PROSPECTUS SUMMARY

 

The following summary should be read in conjunction with, and is qualified in its entirety by, the more detailed information and financial statements (including the accompanying notes) appearing elsewhere in this prospectus or incorporated by reference herein. You should carefully read this prospectus and the information incorporated by reference herein, including the section entitled “Risk Factors” and the pro forma financial data, which gives effect to our acquisition of Triad, the offering of the Old Notes, the additional debt financings to fund the purchase price for the acquisition of Triad and certain other transactions.

 

Unless otherwise indicated or the context requires otherwise, references in this prospectus to “CHS,” “we,” “our,” “us” and “the Company” refer to Community Health Systems, Inc. and its consolidated subsidiaries, including CHS/Community Health Systems, Inc., the issuer of the Notes, both before and after the consummation of the Merger, as defined below. References to the “Issuer” refer to CHS/Community Health Systems, Inc. alone, and references to “Holdings” refer to Community Health Systems, Inc. alone. “Triad” refers to Triad Hospitals, Inc. and its consolidated subsidiaries unless the context otherwise requires. Financial information identified in this prospectus as “pro forma” gives effect to the closing of the Transactions. See “Unaudited Pro Forma Condensed Financial Statements.”

 

Our Company

 

We are the largest non-urban provider of general hospital healthcare services in the United States in terms of number of facilities and net operating revenues. As of July 25, 2007, prior to the acquisition of Triad, we owned, leased or operated 79 hospitals, geographically diversified across 23 states, with an aggregate of 9,550 licensed beds. We generate revenues by providing a broad range of general hospital healthcare services to patients in the communities in which we are located. Services provided by our hospitals include emergency room services, general surgery, critical care, internal medicine, obstetrics and diagnostic services. As part of providing these services, we also own physician practices, imaging centers, home health agencies and ambulatory surgery centers. Our net operating revenues for the year ended December 31, 2006 and for the six months ended June 30, 2007 were $4,366 million and $2,453 million, respectively.

 

Historically, we have grown by acquiring hospitals and by improving the operations of our facilities. We targeted hospitals in growing, non-urban healthcare markets for acquisition because of their favorable demographic and economic trends and competitive conditions. Because non-urban service areas have smaller populations, there are generally fewer hospitals and other healthcare service providers in these communities and a lower level of managed care presence in these markets. We believe that smaller populations support less direct competition for hospital-based services. Over the past several years, we also have expanded our focus beyond these non-urban markets, acquiring larger facilities in more urban markets. Based on our experience and our observations about our industry, we have recognized that more rapid growth opportunities exist for a skillful and disciplined operator in selected larger markets.

 

On July 25, 2007, we acquired Triad, a publicly-owned hospital company. Triad provides a broad range of general hospital healthcare services to patients in non-urban and mid-size markets located primarily in the southern, midwestern and western United States. As of July 25, 2007, Triad owned, leased or operated 50 hospitals in 17 states, with an aggregate of approximately 9,600 licensed beds. Upon closing of the acquisition, we became the largest publicly-owned provider of hospital services, operating 129 hospitals in 28 states with an aggregate of approximately 19,200 licensed beds. Pro forma for the Triad acquisition, our net operating revenues for the year ended December 31, 2006 and for the six months ended June 30, 2007 would have been $9,903 million and $5,429 million, respectively. In connection with the consummation of the merger the Company obtained $7,215 million of senior secured financing under a new credit facility (the “New Credit Facility”) and its wholly-owned subsidiary, CHS/Community Health Systems, Inc. issued the Old Notes at the closing of the merger. We also refer to the acquisition of Triad as the Merger. See “Unaudited Pro Forma Condensed Financial Statements.”

We believe the Triad acquisition will:

 

 

Our Strengths

 

We believe the following strengths will allow us to continue to improve our operations and profitability:

 

Leading local market provider.  We are a leading provider of acute care services in the markets we serve. As of June 30, 2007, we are one of three or fewer providers in approximately 98% of our markets, and we are the sole provider in approximately 85% of our markets. We have focused on non-urban markets with strong demographic growth and underserved medical populations. In general, reimbursement is more favorable in these markets than in markets with more direct competition for hospital-based services. In some of our markets, we receive higher reimbursement rates from Medicare for designated sole community hospitals. Additionally, our leading market position enables us to achieve a strong return on investments in facility expansion and physician recruitment. As of June 30, 2007, pro forma for the Triad acquisition, we are one of three or fewer providers in approximately 86% of our markets and the sole provider in approximately 65% of our markets.

 

Geographic diversity and operating scale.  We operated 79 hospitals in 23 states as of July 25, 2007, prior to the acquisition of Triad. With our acquisition of Triad, we have expanded into five new states and operate 129 hospitals across 28 states. Pro forma for the Triad acquisition, our 2006 revenue exposure to any one state is less than 13% (as compared to less than 21% for us prior to the acquisition). Our geographic diversity helps to mitigate risk associated with fluctuating state regulations related to Medicaid reimbursement and state-specific economic conditions. Furthermore, we believe our current operations, together with those we acquired from Triad, will enable us to realize the benefits of economies of scale, purchasing power and increased operating efficiencies.

 

Strong presence in attractive markets.  The underserved non-urban markets, on which we have historically focused, provide an attractive environment for our operations. With fewer hospitals and healthcare providers and generally a lower level of managed care penetration, these markets allow us to profitably provide much needed acute care services. We believe the Triad acquisition expands our presence in non-urban markets and complements our non-urban focus, as Triad’s mid-size markets have greater population growth than non-urban markets. Triad’s facilities also enjoy strong patient and physician loyalty and have less direct competition than hospitals in major metropolitan markets.

 

Emphasis on quality of care.  We have developed significant expertise in implementing a variety of programs to ensure continuous improvement in the quality of care provided at our hospitals. This is an evolving aspect of our business, as payors and accrediting agencies expand their views of quality to include measurement, reporting and continual improvement of the timeliness, safety, effectiveness, efficiency and patient-centeredness of clinical care. We understand that high levels of clinical care are only achieved when “quality” is a company-wide leadership focus that embraces patient, physician and employee satisfaction and continual, systematic improvements. Seeking the highest levels of improvement typically yields the best results for patients, reduces risk and improves our financial performance. We have developed and implemented programs to support and monitor quality of care improvement that include:

 

 

 

Strong history of generating revenue growth and improving profitability.  Since 2001, we have grown from 57 to 79 hospitals and have increased revenue from $1,657 million to $4,366 million, and income from continuing operations from $44.7 million to $171.5 million for the year ended December 31, 2006 (2001 numbers are not restated for insignificant discontinued operations). We have improved profitability by recruiting primary care physicians and specialists, expanding our service offerings to include more complex care, optimizing our emergency room strategy across our portfolio of hospitals and selectively making capital investments in projects that generate a high return on investment. Upon closing of the Triad acquisition, we believe that a significant opportunity exists to continue to improve profitability, as approximately 30% of the combined company’s facilities have been acquired within the past four years.

 

Experienced management team with a proven track record.  We have a strong and committed management team that has substantial industry knowledge and a proven track record of operations success in the hospital industry. Our chief executive officer and chief financial officer each have over 30 years of experience in the healthcare industry and have worked together since 1973. Our management team has successfully acquired and integrated 55 hospitals, and we believe this experience positions us well to integrate and improve the operations of the Triad facilities in addition to successfully executing our business strategy.

 

Our Strategy

 

We intend to continue to grow our business and improve our financial performance by implementing our business strategy, the key elements of which are to:

 

Increase revenues at our facilities.  We intend to increase revenues at our facilities by providing a broader range of services in a more attractive care setting. Our primary method of expanding medical services is recruiting additional primary care physicians and specialists. We intend to continue to expand the breadth of services offered at our hospitals through targeted capital expenditures to support the addition of more complex services, including orthopedics, cardiovascular services and urology. We also provide the capital to invest in technology and the physical plant at our facilities, particularly in our emergency rooms, surgery/critical care departments and diagnostic services. For example, as part of our successful and ongoing emergency room enhancement strategy, we have implemented a standardized management system across all of our facilities. Emergency rooms represent approximately 60% of our hospital admissions, and we believe the Triad acquisition presents an additional growth opportunity as Triad has not pursued a similar emergency room enhancement strategy. Additionally, we believe a number of our standardized practices, including centralized physician recruiting, managed care contracting, facilities management and resource and case management programs, can be successfully applied to Triad’s facilities.

 

Increase operating efficiencies to improve profitability.  We continually focus on improving operating efficiency to increase our operating margins. We seek to reduce costs and enhance efficiency through various methods and across the broad spectrum of our operations, including:

 

 

 

Complete successful integration of Triad.  We have successfully acquired and integrated 55 hospitals since 1996 and our focus over the next two years will be to successfully integrate the acquisition of Triad. We have an established, experienced and dedicated team to manage the integration of Triad. We believe that, in the first year following the acquisition of Triad, we will realize approximately $28 million of annual cost savings related to cash expenses from the elimination of certain head count reductions and the elimination of certain duplicate overhead costs. We anticipate that we will realize additional savings from improved pricing opportunities under our purchasing contracts, the elimination of certain other duplicate corporate overhead costs and the implementation of other cost saving initiatives that management has identified. Additionally, we intend to continue to pursue a disciplined approach in making capital investments that generate a high return on investment, and will apply this focus to our acquired hospitals. Over the last four years, Triad has invested approximately $1,573 million (or approximately 9% of revenues) into its facilities. We believe we can leverage these already well-capitalized facilities and increase operating efficiencies and profitability.

 

Deleverage balance sheet.  Historically, we have generated relatively strong and stable cash flow which has allowed us to fund our growth-related investments while maintaining reasonable leverage levels. From March 31, 2000 (prior to the June, 2000 initial public offering of our common stock) to June 30, 2007, our debt as a percentage of total capitalization decreased from 86.6% to 51.8%. We intend to continue our strategy of utilizing cash flows from our combined operations to service debt and to fund our future growth initiatives. We will also consider issuing equity or equity-related securities or divesting selected hospital facilities to deleverage our balance sheet.

 

Our Industry

 

The U.S. healthcare industry is large and growing. The Centers for Medicare and Medicaid Services, or CMS, reported that in 2005, total U.S. healthcare expenditures grew by 6.9% to $2.0 trillion. It also projected total U.S. healthcare spending to grow by 6.8% in 2006 and by an average of 6.9% per year through 2015. By these estimates, healthcare expenditures will account for approximately $3.9 trillion, or 19.2% of the total U.S. gross domestic product, by 2015.

 

Hospital services, the market in which we operate, is the largest single category of healthcare at 31% of total healthcare spending in 2005, or $611.6 billion, as reported by CMS. CMS projects the hospital services market to grow by an average of 7.0% per year through 2015. It expects growth in hospital healthcare spending to continue due to the aging of the U.S. population and consumer demand for expanded medical services. As hospitals remain the primary setting for healthcare delivery, CMS expects hospital services to remain the largest category of healthcare spending.

 

We believe that we are well-positioned to benefit from the expected growth in hospital spending as well as shifts in demographics in the United States. According to the U.S. Census Bureau, there are approximately 36.9 million Americans age 65 or older in the United States, who comprise approximately 13% of the total U.S. population. By the year 2030, the number of elderly is expected to climb to 71.5 million, or 20% of the total population. Due to the increasing life expectancy of Americans, the number of people aged 85 years and older is also expected to increase from 4.3 million to 9.6 million by the year 2030. This increase in life expectancy will increase demand for healthcare services and, as importantly, the demand for innovative, more sophisticated means of delivering those services. Hospitals, as the largest category of care in the healthcare market, will be among the main beneficiaries of this increase in demand. Based on data compiled for us, the populations of the service areas where our current hospitals are located grew 19.6% from 1990 to 2005, and

are expected to grow 4.9% from 2005 to 2010. The number of people aged 55 or older in these service areas grew 25.8% from 1990 to 2005, and is expected to grow 12.7% from 2005 to 2010. We believe that the aging of the population will benefit both non-urban and mid-size markets, particularly in the southern regions in which we operate.

 

The acute care hospital sector is characterized by a stable Medicare reimbursement and commercial pricing environment. In the United States, general acute care hospitals are instrumental to the delivery of quality healthcare and represent a critical element of the overall healthcare infrastructure. Approximately 82% of these hospitals are owned and managed by not-for-profit or government entities that, according to the American Hospital Association, or the AHA, tend to have lower operating margins than investor-owned hospitals. We believe that Medicare, which accounts for approximately 30% of total hospital spending, will continue to provide appropriate pricing increases that will enable hospitals to provide high quality clinical care. For fiscal 2007, Medicare has budgeted a total payment increase of $3,400 million for acute care inpatient services, which we believe is consistent with recent historical experience. CMS forecasts Medicare hospital spending to nearly double over the next 10 years.

 

Commercial pricing has also been stable for hospital providers, and we believe that commercial payors typically offer rate increases that exceed those offered by Medicare. With respect to commercial reimbursement, based on our experience, well-positioned hospital companies generally have been successful at receiving mid- to high single-digit private pay increases over the past few years, and we expect this trend to continue.

 

Our Corporate Information

 

Community Health Systems, Inc. was incorporated in Delaware on June 6, 1996. CHS/Community Health Systems, Inc. was incorporated in Delaware on March 25, 1985. Our principal executive offices are located at 4000 Meridian Boulevard, Franklin, Tennessee 37067, and our telephone number is (615) 465-7000. Our website is www.chs.net. Information on our website shall not be deemed part of this prospectus.

 

The Transactions

 

On July 25, 2007, we acquired Triad, a publicly-owned hospital company. Triad provides a broad range of general hospital healthcare services to patients in non-urban and mid-size markets located primarily in the southern, midwestern and western United States. As of July 25, 2007, prior to the acquisition, Triad owned, leased or operated 50 hospitals in 17 states, with an aggregate of approximately 9,600 licensed beds. Upon closing of the acquisition, we have become the largest publicly-owned provider of hospital services, operating 129 hospitals in 28 states with an aggregate of approximately 19,200 licensed beds. Pro forma for the Triad acquisition, our net operating revenues for the year ended December 31, 2006 and for the six months ended June 30, 2007 would have been $9,903 million and $5,429 million, respectively. See “Unaudited Pro Forma Condensed Financial Information.”

 

Purpose of the Exchange Offer

 

On July 25, 2007, we sold, through a private placement exempt from the registration requirements of the Securities Act, $3,021,331,000 of our 87/8% Senior Notes due 2015, all of which are eligible to be exchanged for Exchange Notes. We refer to these notes as “Old Notes” in this prospectus.

 

Simultaneously with the private placement, we entered into a registration rights agreement with the initial purchasers of the Old Notes. Under the registration rights agreement, we are required to use our reasonable best efforts to cause a registration statement for substantially identical Notes, which will be issued in exchange for the Old Notes, to be filed within 90 days and to become effective on or within 210 days of issuance of the Old Notes. We refer to the Notes to be registered under this exchange offer registration statement as “Exchange Notes” and collectively with the Old Notes, we refer to them as the “Notes” in this prospectus. You may exchange your Old Notes for Exchange Notes in this exchange offer. You should read the discussion under the headings “— Summary of the Exchange Offer,” “The Exchange Offer” and “Description of Exchange Notes” for further information regarding the Exchange Notes.

 

We did not register the Old Notes under the Securities Act or any state securities law, nor do we intend to after the exchange offer. As a result, the Old Notes may only be transferred in limited circumstances under the securities laws. If the holders of the Old Notes do not exchange their Old Notes in the exchange offer, they lose their right to have the Old Notes registered under the Securities Act, subject to certain limitations. Anyone who still holds Old Notes after the exchange offer may be unable to resell their Old Notes.

 

Summary of the Exchange Offer

 

The Exchange Offer

 

 

 

 

Description of the Exchange Notes

 

 

Risk Factors

 

Investing in the Exchange Notes involves substantial risk. See “Risk Factors” for a discussion of certain factors that you should consider before investing in the Exchange Notes.

 

SUMMARY HISTORICAL AND PRO FORMA FINANCIAL AND OTHER DATA

 

COMMUNITY HEALTH SYSTEMS, INC.

 

The following table sets forth a summary of our selected consolidated historical financial data as of and for the periods presented. The summary historical financial information, except for “Other Financial Data” and “Operating Data,” as of December 31, 2005 and 2006, and for each of the fiscal years ended December 31, 2004, 2005 and 2006, have been derived from our audited consolidated financial statements incorporated by reference in this prospectus. The consolidated balance sheet and statement of operations data as of and for the years ended December 31, 2002 and 2003 were derived from our audited consolidated financial statements, not included herein, giving effect to adjustments for discontinued operations. The summary historical financial information, except for “Other Financial Data” and “Operating Data,” for the six month periods ended June 30, 2006 and June 30, 2007, have been derived from our unaudited interim condensed consolidated financial statements incorporated by reference in this prospectus. In the opinion of management, the unaudited interim financial data includes all adjustments, consisting of only normal non-recurring adjustments, considered necessary for a fair presentation of this information. The results of operations for interim periods are not necessarily indicative of the results that may be expected for the entire year. The following data should be read in conjunction with our consolidated financial statements and related Exchange Notes, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other financial information included or incorporated by reference in this prospectus.

 

The summary unaudited pro forma financial data as of and for the six months ended June 30, 2007 have been prepared to give effect to the Transactions in the manner described under “Unaudited Pro Forma Condensed Financial Information” and the Exchange Notes thereto as if they had occurred on January 1, 2006, in the case of the summary unaudited pro forma condensed income statement, and on June 30, 2007, in the case of the summary unaudited pro forma condensed balance sheet. The pro forma adjustments are based upon available information and certain assumptions that we believe are reasonable. The summary unaudited pro forma financial and other data are for informational purposes only and do not purport to represent what our results of operations, balance sheet data or other financial information actually would have been if the Transactions had occurred at any other date, and such data do not purport to project the results of operations for any future period or our financial condition as of any future date.

 

The summary historical and unaudited pro forma financial and other data should be read in conjunction with “Unaudited Pro Forma Condensed Financial Information,” “Selected Historical Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited and unaudited consolidated financial statements and related Exchange Notes appearing elsewhere or incorporated by reference in this prospectus.

SUMMARY HISTORICAL AND PRO FORMA FINANCIAL AND OTHER DATA

 

COMMUNITY HEALTH SYSTEMS, INC.