INTRODUCTION TO MANAGEMENT'S DISCUSSION AND ANALYSIS

The purpose of this section, Management's Discussion and Analysis of Financial Condition and Results of Operations, is to provide a narrative explanation of our financial statements that enables investors to better understand our business, to enhance our overall financial disclosures, to provide the context within which financial information may be analyzed, and to provide information about the quality of, and potential variability of, our financial condition, results of operations and cash flows. Unless otherwise indicated, all financial and statistical information included herein relates to our continuing operations, with dollar amounts expressed in millions (except per-share amounts). This information should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and our Annual Report on Form 10-K for the year ended December 31, 2007 ("Annual Report"). It includes the following sections:

• Executive Overview

• Forward-Looking Statements

• Sources of Revenue

• Results of Operations

• Liquidity and Capital Resources

• Off-Balance Sheet Arrangements

• Critical Accounting Estimates

EXECUTIVE OVERVIEW

We continue to focus on the execution of our operating strategies. While we have seen certain areas of improvement, we are still facing several industry challenges that continue to negatively affect our progress. We are dedicated to improving our patients', shareholders' and other stakeholders' confidence in us. We believe we will accomplish that by providing quality care and generating positive volume growth and earnings at our hospitals.

KEY DEVELOPMENTS

Recent key developments include the following:

• Closure of Irvine Regional Hospital and Medical Center-In October 2008, we announced plans to close Irvine Regional Hospital and Medical Center, including its emergency room, effective January 15, 2009. We had previously announced our intention to allow our lease for the facility to expire in February 2009; however, the lessor has requested we return the Irvine property as a closed hospital to facilitate the transition of the facility to a replacement operator.

• Divestiture of Tarzana Hospital-In September 2008, we completed the previously disclosed divestiture of the Tarzana campus of Encino-Tarzana Regional Medical Center in California. Our interest in a joint venture was also sold in connection with that divestiture and as part of our previously disclosed settlement of a lease dispute. The net proceeds will be used for general corporate purposes.

• Quality Awards-In September 2008, we announced that CIGNA HealthCare, a subsidiary of CIGNA Corporation, awarded 38 of our hospitals with 214 quality designations. In addition, 21 Tenet hospitals received 60 Center of Excellence designations for 2008 from CIGNA HealthCare.

• Sale of Interest in Broadlane-In August 2008, we completed the previously disclosed sale of our entire interest in Broadlane, Inc. Proceeds were $160 million. Ten percent of the proceeds ($16 million) will be held in escrow and distributed to us over approximately six years. The proceeds will be used for general corporate purposes.

• Decision to Relocate Our Corporate Headquarters to Downtown Dallas-In August 2008, we announced that we will move our corporate headquarters from north Dallas, Texas to the Fountain Place building in downtown Dallas. The move is expected to occur in the fourth quarter of 2009.

SIGNIFICANT CHALLENGES

As stated above, there are still significant industry-wide challenges that are impacting our operating performance. Below is a summary of these items.

Volumes-Although we have seen some improvements in recent quarters, we have experienced declines in patient volumes over the last several years. We believe the reasons for these declines include, but are not limited to, factors that have affected many hospital companies, including decreases in the demand for invasive cardiac procedures, increased competition and managed care contract negotiations or terminations. Given our geographic concentration, we are also affected by population trends, which have been a particular concern in Florida. In addition, we believe the industry-wide challenges associated with physician recruitment, retention and attrition have also been significant contributors to our past volume declines. Our operations depend on the efforts, abilities and experience of the physicians on the medical staffs of our hospitals, most of whom have no long-term contractual relationship with us. It is essential to our ongoing business that we attract and retain an appropriate number of quality physicians in all specialties on our medical staffs. Although we had a net overall gain in physicians added to our medical staffs during 2007 and thus far in 2008, in some of our markets, physician recruitment and retention are still affected by a shortage of physicians in certain sought-after specialties and the difficulties that physicians experience in obtaining affordable malpractice insurance or finding insurers willing to provide such insurance. Other issues facing physicians, such as proposed decreases in Medicare payments, are forcing them to consider alternatives including relocating their practices or retiring sooner than expected. In some of our markets, we have not been able to attract physicians to our medical staffs at a rate to offset the physicians relocating or retiring.

We continue to take steps to increase patient volumes; however, due to the concentration of our hospitals in California, Florida and Texas, we may not be able to mitigate some factors that contribute to volume declines. One of our initiatives is our Physician Relationship Program, which is centered around understanding the needs of physicians who admit patients both to our hospitals and to our competitors' hospitals and responding to those needs with changes and improvements in our hospitals and operations. We have targeted capital spending in order to address specific needs or growth opportunities of our hospitals, which is expected to have a positive impact on their volumes. We have also sought to include all of our hospitals in the affected geographic area or nationally when negotiating new managed care contracts, which should result in additional volumes at facilities that were not previously a part of such managed care networks. In addition, we have been completing clinical service line market demand analyses and profitability assessments to determine which services are highly valued that can be emphasized and marketed to improve our operating results. This Targeted Growth Initiative has resulted in some reductions in unprofitable service lines in several locations, which have had a slightly negative impact on our volumes. However, the elimination of these unprofitable service lines will allow us to focus more resources on services that are more profitable.

Our Commitment to Quality initiative is further helping position us to competitively meet the volume challenge. We continue to work with physicians to implement the most current evidence-based techniques to improve the way we provide care. As a result of these efforts, our hospitals have improved substantially in quality metrics reported by the government and have been recognized by several managed care companies for their quality of care. We believe that quality of care improvements will continue to have the effect of increasing physician and patient satisfaction, potentially improving our volumes as a result.

Bad Debt-Like other organizations in the health care industry, we continue to provide services to a high volume of uninsured patients and more patients than in prior years with an increased burden of co-payments and deductibles as a result of changes in their health care plans. The discounting components of our Compact with Uninsured Patients ("Compact") have reduced our provision for doubtful accounts recorded in our Condensed Consolidated Financial Statements, but they are not expected to mitigate the net economic effects of treating uninsured or underinsured patients. We continue to experience a high level of uncollectible accounts. Our collection efforts have improved, and we continue to focus, where applicable, on placement of patients in various government programs such as Medicaid. However, unless our business mix shifts toward a greater number of insured patients or the trend of higher co-payments and deductibles reverses, we anticipate this high level of uncollectible accounts to continue.

Cost Pressures-Labor and supply expenses remain a significant cost pressure facing us as well as the industry in general. Controlling labor costs in an environment of fluctuating patient volumes and increased labor union activity will continue to be a challenge. Also, inflation and technology improvements are driving supply costs higher, and our efforts to control supply costs through product standardization, bulk purchases and improved utilization are constantly challenged.

General Economic Conditions-The current tightening in the credit markets and the instability in the banking and financial institution industries has not yet had a material impact on our volumes or our ability to collect outstanding receivables.

We do not have any credit derivatives and typically do not transact business with counterparties who use credit derivatives. In addition, a significant amount of our admissions comes through our emergency rooms and, therefore, is not usually materially impacted by broad economic factors. However, our levels of elective procedures and our ability to collect accounts receivable, due to the related effects of higher unemployment and reductions in commercial managed care enrollment, may be materially impacted if the current economic environment continues. We could also be negatively affected if California, Florida or other states reduce funding of Medicaid and other state healthcare programs.

RESULTS OF OPERATIONS-OVERVIEW

Our results of operations have been and continue to be influenced by industry-wide challenges, including fluctuating volumes, decreased demand for inpatient cardiac procedures and high levels of bad debt, that have negatively affected our revenue growth and operating expenses. We believe our future profitability will be achieved through volume growth, appropriate reimbursement levels and cost control across our portfolio of hospitals. In order to disclose trends using data comparable to the prior year, operating statistics throughout Management's Discussion and Analysis are presented on a same-hospital basis, where noted, and exclude the results of Coastal Carolina Medical Center and Sierra Providence East Medical Center, for which we do not have a full calendar year of operating results. Below are some of these statistics and financial highlights for the three months ended September 30, 2008 compared to the three months ended September 30, 2007.

• Same-hospital net inpatient revenue per patient day and per admission increased by 3.3% and 1.6%, respectively, primarily due to the effect of higher negotiated levels of reimbursement under our managed care contracts. Same-hospital patient days were flat, while same-hospital admissions increased by 1.7%.

• Same-hospital net outpatient revenue per visit increased 7.6% and same-hospital outpatient visits increased 1.1%. The increase in revenue per visit is primarily due to the effect of higher negotiated levels of reimbursement under our managed care contracts.

• Income per share from continuing operations was $0.24 in the current period compared to loss per share of $(0.08) in the prior-year period, which is primarily due to a $140 million net gain on the sales of investments during the three months ended September 30, 2008.

The table below shows the pretax and after-tax impact on continuing operations for the three and nine months ended September 30, 2008 and 2007 of the following items:

                                                        Three Months Ended          Nine Months Ended
                                                           September 30,              September 30,
                                                        2008           2007         2008           2007
                                                                       (Expense) Income
Impairment of long-lived assets and goodwill, and
restructuring charges                                 $      (1 )     $   (13 )   $      (4 )     $  (24 )
Litigation and investigation (costs) benefit                  5            (3 )         (45 )         (1 )
Net gain on sales of investments                            140            -            140           -

Pretax impact                                         $     144       $   (16 )   $      91       $  (25 )
Deferred tax asset valuation allowance and other
tax adjustments                                       $      47       $   (17 )   $      45       $   71
Total after-tax impact                                $     138       $   (26 )   $     102       $   55
Diluted per-share impact of above items               $    0.29       $ (0.05 )   $    0.21       $ 0.11
Diluted earnings (loss) per share, including above
items                                                 $    0.24       $ (0.08 )   $    0.15       $ 0.05

LIQUIDITY AND CAPITAL RESOURCES-OVERVIEW

Net cash provided by operating activities was $141 million in the nine months ended September 30, 2008 compared to $214 million in the nine months ended September 30, 2007. Key negative and positive factors contributing to the change in cash provided by operating activities between the 2008 and 2007 periods include the following:

• Net income tax payments of $3 million in the nine months ended September 30, 2008 compared to refunds of $168 million received in the same period of 2007;

• Payments of $73 million ($66 million in principal and $7 million in interest) in the nine months ended September 30, 2008 related to our 2006 civil settlement with the federal government compared to no payments during the same period of 2007 because such quarterly payments did not begin until the fourth quarter of 2007;

• Additional aggregate annual 401(k) matching contributions and annual incentive compensation payments of $20 million ($116 million in the nine months ended September 30, 2008 compared to $96 million in the same period of 2007);

• Additional cash flows as a result of enhanced management of accounts payable ($81 million) and accounts receivable ($44 million);

• Insurance recoveries of $46 million in the nine months ended September 30, 2008 related to litigation, which was settled in December 2004, involving our former Redding Medical Center; and

• Lease termination payments of $9 million in the nine months ended September 30, 2008 associated with the divestiture of the Tarzana campus of Encino-Tarzana Regional Medical Center.

Capital expenditures were $413 million and $441 million during the nine months ended September 30, 2008 and 2007, respectively. Excluding the simultaneous purchase and sale of the Tarzana campus of Encino-Tarzana Regional Medical Center for $89 million, during the nine months ended September 30, 2008, we received proceeds of $71 million from the sales of facilities and other assets related to discontinued operations, primarily from the sales of North Ridge Medical Center, the Encino campus of Encino-Tarzana Regional Medical Center, Garden Grove Hospital and Medical Center, and San Dimas Community Hospital. Proceeds from the sales of facilities and other assets related to discontinued operations during the nine months ended September 30, 2007 aggregated $84 million. We also received proceeds, which are classified as investing activities, during the three months ended September 30, 2008 of $144 million from the sale of our investment in Broadlane, $25 million from the sale of our interest in a joint venture with a real estate investment trust and $8 million from our investment in hospital authority bonds related to previously divested hospitals in the Dallas, Texas area.

Our $800 million senior secured revolving credit facility is collateralized by patient accounts receivable of our acute care and specialty hospitals, and bears interest at our option based on the London Interbank Offered Rate ("LIBOR") plus 175 basis points or Citigroup's base rate, as defined in the credit agreement, plus 75 basis points. At September 30, 2008, there were no cash borrowings outstanding under the revolving credit facility, and we had approximately $208 million of letters of credit outstanding. In addition, we had approximately $512 million of cash and cash equivalents on hand as of September 30, 2008.

Although we are currently in compliance with all covenants and conditions in our revolving credit agreement and the indentures governing our senior notes, our borrowing capacity under the revolving credit facility was limited to $460 million at September 30, 2008, based on our eligible receivables and limitations related to our fixed charge coverage ratio under the agreement. (See Note 5 to the Condensed Consolidated Financial Statements.)

FORWARD-LOOKING STATEMENTS

The information in this report includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical or present facts, that address activities, events, outcomes, business strategies and other matters that we plan, expect, intend, assume, believe, budget, predict, forecast, project, estimate or anticipate (and other similar expressions) will, should or may occur in the future are forward-looking statements. These forward-looking statements represent management's current belief, based on currently available information, as to the outcome and timing of future events. They involve known and unknown risks, uncertainties and other factors-many of which we are unable to predict or control-that may cause our actual results, performance or achievements, or health care industry results, to be materially different from those expressed or implied by forward-looking statements. Such factors include, but are not limited to, the following risks, many of which are described in Item 1A of our Annual Report:

• A reduction in the payments we receive from managed care payers as reimbursement for the health care services we provide and difficulties we may encounter collecting amounts owed from managed care payers;

• Changes in the Medicare and Medicaid programs or other government health care programs, including modifications to patient eligibility requirements, funding levels or the method of calculating payments or reimbursements;

• Volumes of uninsured and underinsured patients, and our ability to satisfactorily and timely collect our patient accounts receivable;

• Competition;

• Our ability to attract and retain employees, physicians and other health care professionals, and the impact on our labor expenses from union activity and the shortage of nurses and physicians in certain specialties and geographic regions;

• The geographic concentration of our licensed hospital beds;

• Changes in, or our ability to comply with, laws and government regulations;

• Our ability to execute our operating strategies and the impact of other factors on our initiatives;

• Trends affecting our actual or anticipated results that lead to charges adversely affecting our results of operations;

• Our relative leverage and the amount and terms of our indebtedness;

• Our ability to identify and execute on measures designed to save or control costs or streamline operations;

• The availability and terms of debt and equity financing sources to fund the requirements of our business;

• Changes in our business strategies or development plans;

• The impact of natural disasters, including our ability to operate facilities affected by such disasters;

• The ultimate resolution of claims, lawsuits and investigations;

• Technological and pharmaceutical improvements that increase the cost of providing, or reduce the demand for, health care services;

• Various factors that may increase supply costs;

• National, regional and local economic and business conditions;

• Creditworthiness of counterparties to our business transactions;

• Demographic changes; and

• Other factors and risk factors referenced in this report and our other public filings.

When considering forward-looking statements, a reader should keep in mind the risk factors and other cautionary statements in our Annual Report. Should one or more of the risks and uncertainties described above, in Item 1A, Risk Factors, of our Annual Report or elsewhere in this report occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements. We specifically disclaim all responsibility to publicly update any information contained in a forward-looking statement or any forward-looking statement in its entirety and, therefore, disclaim any resulting liability for potentially related damages.

All forward-looking statements attributable to us are expressly qualified in their entirety by this cautionary statement.

SOURCES OF REVENUE

We receive revenues for patient services from a variety of sources, primarily managed care payers and the federal Medicare program, as well as state Medicaid programs, indemnity-based health insurance companies and self-pay patients (i.e., patients who do not have health insurance and are not covered by some other form of third-party arrangement).

The table below shows the sources of net patient revenues on a same-hospital basis, expressed as percentages of net patient revenues from all sources:

                                               Three Months Ended                    Nine Months Ended
                                                  September 30,                        September 30,
                                                             Increase                             Increase
Net Patient Revenues from:               2008     2007     (Decrease)(1)      2008     2007     (Decrease)(1)
Medicare                                 25.0 %   25.3 %            (0.3 )%   25.4 %   26.0 %            (0.6 )%
Medicaid                                  8.6 %    9.5 %            (0.9 )%    8.5 %    8.8 %            (0.3 )%
Managed care - governmental              13.4 %   11.4 %             2.0 %    13.3 %   11.8 %             1.5 %
Managed care - commercial                41.5 %   41.2 %             0.3 %    41.1 %   41.1 %              -  %
Indemnity, self-pay and other            11.5 %   12.6 %            (1.1 )%   11.7 %   12.3 %            (0.6 )%

(1) The increase (decrease) is the difference between the 2008 and 2007 percentages shown.

Our payer mix on a same-hospital admissions basis, expressed as a percentage of total admissions from all sources, is shown below:

                                             Three Months Ended                    Nine Months Ended
                                                September 30,                        September 30,
                                                           Increase                             Increase
Admissions from:                       2008     2007     (Decrease)(1)      2008     2007     (Decrease)(1)
Medicare                               29.5 %   30.5 %            (1.0 )%   30.9 %   31.9 %            (1.0 )%
Medicaid                               13.0 %   12.7 %             0.3 %    12.5 %   12.4 %             0.1 %
Managed care - governmental            21.2 %   19.0 %             2.2 %    20.8 %   18.6 %             2.2 %
Managed care - commercial              27.0 %   28.4 %            (1.4 )%   26.8 %   28.1 %            (1.3 )%
Indemnity, self-pay and other           9.3 %    9.4 %            (0.1 )%    9.0 %    9.0 %              -  %

(1) The increase (decrease) is the difference between the 2008 and 2007 percentages shown.

The increase in managed care - governmental admissions is primarily due to a shift from traditional government programs to managed government programs.

GOVERNMENT PROGRAMS

The Medicare program, the nation's largest health insurance program, is administered by the Centers for Medicare and Medicaid Services ("CMS") of the U.S. Department of Health and Human Services ("HHS"). Medicare is a health insurance program primarily for individuals 65 years of age and older, certain younger people with disabilities, and people with end-stage renal disease, and is provided without regard to income or assets. Medicaid is a program that pays for medical assistance for certain individuals and families with low incomes and resources, and is jointly funded by the federal government and state governments. Medicaid is the largest source of funding for medical and health-related services for the nation's poor and most vulnerable individuals.

These government programs are subject to statutory and regulatory changes, administrative rulings, interpretations and determinations, requirements for utilization review, and federal and state funding restrictions, all of which could materially increase or decrease payments from these government programs in the future, as well as affect the cost of providing services to our patients and the timing of payments to our facilities. We are unable to predict the effect of future government health care funding policy changes on our operations. If the rates paid by governmental payers are reduced, if the scope of services covered by governmental payers is limited, or if we or one or more of our subsidiaries' hospitals are excluded from participation in the Medicare or Medicaid program or any other government health care program, there could be a material adverse effect on our business, financial condition, results of operations or cash flows.

Medicare

Medicare offers its beneficiaries different ways to obtain their medical benefits. One option, the Original Medicare Plan, is a fee-for-service payment system. The other option, called Medicare Advantage, includes managed care, preferred provider organization, private fee-for-service and specialty plans. The major components of our net patient revenues for services provided to patients enrolled in the Original Medicare Plan for the three and nine months ended September 30, 2008 and 2007 are set forth in the table below:

                                                      Three Months Ended        Nine Months Ended
                                                        September 30,             September 30,
Revenue Descriptions                                  2008         2007          2008        2007
Diagnosis-related group - operating                 $     276    $     263    $      884    $   848
. . .