SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO.   )

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HEALTHSTREAM, INC.

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HEALTHSTREAM, INC.

209 10TH Avenue, Suite 450
Nashville, Tennessee 37203
(615) 301-3100
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held May 27, 2004
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Dear Shareholder:

     On Thursday, May 27, 2004, HealthStream, Inc. will hold its 2004 annual meeting of shareholders at 209 10th Avenue, Suite 450, Nashville, Tennessee 37203. The meeting will begin at 2:00 p.m., Central Daylight Time.

     Only shareholders that own our common stock at the close of business on April 6, 2004 may vote at this meeting. A list of our shareholders will be available at our principal executive offices at 209 10th Avenue, Suite 450, Nashville, Tennessee, during ordinary business hours beginning two days after this notice of the annual meeting is first sent to shareholders. At the meeting, we will consider the following proposals:

     1. to elect three (3) Class I directors to hold office for a term of three (3) years and until their respective successors have been duly elected and qualified and to elect one (1) Class III director to hold office for a term of two (2) years and until his successor is duly elected and qualified; and

     2. to transact such other business as may properly come before the meeting or any postponement or adjournment of the meeting.

     Our 2003 Annual Report to Shareholders is being mailed to shareholders with this proxy statement. The annual report is not part of the proxy solicitation materials.

     Cameras and recording devices are not permitted at the meeting. “Street name” holders will need to bring a copy of a brokerage statement reflecting stock ownership as of the record date.

     WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN, AND RETURN AS PROMPTLY AS POSSIBLE THE ENCLOSED PROXY IN THE ACCOMPANYING REPLY ENVELOPE. SHAREHOLDERS WHO ATTEND THE MEETING MAY REVOKE THEIR PROXIES AND VOTE IN PERSON EVEN IF YOU HAVE PREVIOUSLY SIGNED AND RETURNED YOUR PROXY.

		By Order of the Board of Directors,
		Robert A. Frist, Jr. Chief Executive Officer

Nashville, Tennessee
April 27, 2004

HEALTHSTREAM, INC.

209 10TH AVENUE, SUITE 450
NASHVILLE, TENNESSEE 37203

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PROXY STATEMENT

ANNUAL MEETING OF SHAREHOLDERS
May 27, 2004

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TABLE OF CONTENTS

QUESTIONS AND ANSWERS

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STOCK OWNERSHIP

     The following table sets forth information regarding the beneficial ownership of our common stock as of March 31, 2004 (unless otherwise noted), for:

     The percentages of shares outstanding provided in the table are based on 20,455,998 shares outstanding as of March 31, 2004. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Unless otherwise indicated, each person or entity named in the table has sole voting and investment power, or shares voting and investment power with his or her spouse, with respect to all shares of stock listed as owned by that person. The number of shares shown does not include the interest of certain persons in shares held by family members in their own right. Shares issuable upon exercise of options that are exercisable within 60 days of March 31, 2004 are considered outstanding for the purpose of calculating the percentage of outstanding shares of our common stock held by the individual, but not for the purpose of calculating the percentage of outstanding shares held by any other individual. The address of each of our directors and executive officers listed below is c/o HealthStream, Inc., 209 10th Avenue, Suite 450, Nashville, Tennessee 37203.

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ITEM ONE — ELECTION OF DIRECTORS

     The Board of Directors is divided into three classes (Class I, Class II and Class III). At each annual meeting of shareholders, directors constituting one class are elected for a three-year term. Directors who were elected to fill a vacancy in a class whose term expires in a later year are elected for a term equal to the remaining term for their respective class. The Fourth Amended and Restated Charter of the Company provides that each class shall consist, as nearly as may be possible, of one-third of the total number of directors constituting the entire Board of Directors. The current Board of Directors is comprised of ten members. Three members of the Board of Directors will be elected as Class I directors and one member of the Board of Directors will be elected as a Class III director at the Annual Meeting.

     The Board of Directors has nominated and recommends to the shareholders, Thompson S. Dent, James F. Daniell and William W. Stead for election as Class I directors to serve until the annual meeting of shareholders in 2007 and until such time as their respective successors are duly elected and qualified. The Board of Directors has nominated and recommends to the shareholders, Ronald Hinds for election as a Class III director to serve until the annual meeting of shareholders in 2006 and until such time as his respective successor is duly elected and qualified. Messrs. Dent, Daniell and Stead are currently Class I directors of the Company having been previously elected by the shareholders. Mr. Hinds is currently a Class III director of the Company having been previously designated by the Board of Directors to fill a vacant board seat.

     If any of the nominees should become unable to accept election, the persons named in the proxy may vote for such other person or persons as may be designated by the Board of Directors. Management has no reason to believe that any of the nominees named above will be unable to serve. Certain information with respect to directors who are nominees for election at the Annual Meeting and with respect to directors who are not nominees for election at the Annual Meeting is set forth on the following pages.

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     The directors shall be elected by a plurality of the votes cast in the election by the holders of the common stock represented and entitled to vote at the Annual Meeting.

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Corporate Governance

     Our business is managed under the direction of our Board of Directors. The Board of Directors delegates the conduct of the business to our senior management team. Directors have regular access to senior management. They may also seek independent, outside advice. The Board of Directors considers all major decisions. The Board of Directors holds regular quarterly meetings and meets on other occasions when required by special circumstances. The Board operates pursuant to our Corporate Governance Principles, a copy of which may be accessed on the World Wide Web at www.healthstream.com. Some of the directors also devote their time and attention to the Board of Directors’ principal standing committees. The Board of Directors has established three standing committees so that certain areas can be addressed in more depth than may be possible at a full board meeting. The committees, their primary functions and memberships are as follows:

     Audit Committee. The Audit Committee’s primary duties and responsibilities are to oversee the Company’s financial reporting process and systems of internal controls regarding finance, accounting and legal compliance; select, evaluate and compensate the Company’s independent auditors; oversee the independence and performance of the Company’s independent auditors and internal auditing functions; monitor compliance with the Company’s Code of Ethics for Executive Officers and Directors; monitor the reporting hotline; and provide an avenue of communication among the independent auditors, management and the Board of Directors.

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     The Audit Committee operates pursuant to the terms of a Restated Audit Committee Charter, a copy of which is attached to this proxy statement as Appendix A and may be accessed on the World Wide Web at www.healthstream.com. Members of the Audit Committee during 2003 included Ronald Hinds, M. Fazle Husain, John H. Dayani and James Daniell, each of whom is independent within the meaning of the listing standards of Nasdaq and Rule 10A-3 of the Securities and Exchange Act. See “Audit Committee Report for 2003.”

     Compensation Committee. The Compensation Committee has the responsibility for reviewing and approving the salaries, bonuses, and other compensation and benefits of executive officers, establishing and reviewing board compensation, reviewing and advising management regarding benefits and other terms and conditions of compensation of management and administering the Company’s 2000 Stock Incentive Plan (the “2000 Stock Plan”). The Compensation Committee operates pursuant to the terms of a Compensation Committee Charter, a copy of which may be accessed on the World Wide Web at www.healthstream.com. Members of the Compensation Committee during 2003 included Thompson Dent, John H. Dayani, and Frank Gordon, each of whom is independent within the meaning of the listing standards of Nasdaq. See “Compensation Committee Report for 2003.”

     Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee provides assistance to the Board of Directors in identifying and recommending individuals qualified to serve as directors of the Company, reviews the composition of the Board of Directors, reviews and recommends corporate governance policies for the Company and periodically evaluates the performance of the Board of Directors. The Nominating and Corporate Governance Committee operates pursuant to the terms of a Nominating and Corporate Governance Committee Charter, a copy of which may be accessed on the World Wide Web at www.healthstream.com. Members of the Nominating and Corporate Governance Committee during 2003 included Linda Rebrovick, James Daniell and William Stead, each of whom is independent within the meaning of the listing standards of Nasdaq.

     During 2003, our Board of Directors held five meetings, the Audit Committee held four meetings; the Compensation Committee held four meetings and the Nominating and Corporate Governance Committee held nine meetings. Except for M. Fazle Husain, who attended sixty-seven percent of the meetings, each incumbent director attended at least seventy-five percent of the board and committee meetings on which the director served. Only our Chairman and CEO attended last year’s annual shareholder meeting. Our Board of Directors has recently adopted a policy strongly encouraging all of our directors to attend the annual meeting of shareholders.

     Our Chairman and Chief Executive Officer proposes the agenda for the board meetings and presents the agenda to the Nominating and Corporate Governance Committee, which reviews the agenda with our Chairman and may raise other matters to be included in the agenda or at the meetings. All directors receive the agenda and supporting information in advance of the meetings. Directors may raise other matters to be included in the agenda or at the meetings. Our Chairman and Chief Executive Officer and other members of senior management make presentations to the board at the meetings and a substantial portion of the meeting time is devoted to the Board of Directors’ discussion of these presentations.

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     The independent directors meet in executive session (i.e. with no members of management present) periodically, in at least two regularly scheduled meetings each year. The Chair of the Nominating and Corporate Governance Committee has been designated by the independent directors to preside at these meetings.

Nominating Committee Process

     The Nominating and Corporate Governance Committee is responsible for identifying qualified individuals to serve as members of the company’s Board of Directors as well as reviewing the qualifications and performance of incumbent directors to determine whether to recommend them to the Board of Directors as nominees for reelection. In identifying candidates for membership on the Board of Directors, the Nominating and Corporate Governance Committee shall take into account all factors it considers appropriate, which may include (a) ensuring that the Board of Directors, as a whole, is diverse and consists of individuals with various and relevant career experience, relevant technical skills, industry knowledge and experience, financial expertise (including expertise that could qualify a director as an “audit committee financial expert,” as that term is defined by the rules of the Securities and Exchange Commission), and local or community ties and (b) minimum individual qualifications, including strength of character, mature judgment, time availability, familiarity with the Company’s business and industry, independence of thought and an ability to work collegially. The Nominating and Corporate Governance Committee also may consider the extent to which the candidate would fill a present need on the Board of Directors.

     The Nominating and Corporate Governance Committee will consider nominees for the Board of Directors recommended by shareholders. Shareholders may propose nominees for consideration by the Nominating and Corporate Governance Committee by submitting the names and supporting information to: Nominating and Corporate Governance Committee, HealthStream, Inc., 209 10th Avenue South, Suite 450, Nashville, Tennessee 37203. Shareholder recommendations for nominees must include certain biographical and other information, which may be found in the Company’s Amended and Restated Bylaws, and the proposed nominee’s written consent to nomination. The recommendations must be delivered or mailed and received at our principal executive offices not less than 120 days prior to the first anniversary of the date this notice of annual meeting was provided to shareholders.

Communication with the Board of Directors

     Shareholders may communicate with any of the Company’s directors by writing to them c/o HealthStream, Inc., 209 10th Avenue, Suite 450, Nashville, Tennessee 37203. Shareholders may also communicate with our directors by sending an email to boardofdirectors@healthstream.com. Shareholders may communicate with the chair of any board committee by sending an email to auditchair@healthstream.com (Audit Committee), nomgovchair@healthstream.com (Nominating and Corporate Governance Committee) or compchair@healthstream.com (Compensation Committee), or with our outside directors as a group by sending an email to outsidedirectors@healthstream.com Our Compliance Officer reviews all such correspondence and regularly forwards to the Board a summary of all such correspondence and copies of all correspondence that, in the opinion of the Compliance Officer, deals with the functions of the Board or committees thereof or that he otherwise determines requires their attention. Concerns relating to accounting, financial reporting, internal controls or auditing matters are immediately brought to the attention of the Company’s Audit Committee and handled in accordance with procedures established by the Audit Committee.

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Independent Directors

     The Board of Directors has determined that Thompson S. Dent, James F. Daniell, William W. Stead, Linda Rebrovick, John H. Dayani, M. Fazle Husain, Frank Gordon and Ronald Hinds do not have any relationship that, in the opinion of the Board, would interfere with the exercise of the Board member’s independent judgment in carrying out the responsibilities of a director and none of such directors has any relationship with the Company which would cause him or her to fail to meet the definition of “independent” under the listing standards of Nasdaq. All members of the standing committees of the Board of Directors are considered independent consistent with these rules.

Code of Ethics for Executive Officers and Directors

     The Company has established a Code of Ethics that applies to all executive officers and directors of HealthStream, Inc. The purpose of the Code of Ethics is, among other things, to provide written standards that are reasonably designed to deter wrongdoing and to promote: honest and ethical conduct, including ethical handling of actual or apparent conflicts of interest; full, fair, accurate, timely, and understandable disclosure in reports and documents filed with the SEC and other public communications by the Company; compliance with applicable governmental laws, rules and regulations; prompt internal reporting of violations of the code; and accountability for adherence to the code. A copy of the Code of Ethics, as well as any amendments to or waivers from the Code of Ethics, may be accessed on the World Wide Web at www.healthstream.com.

Designation of Financial Expert

     The Audit Committee of the Board of Directors has determined that all members of the Audit Committee are financially literate under the current listing standards of Nasdaq. The Board also determined that Ronald Hinds qualifies as an “Audit Committee Financial Expert” as defined by the regulations of the SEC adopted pursuant to the Sarbanes-Oxley Act of 2002 and that Mr. Hinds is “independent” as that term is used in item 7(d)(3)(iv) of Schedule 14A of the Securities Exchange Act.

Section 16(a) Beneficial Ownership Reporting Compliance

     We believe that during the 2003 fiscal year, all SEC filings of directors, officers and greater than ten-percent shareholders complied with the requirements of Section 16(a) of the Securities Exchange Act of 1934, as amended, except for Mr. Hinds who failed to timely file one Form 4 reporting a grant of stock options. This belief is based on our review of forms filed or written representations that no forms were required.

     THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” EACH OF THE DIRECTOR NOMINEES.

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EXECUTIVE COMPENSATION

Summary Compensation Table

     The following table sets forth information for fiscal years 2001, 2002 and 2003, regarding the compensation earned by the Chief Executive Officer and the other four most highly compensated executive officers based on salary and bonus earned during 2003 (named executive officers).

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Options Granted During 2003

     The following table provides information related to options granted to the named executive officers during the 2003 fiscal year and the potential realizable value of each grant of options assuming that the market price of the underlying security appreciates in value from the date of the grant to the end of the option term. We have not issued stock appreciation rights to our executive officers.

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Aggregated Option Exercises During 2003 and Fiscal Year End Option Values

     The following table provides information related to options exercised by the named executive officers during the 2003 fiscal year and the number and value of options held at fiscal year end. We have not issued stock appreciation rights or warrants to our executive officers.

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Equity Compensation Plan Information

     The following table provides information related to securities available and outstanding under the Company’s equity compensation plans as of the end of the 2003 fiscal year:

Directors’ Compensation

     Upon achievement of cash flow positive results, as measured by earnings before interest, taxes, depreciation and amortization (EBITDA), we began paying each member of the board, who is not an officer or employee of the company, $1,000 for each board meeting personally attended or attended via teleconference. In addition, we pay non-employee board members $500 for each board committee meeting personally or telephonically attended and pay committee chairpersons $1,000 for each board committee meeting attended. During 2003, we also granted 5,000 options to each non-employee director of the company with an exercise price equal to the fair market value of our common stock on the date of grant in addition to options issued pursuant to the provisions of the 2000 Stock Plan as discussed below. We provide our Audit Committee Chairman with an annual payment of $20,000, paid quarterly, and options to purchase 10,000 shares of common stock in lieu of the meeting-based fees and option grants provided to other board members.

     Prior to October 2003, we did not pay cash fees to directors for attendance at meetings. We have historically reimbursed our directors for out-of-pocket expenses related to attending meetings of the Board of Directors. Non-employee directors are eligible to receive stock option grants under the 2000 Stock Plan. Each year, immediately following the date of our annual shareholders’ meeting, assuming enough shares are available under the 2000 Stock Plan, each non-employee director is automatically granted options to purchase 5,000 shares of our common stock. The exercise price is equal to the fair market value of our common stock on the date of grant, and these options vest immediately upon grant.

     During 2000, upon the effectiveness of our initial public offering, each of our non-employee directors was granted options to purchase 10,000 shares of our common stock at the initial public

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offering price. These options vested immediately upon grant. Upon election to the Board of Directors during 2003, Mr. Hinds was granted an option to purchase 10,000 shares of common stock at the fair market value of our common stock on the date of grant. This option is immediately exercisable. Upon the election of Ms. Rebrovick to the Board of Directors during 2001, she was granted an option to purchase 15,000 shares of common stock at the fair market value of our common stock at the date of grant. This option vests in five equal annual installments beginning on the first anniversary of the date of grant.

     Employee directors are not eligible for any compensation for service on the board or its committees.

Employment Agreement

     During 2003, the Compensation Committee approved an annual compensation rate of $100,000 for Robert A. Frist, Jr. The Compensation Committee also approved an increase to $175,000 per annum upon achievement of cash flow positive results, as measured by EBITDA. Mr. Frist waived the increase in compensation through December 31, 2003. We maintain an employment agreement with Robert A. Frist, Jr. our chief executive officer, the term of which is automatically extended for successive one year periods unless on or before a date that is 90 days prior to the expiration of the employment term either the Company or Mr. Frist shall have given written notice to the other of its or his intention not to further extend the employment term, in which case the employment agreement shall expire and terminate at the end of the extended employment term. Mr. Frist is also entitled to participate in the 2000 Stock Plan. Under this employment agreement, Mr. Frist has agreed not to compete with us and not to solicit our customers or employees for one year after his employment is terminated, with limited exceptions. Mr. Frist is entitled to severance benefits if we terminate him without cause. He is also entitled to severance benefits if he resigns for good reason after a change in control, if he resigns upon the occurrence of a material change in the terms of his employment or if he resigns upon the occurrence of a material breach of the agreement by the Company. The severance benefit equals the sum of $145,000, less the cumulative amount of base salary actually paid to Mr. Frist during the one year period through the effective date of termination, and $145,000. In addition, if Mr. Frist terminates his employment for good reason after the occurrence of a change in control, all options, shares and other benefits will fully vest immediately.

Compensation Committee Interlocks and Insider Participation

     The members of the Compensation Committee are responsible for determining executive compensation and stock option grants to executive officers. During 2003, the following directors served on the Compensation Committee: Thompson Dent, Frank Gordon and John H. Dayani. None of these persons has at any time been an officer or employee of the Company or any of its subsidiaries. In addition, there are no relationships among the Company’s executive officers, members of the Compensation Committee or entities whose executive serves on the Board of Directors or the Compensation Committee that require disclosure under applicable SEC regulations.

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Certain Relationships and Related Transactions

     During 2003, the Company extended the life of 89,540 options to purchase shares of our common stock with a weighted average exercise price of $3.12 per share, which were granted and vested during his employment, to Jeffrey L. McLaren, a director and our vice-chairman, until the expiration of said stock options, between 2005 and 2007.

     In March 2001, the Company loaned Jeffrey L. McLaren, a director and our vice-chairman, $215,000 pursuant to a secured promissory note maturing in March 2006. This note carries an interest rate at an annual rate equal to the annual Wall Street Journal Prime Rate as of the first day of every month and is secured by 300,000 shares of our common stock. Interest only on the principal balance outstanding is due and payable on a monthly basis. There have been no amendments or modifications to this arrangement since the note was executed.

Company Stock Performance

     The graph below compares the cumulative total shareholder return on our common stock since our initial public offering on April 10, 2000, with the cumulative total return of companies on the Nasdaq Composite Index and the Nasdaq Computer & Data Processing Index over the same period (assuming the investment of $100 in our common stock, the Nasdaq Composite Index and the Nasdaq Computer & Data Processing Index on April 10, 2000 (for our stock) and March 31, 2000 (for the indices) and reinvestment of all dividends).

Cumulative Total Returns(1)

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COMPENSATION COMMITTEE REPORT FOR 2003

     The compensation of HealthStream’s executive officers is reviewed and approved annually by the Compensation Committee of the Board of Directors, currently comprised of three non-employee directors. In addition to reviewing and approving executive officers’ salary and bonus arrangements, the Compensation Committee establishes policies and guidelines for other benefits and administers the awards of stock and stock options pursuant to the Company’s 2000 Stock Plan. The Compensation Committee is assisted in making compensation decisions by the Company’s Chief Executive Officer (referred to in this report as the CEO).

Compensation Policies Applicable to Executive Officers

     The objectives of the Company’s executive compensation program are to:

The Compensation Committee reviews the Company’s executive officer compensation program annually to ensure that the compensation paid to the Company’s executive officers is consistent with the Company’s business strategy, corporate culture and operating performance. The Compensation Committee also reviews the compensation policies of similarly situated companies to ensure that the Company’s compensation policies are competitive with other companies in the industry. The three primary components of the Company’s executive officer compensation program are a base salary, the potential for a performance-based annual bonus, and periodic grants of stock options.

     Base Salaries. Base salaries for the Company’s executive officers, as well as changes in such salaries, are based upon a number of factors, including:

The Company’s approach to base compensation is to offer competitive salaries in comparison to market practices for similarly sized companies. The CEO reviews all salary recommendations with the compensation committee, which then approves or disapproves such recommendations.

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     In March 2003, the Compensation Committee reviewed the base salaries for the Company’s executive officers. (See separate discussion of CEO compensation below.) Consistent with the Company’s focus on achieving cash flow positive results, as measured by earnings before interest, taxes, depreciation and amortization (EBITDA), the base salaries of the Company’s executive officers were frozen during 2003. Based upon discussions with the CEO, the committee determined that the base compensation levels for the Company’s executive officers were competitive with the average base compensation levels of executive officers with similar responsibilities at comparable companies.

     Annual Bonuses. Annual bonuses were not paid to the executive officers of the Company for fiscal 2003. The bonuses listed in the Summary Compensation Table for fiscal 2003 relate to payments based on fiscal 2002 results, which were paid during 2003. The Compensation Committee has approved an officers’ compensation plan for 2004 that provides for the payment of bonuses based upon performance improvement above baseline earnings targets.

     Stock Options. In order to align the long-term interests of the executive officers with those of shareholders, the Compensation Committee from time to time awards stock options to the Company’s executive officers. The terms of these options, including the sizes of the grants, are determined by the Compensation Committee based upon the recommendations of the CEO and the committee’s subjective discretion. Awards of stock options to executive officers have been historically at then-current market prices and with periodic vesting over periods ranging up to four years.

     In 2003, the Compensation Committee granted stock options to purchase an aggregate of 170,000 shares to the Company’s executive officers. The options vest over a four-year period and are exercisable at the market price of the common stock on the date of grant. In addition, as described in Options Issued During 2003, options were granted to our CEO during 2003 contingent upon the achievement of certain revenue levels and other financial results. Since the Company did not achieve the designated results during 2003, the options have been treated as if they were not granted.

Chief Executive Officer Compensation

     In establishing the compensation of Robert A. Frist, Jr., the Company’s CEO, the Compensation Committee utilized the same compensation policies applicable to executive officers in general, however, Mr. Frist has elected to receive annual cash compensation at levels below the average base compensation levels of chief executive officers at comparable companies. Effective April 1, 2003, Mr. Frist’s annual base salary was increased to $100,000. The compensation committee recommended and authorized an annual salary of $175,000. Mr. Frist elected to defer the difference between his actual base salary and the authorized amount until such time as the Company achieves certain financial targets relating to budgeted improvements in the Company’s EBITDA. Upon achievement of cash flow positive results, as measured by EBITDA, Mr. Frist elected to further delay any salary adjustment until 2004. Mr. Frist did not receive an increase in his base salary for fiscal year 2002 or 2001.

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Limitations on the Deductibility of Compensation

     Section 162(m) of the Internal Revenue Code (the Code) generally disallows a corporate deduction for compensation over $1.0 million paid to the Company’s CEO and any of the other four most highly compensated executive officers. The $1.0 million limitation applies to all types of compensation, including restricted stock awards and amounts realized upon the exercise of stock options and stock appreciation rights, unless the awards and plan under which the awards are made qualify as “performance based” under the terms of the Code and related regulations. Based on applicable tax regulations, any taxable compensation derived from the exercise of stock options granted pursuant to the 2000 Stock Incentive Plan should qualify as “performance based” compensation for purposes of Section 162(m). None of the Company’s executive officers received other compensation that exceeded the applicable deductibility limits in 2003.

Thompson Dent, Compensation Committee Chairman
John H. Dayani, Compensation Committee Member
Frank Gordon, Compensation Committee Member

The foregoing report of the Compensation Committee shall not be deemed incorporated by reference by any general statement incorporating by reference the Proxy Statement into any filing under the Securities Act of 1933 or the Securities Exchange Act, except to the extent that the Company specifically incorporates this information by reference, and shall not otherwise be deemed filed under such acts.

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AUDIT COMMITTEE REPORT FOR 2003

     The Audit Committee of the Board of Directors is comprised of at least three directors who are independent directors as defined under Nasdaq Rule 4200(a)(15). The members of the Audit Committee are considered independent because they satisfy the independence requirements for Board members prescribed by the Nasdaq listing standards and Rule 10A-3 of the Securities Exchange Act. During 2003, the members of the Audit Committee were Messrs. Daniell, Dayani, Hinds and Husain. Mr. Hinds joined the Audit Committee during July 2003 and Mr. Husain resigned from the Audit Committee during December 2003. Mr. Hinds assumed Audit Committee Chairman duties during October 2003.

     In accordance with its written charter, the Audit Committee oversees HealthStream’s financial reporting process on behalf of the Board of Directors. Management has the primary responsibility for the financial statements and the reporting process including the systems of internal controls. In fulfilling its oversight responsibilities, the Audit Committee reviewed the audited financial statements in the Annual Report with management including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements.

     The Audit Committee reviewed with the independent auditors, who are responsible for expressing an opinion on the conformity of our audited financial statements with generally accepted accounting principles, their judgments as to the quality, not just the acceptability, of the Company’s accounting principles and such other matters as are required to be discussed with the committee by Statement on Auditing Standards No. 61, as amended by Statement on Auditing Standards No. 90 (Communications with Audit Committees). In addition, the Audit Committee has discussed with the independent auditors the auditors’ independence from management and the company, including matters in the written disclosures required by Independence Standards Board Standard No. 1, and considered the compatibility of nonaudit services with the auditors’ independence.

     The Audit Committee discussed with the Company’s independent auditors the overall scope and plans for their audit. The Audit Committee meets with the independent auditors, with and without management present, to discuss the results of their examinations, their evaluation of the Company’s internal controls, and the overall quality of the company’s financial reporting.

     In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors (and the Board has approved) that the audited financial statements be included in the Annual Report on Form 10-K for the year ended December 31, 2003 for filing with the Securities and Exchange Commission.

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     The Audit Committee is governed by an amended charter (please see Appendix A). The Audit Committee held four meetings during fiscal year 2003.

Ronald Hinds, Audit Committee Chairman
M. Fazle Husain, Audit Committee Member
James Daniell, Audit Committee Member
John H. Dayani, Audit Committee Member

Note: Mr. Husain served as the Chairman of the Audit Committee through October 2003. Effective October 2003, Mr. Hinds assumed the Chairman role for the Audit Committee. In December 2003, Mr. Husain resigned from the Audit Committee.

The foregoing report of the Audit Committee shall not be deemed incorporated by reference by any general statement incorporating by reference the Proxy Statement into any filing under the Securities Act of 1933 or the Securities Exchange Act, except to the extent that the Company specifically incorporates this information by reference, and shall not otherwise be deemed filed under such acts.

INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

     The Audit Committee has selected Ernst & Young LLP to serve as our independent auditors for 2004. The independent auditors will audit our consolidated financial statements for 2004. Ernst & Young LLP has served as our independent auditors since 1998. Representatives of Ernst & Young LLP will attend our annual shareholders’ meeting. They will have an opportunity to speak and respond to your questions.

Independent Auditor Fee Information

     Audit Fees. Fees for audit services totaled $135,600 and $125,000 in 2003 and 2002, respectively, including fees associated with the audit of our annual financial statements and the reviews of our quarterly reports on Form 10-Q.

     Audit-Related Fees. Fees for audit-related services during 2003 and 2002 totaled $23,000 and $21,500, respectively. Audit-related services principally include the annual audit of the Company’s employee benefit plans.

     Tax Fees. Fees for tax services totaled $27,665 and $20,303 during 2003 and 2002, respectively. The tax fees relate to federal and state tax compliance matters, tax advice and planning.

     All Other Fees. There were no other fees paid during 2003 and 2002 that were not included in the captions above.

Pre-Approval Policies and Procedures

     The Audit Committee has adopted a policy that requires advance approval of all audit, audit-related, tax services and other services performed by the independent auditor. The policy provides for pre-approval by the Audit Committee of specifically defined audit and non-audit services. Unless the specific service has been previously pre-approved with respect to that year, the Audit Committee must approve the permitted service before the independent auditor is engaged to perform it. The Audit Committee has delegated the Chairman of the Audit Committee authority to approve

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permitted services provided that the Chairman reports any decisions to the Audit Committee at its next scheduled meeting.

GENERAL INFORMATION

Important Notice Regarding Delivery of Shareholder Documents

     The rules of the Securities and Exchange Commission allow the Company to send a single copy of the Proxy Statement and Annual Report to Shareholders to any household at which two or more shareholders reside if the Company believes the shareholders are members of the same family, unless the Company has received contrary instructions from a shareholder. This process, known as “householding,” reduces the volume of duplicate information received at your household and helps reduce the Company’s expenses. The rule applies to the Company’s annual reports and proxy statements. Each shareholder in the household will continue to receive a separate proxy card.

     If your shares are registered in your own name and you would like to receive your own set of the Company’s annual disclosure documents this year or in future years, or if you share an address with another shareholder and together both of you would like to receive only a single set of the Company’s annual disclosure documents, please contact the Company’s Secretary by calling (800) 845-1579 or writing to the Company at HealthStream, Inc., Investor Relations Department, 209 10th Avenue, Suite 450, Nashville, Tennessee 37203. If a bank, broker or other nominee holds your shares, please contact your bank, broker or other nominee directly. The Company will deliver within 30 days upon oral or written request a separate copy of the Proxy Statement or Annual Report to Shareholders to a shareholder at a shared address to which a single copy of the documents was delivered.

Annual Report

     Our 2003 Annual Report to Shareholders is being mailed to shareholders with this proxy statement. The Annual Report is not part of the proxy solicitation materials.

Additional Information

     A copy of our Annual Report on Form 10-K for the year ended December 31, 2003, excluding certain of the exhibits thereto, may be obtained without charge by writing to HealthStream, Inc., Investor Relations Department, 209 10th Avenue, Suite 450, Nashville, Tennessee 37203 or by making an oral request by calling (615) 301-3237. The Company’s Annual Report on Form 10-K and various other filings also may be accessed on the World Wide Web at www.healthstream.com or www.sec.gov.

Nashville, Tennessee
April 27, 2004

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APPENDIX A

RESTATED CHARTER OF THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS
OF HEALTHSTREAM, INC.

I.      AUDIT COMMITTEE PURPOSE

The Audit Committee (the “Committee”) is appointed by the Board of Directors to assist the Board in fulfilling its oversight responsibilities. The Committee’s primary duties and responsibilities are to:

The Committee has the authority to conduct any investigation appropriate to fulfilling its responsibilities and it has direct access to the independent auditors as well as anyone in the organization. The Committee has the ability to retain independent legal, accounting, or other advisors, as it deems necessary or appropriate in the performance of its duties. The Company shall provide for appropriate funding, as determined by the Committee, for payment of compensation to the independent auditor for the purpose of rendering or issuing an audit report or performing other audit, review or attest services and to any advisors employed by the Committee and for payment of ordinary administrative expenses of the Committee that are necessary or appropriate in carrying out its duties.

The Committee’s oversight responsibility recognizes that the Company’s management is responsible for preparing the Company’s financial statements in accordance with generally accepted accounting principles and that the outside auditors are responsible for auditing those financial statements. Additionally, the Committee recognizes that the Company’s financial management, as well as its outside auditors, have more time, knowledge and more detailed information on the Company and its financial reports than do Committee members; consequently, in carrying out its duties and responsibilities, the Committee is not providing any expert or special assurance as to the Company’s financial statements and is not conducting an audit or investigation of the financial statements or determining that the Company’s financial statements are true and complete or are in accordance with generally accepted accounting principles.

II.     AUDIT COMMITTEE COMPOSITION AND MEETINGS

The Committee shall be comprised of three or more directors as determined by the Board, each of whom shall be independent non-executive directors, free from any relationship that would interfere with the exercise of his or her independent judgment. Each member of the Committee must also

meet the other qualification standards set by federal and state legislation and regulation and the applicable listing standards of The Nasdaq Stock Market, Inc. All members of the Committee shall have a basic understanding of finance and accounting and be able to read and understand fundamental financial statements, and at least one member of the Committee shall be an “audit committee financial expert” as defined by the Securities and Exchange Commission.

The Committee shall meet at least four times annually, or more frequently as circumstances require, including teleconferences when appropriate. The Committee Chair shall prepare and/or approve an agenda for each meeting. A majority of the Committee shall constitute a quorum, and the Committee shall act only on the affirmative vote of a majority of the members present at the meeting; provided that the Committee may form and delegate authority to subcommittees or members when appropriate. The Committee shall meet privately in executive session at least annually with management, the independent auditors and as a committee to discuss any matters that the Committee or each of these groups believes should be discussed. In addition, the Committee shall communicate with management and the independent auditors’ quarterly to review the Company’s financial statements and significant findings based upon the auditors limited review procedures.

III.     AUDIT COMMITTEE RESPONSIBILITIES AND DUTIES

The following functions shall be the common recurring activities of the Committee in carrying out its oversight duties and responsibilities. The Committee may undertake additional duties and responsibilities as the Board or the Committee deems appropriate given the circumstances.

Document/Reports Review Procedures

2

Independent Auditors

3

Legal Compliance

Other Audit Committee Responsibilities

4