimated. As a result, during the six months ended June 30, 2013, we reduced our originally recorded contingent obligations and recognized a gain of approximately $5.6 million.

Debt Extinguishment Costs

In connection with the issuance of the Incremental Term Loans and repurchase of the 3¼% Debentures during the six months ended June 30, 2013, we recorded $4.4 million of debt extinguishment costs. The debt extinguishment costs include $3.5 million of previously capitalized loan costs and $0.9 million of loan costs related to the issuance of the Incremental Term Loans.

Impairment Charge

During the six months ended June 30, 2012, we incurred a $3.1 million impairment charge from continuing operations. This impairment charge relates to the write-off of certain capitalized information system costs which we have determined are no longer a necessary component of our ongoing information technology strategy.

    Provision for Income Taxes

Our provision for income taxes was $37.0 million, or 2.0% of revenues, for the six months ended June 30, 2013, as compared to $58.4 million, or 3.5% of revenues, for the same period last year. The decrease in our provision for income taxes was primarily attributable to lower income from continuing operations before income taxes in the six months ended June 30, 2013, as compared to the same period last year. The effective tax rate increased to 38.4% for the six months ended June 30, 2013, as compared to 37.8% for the six months ended June 30, 2012, primarily as a result of additional deferred state tax provision resulting from an increase in our unitary state apportionment percentage attributable to the full year operational impact of our recent acquisition of Marquette General.

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Liquidity and Capital Resources

      Liquidity

Our primary sources of liquidity are cash flows provided by our operations and our debt borrowings. We believe that our internally generated cash flows and the amounts available under our debt agreements will be adequate to service existing debt, finance internal growth and fund capital expenditures and certain small to mid-size hospital acquisitions.

The following table presents summarized cash flow information for the three and six months ended June 30, 2013 and 2012 (in millions):

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