Community Health Systems Inc (CYH) 2003 Q1 法說會逐字稿

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Good morning, ladies and gentlemen, and welcome to the Community Health Systems First Quarter Conference Call. My name is Caitlyn and I will be your coordinator today. At this time, you are all in listen-only mode. There will be a question and answer session to follow your presentation. You will receive instructions on how to ask questions at that time. If at any time during the call you require assistance, please key star zero and an operator will be happy to assist you. As a reminder, this conference call is being recorded for replay purposes. At this time, I would like to turn the program over to your host for today's call, the Chairman, President and CEO, Mr. Wayne Smith. Sir, please proceed.

Thank you very much. Good morning, and thank you for joining us today for Community Health System's quarterly conference call. With me on the call today is Larry Cash, our EVP and CEO. As you know, the purpose of this call is to review our financial quarterly results for the quarter ended March 31, 2003. We issued a press release after the market closed yesterday that included our financials. For those of you who are listening to the live broadcast conference call on our website, a slide presentation accompanies our prepared remarks.

I'd like to begin the call with some comments about the quarter, then turn the call over to Larry, who will follow with a more detailed account of financial results. Before I begin, I'd like to read the following statement. Statements contained in this conference call regarding expected results, acquisition transactions and other event are forward-looking statements that involve risk and uncertainties. Actual future events or results may differ materially from these statements. Such forward-looking statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 and are made based on management's current expectations and beliefs as well as assumptions made by and information currently available to management. These are summarized under the caption "risk factors" in the documents filed by Community Health Systems, Inc. with the Security and Exchange Commission including the company's registration statement on Form S1 Registration Statement #333-69064 and Form 10K for the year ended December 31, 2002. These filings report risk factors and other uncertainties that may cause actual results to differ from those contained in the forward-looking statements.

The financial and operating results for the first quarter mark a good start for 2003 at Community Health Systems. We're pleased to report another outstanding quarter with growth in revenues and EBITDA. We have also met or exceeded street expectations for the 12th consecutive quarter. We believe that we're well positioned to execute our strategy for future growth through a combination of market share opportunity and future acquisitions. For the quarter, new revenues were $659.3 million, a 23.6% increase over the same period a year ago. Our strong top line growth reflects the strength of our operating strategy and our goal to continue to improve services and drive revenues into our hospitals. EBITDA was $106.6 million, a 15.3% increase over the prior year. Net income was 33.5 million or 33 cents per share diluted compared to the reported $27.2 million or 27 cents per share for the first quarter last year. This represents a 23% in our net income and a 22% in earnings per share. We remain confident in our guidance for 2003 through the rest of this year.

While admissions for the first quarter were affected by a weak flu season and extreme winter weather conditions in some of our markets, we achieved improvements in our operating trends in our business. For the three months ended March 31, 2003, hospital admissions were down .4%. Adjusted admissions were down 1% and patient days increased .8% compared to the same quarter a year ago. Same store net revenues increased 8.2%. Same store EBITDA margin improved ten basis points from 17.3 to 17.4 over the year.

The company's financial results demonstrated consistency in management team as our same store hospitals improved in this quarter. With that, I'd like to review some key operating accomplishments for the quarter. We continued to have good performance from our same store facilities with EBITDA margin increasing 10 basis points year over year. Our standardized and centralized (inaudible) increases utilization and decreases the need for patients to travel outside their communities to get health services by adding enhancing services in our facilities and recruiting qualified physicians. In the first quarter, the company recruiting 190 new physicians. That compares to 86 for the same period a year ago. The company expects to recruit 450 physicians for 2003.

We continue to demonstrate strong leadership as we actively acquire new hospitals. We closed on a large acquisition early in the quarter. We purchased 7 facilities in West Tennessee from Methodist Healthcare based in Memphis. These facilities have a combined bed total of 676 beds and annual revenue of approximately $150 million. All but one of these facilities is a sole provider market. We believe that we're off to a good start for 2003 for acquisitions and we're confident about our future growth in our communities as we selectively acquire new facilities and demonstrate our ability to improve the level of care in non-urban communities. We have a definitive agreement on a facility in Petersburg, Virginia. The transaction could close in the third quarter and is subject to state approval. Petersburg is a very attractive sole provider market about 25 miles south of Richmond. We have an active pipeline and one letter of intent in Pottstown, Pennsylvania, which has recently been reported in the local press and has also been reported by some analysts. We believe that we can achieve the 2003 acquisition guidance of 2 to 3 hospitals in addition to the West Tennessee hospital purchase in the first quarter. At this point, I'd like to turn the call over to Larry Cash to provide you with financial results.

Thank you, Wayne. We are very pleased with the financial and operating results we achieved for the quarter. We had strong consolidated volume in the first quarter and experienced 15.2 growth in admission compared with the same period last year. Adjusted admissions factoring out patient business had a 15% growth rate over the first quarter of last year. While we reported the flu season was extremely weak and severe weather affected volume, during the quarter many of our markets experienced a series of abnormally strong winter storms which prevented people from getting out even to receive healthcare services. On a same store basis, admissions declined four tenths of a percent and adjusted admissions declined 1.0%. Our total admissions declined 2.4% due to a decrease in respiratory related admissions from the weak flu season by about 800 admissions. Our total admissions declined four tenths of a percent due to extremely bad weather and 22 basis points to 347 admissions. Adjusted for flu and bad weather, our same store admissions would have increased 2.6%.

While our business did decline, our patient days actually increased 8/10 of a percent as our non-Medicare same store length of stay increased this quarter for the first time since January of 2000 due to increased intensity. Net revenues in the first quarter increased to 23.6% compared to the same period last year of $659 million versus $534 million. On a same store basis, net revenue increased 8.2% for the quarter with in-patient revenue up 8.7% and out patient revenue up 8%. In-patient surgeries increased 4.3% and out-patient surgeries increased 5.1% on the same store basis (inaudible).

For the first quarter of 2003, our same store revenue for adjusted admissions was up 9.3% versus the first quarter of 2002 of $ (inaudible). Same store net revenue for adjusted admissions for the first quarter was $ (inaudible) increased by 1.3% sequentially from the fourth quarter of 2002. We continue to deliver strong EBITDA growth with a 15.3% increase this quarter compared to last year. $106.6 million versus $92.4 million. On a same store basis, EBITDA increased (inaudible)% for the quarter. For the first quarter, EBITDA margin on a consolidated basis was 16.2% down 110 basis points from a year ago due to the low single digit margins in acquired hospitals that we previously described. Same store EBITDA margin was 17.4% for the quarter ended March 31, 2003, an increase of ten basis points.

For the first quarter our non-same store margin was 7.8%, the prior margin before the acquisition of these hospitals was approximately 3%. In the quarter, consolidated operating expenses as a percentage of net revenue were up 110 basis points from the prior year, Health benefits increased ten basis points as a percentage of revenue due to the payroll benefits of the acquired hospitals. Supplies decreased 30 basis points, bad debts increased 10 basis points, and other operating expenses increased 120 basis point for the year. The other operating expense increases relates to malpractice up 50 basis points, contract labor up 30 basis points, and utilities up 10 basis points year over year.

On a same store basis, operating expenses improved by 10 basis points. The decrease is primarily in payroll and supplies. Total A/R days were 63 at March 31, 2003, unchanged from December 31, 2002 but down 4 days from March 31, 2002. Same store A/R days were 62 at the end of the quarter unchanged from December 31, 2002. (Inaudible) were or 15.1% for March 31, 2003 compared to $73 million at December 31, 2002. Community Health Systems has a favorable (inaudible) mix. For the quarter ended March 31, 2003, net revenue (inaudible) was - Medicare - 43.4%, Medicaid - 10.7%, Managed Care - 17.5%, Private Other - 38.4% on net revenue.

Cash flow from operations in the quarter was $8.5 million which compares to (inaudible) for the first quarter of 2002. Our cash flow was reduced by a $37 million accounts receivability from 8 hospitals purchased in December, 2002 or January 2003. We did not acquire the seller's accounts receivable in these transactions which reduced our cash flow for the quarter. Additionally, government approval (inaudible) into 2003. A/R days and receivables for these 8 hospitals will be reduced as (inaudible) heats up and improves during the second and third quarters of 2003.

Capital expenditures this quarter were $34 million, of which $12.5 million was spent on replacement hospitals. We expect the replacement hospital (inaudible) near fourth quarter of 2003. Looking at the balance sheet as of March 31, 2003 we had $281 million in working capital and $2.9 billion in total assets. We also (inaudible) of approximately $400 million which includes a $200 million additional (inaudible). Total (inaudible) equity is $1.2 billion at the end of the quarter. As Wayne noted, our first quarter EPS was 33 cents versus 27 cents for 2002, up 22%. Our second quarter indicated guidance remains at 40 cents versus (inaudible) cents for the second quarter of 2002. The 29 cent estimate will be a 21% increase over 24 cents in 2002 and the EPS guidance for the year will be $1.22 to $1.25 versus $1.05 for 2002. Wayne will now provide a brief recap.

Thanks, Larry. As you can see, we had a very good start to 2003 with continued same store growth in revenue as well as improved same-store hospital margins. We expect our growth to continue as we improve hospital operations and enhance services and recruit physicians to reduce our migration. The company continues to be a leader in the non-urban hospital industry as a result of the successful execution of our acquisition strategy. We believe we're well positioned to sustain our leadership position and continue to deliver excellent results both for our shareholders and to reduce our reserve. Two of our hospitals have been added to the Solutions 100 Top Hospitals which are benchmarks for a success study. North Okaloosa Medical Center and Crestview General and Kentucky River Medical Center in Jackson, Kentucky, that makes a total of three facilities included in the top 100 hospitals in the United States. With that, I'll now open the call for the question and answer period. If you would like to talk to us after the call, you can reach us at 615-373-9600. Caitlyn, we're ready for questions.

Ladies and gentlemen, if you wish to ask a question at this time, you may do so by keying star one on your touchtone telephone. If your question has been answered or you wish to withdraw it, please key star two. Questions will be taken in the order received. Please key star one to begin. Please hold as we pause for questions. Your first question, Dir, from AJ Rice of Merrill Lynch.

Hi, everybody, sorry for the background noise. First of all, just to ask you about the acquisitions. You completed 7 facility purchases so far this year and you've got the two pending ones. Can you just comment about does that keep you pretty busy for this year or are you doing more? Then there's some for-profit deals out there - - are you going to make any - - historically you've looked mainly at non-profit. Do you think you'll continue to do that or would you be open to looking at some of the for-profit deals that are out there?

We are off to a good start with the 7 facilities in West Tennessee. We have the Petersburg facility, which is a large facility, over $100 million in revenue, plus the Pottstown is coming along, which is another large facility with $100 million in revenue. So we are busy and I think for the next couple of quarters we'll be busy realigning all of these. We may or may not acquire another facility, it just depends. Our pipeline continues to be very strong. If the right opportunity comes along, we haven't turned any down so far. As to the two packages that are sort of out in the market place - - the Tenant package and the Baptist package in Birmingham - - we don't have a great deal of interest in either one of those. As you know, we've bought non-for-profits through the years, so that sort of excludes our interest in the Tenant package. We have a number of hospitals in Alabama, so we've decided to pass on both of those. There might be one in that package that might be helpful to us, but we'll just wait and see how all that turns out.

Okay, great. Just maybe one other question. On the surgery trends, obviously, you folks engaged probably some of the best in the industry on in-patient/out-patient surgery volumes this quarter. Is that a function of the physician recruitment or is there some other dynamic that you saw that you could drill down on why that growth was solid in spite of the weird winter that we had?

I think it's both a function of physician recruitment and a result of a number of programs we put in place to sort of focus on surgery and enhancing our surgery programs in our facilities as a whole. Obviously it's up on both in-patient and out-patient. We don't have the issues in terms of competition for out-patient surgery centers, so I think we feel very encouraged about the opportunities in surgery.

(Recording difficulties)

There's probably about 125 surgeons per thousand. Looking at certain areas we serve, we probably only captured abut 40% of the surgeons out there right now. It's probably the least indicator of growth that we've got so there's a lot of opportunity for us to cut out migration and grow our surgeon base over the years.

Okay, thanks a lot.

Your next question, Sir, from Lori Price of JP Morgan.

Okay, hi, how are you? Can you maybe elaborate a little bit more on what's happening to your in and out-patient volume trends? If you do exclude considerations of the weak flu and severe weather storming, you would be very close to the kind of guidance that you've been talking about previously for in-patient trends of 3% to 4%, but it would still be a little light. Can you tell us what else you're seeing in your markets that might be contributing to some of the softness in trends?

Yeah. Just sort of globally, because this seems to us, and we've done a lot of detail work to try to look at our volumes, it's across the board in all our facilities. So clearly it seems to us that this is a very unusual period in terms of not having - - having very little flu. Larry will give you some facts about this in a minute, but you know, as we look at all the DRGs that related to the flu, as you see on our website, we would have been up 2.6% or so. So we haven't found anything other than the flu. We had an unusual winter where you had the northeast - - four or five days were actually snow and ice where you could not actually move around, so our facilities were virtually locked in. That's a little unusual for us. The other thing that, of course, may be affecting all this, and this is very hard to quantify, is that fact that the issues with the economy and all the issues we had around the war and the paralysis around all of that. Having said all of that, you know, if you do look at our growth and our volumes, we feel pretty good about it based on the current environment. We think it's a very good period in a tough environment but we are encouraged. February was our worst month, March is a little better and to April, as you exclude the holiday, it's a little better. It's not where it was, but it is a little better, so we haven't changed our guidance in terms of our range in terms of admission growth through the year. So we feel pretty comfortable where we are in the opportunities. Larry, do you want to talk about some of the facts?

Yeah. Our outpatient volume is still very good. MRIs and CT Scans and different medicines and some of the other things. The outpatient remedy for the quarter was up 8%. I think all of last year it was 8.3% so that's a pretty close (indiscernible) in this quarter. But I think we're having pretty good outpatient growth in surgery which is the driver. We're up 4.09%.

Okay, great. One quick follow up if I could. Other than with respect to changes in payer mix, has there been any change in how you account for contractual allowances against gross revenues?

There's been no change in the way we account for contractual allowances. We're very focused on our hospitals going through the contractual allowance calculation. It's reviewed monthly and it's reviewed at the end of each quarter again. Out auditors do that and so we've not had any change and we're pretty confident that our net revenue is accurately stated for the quarter.

I never miss an opportunity to talk about this. This is one of our standardized programs and one of the things that helps us a lot is having things standardized because of the consistency across the board. So we can see if there's any particular area of any concern to us. So we're pretty comfortable about all of that.

That sound great. Thank you.

Your next questions, Sir, from Michael Weisberg of ING Direct.

I don't know if other people are having this problem, but you're really cutting in and out in terms of your dialogue so it was hard to get some of the numbers. Again, you might check with the next caller. I don't know if it was just me, but there's a break in your message. So I apologize for asking - - did you say in-patient surgeries were up 4.3?

Yes, we did, Mike. In-patient was 4.3, outpatient 5.1 and total surgery was up 4.9%.

Did you hear that? There's a little something on the phone. Maybe it's me. I'm not sure. Two other things - - operating margins same hospital were flat. Normally we look to improving that. That's because of the light volume?

Well, we're up 17.4% versus 17.3%. The same type of increases were (inaudible) malpractice, contract labor and utilities. So there's similar increases for same store basis plus, you know, we did roll a couple of new hospitals into the same store margin. Both of them have low margins. I think Granite City and Helena - - Granite City in January. If you sort of look at what our same store margins are for the first quarter and compare them to comparable hospitals, in the fourth quarter, we're about flat at 17.6%.

Okay, but normally, the game plan would be to be improving operating margins for hospitals as you get them into the system and as they're on board for more than a year.

Well, as you look at sort of the like 2002, you're correct. But the 2001 hospitals finished out about 7% and they're now running a margin of 11 or 12% the first quarter. So we are improving it, but we did have some increases, like I said, in malpractice and labor that brought us down.

Again, I'm sorry, I know you don't have control of that. What kind of increase did you have in malpractice?

(Recording problems)

Ladies and gentlemen, please continue to hold. Your conference will be underway momentarily. Again, ladies and gentlemen, please continue to hold. Your conference call will be underway momentarily.

Hello?

Sir, please proceed.

I think we're back and I'm hopeful we've solved the interruption problems. We're ready for the next - - Michael, did you finish your question?

Ladies and gentlemen, please key star one now to continue with your questions. Sir, your next question comes from Gary Lieberman of JP Morgan Stanley.

Thank you. Hi, Gary.

Hi, how are you? Your same store revenue per admission looked like it was up very strongly, probably over 9%, a little over 9% by my calculation. Can you talk about what is the cause there? Is there a shift towards, you know away from flu and forced higher acuity or is there some change, noticeable change perhaps, with severe managed care contracting, and then should we expect it to grow kind of in the 9% range for the rest of the year or will that come back off for the various reasons?

Well, in this quarter, looking at same store revenue payer mix, Medicare was down about 180 basis points and managed care was up 50 basis points. That helps our revenue mix. If you take our 9.3% of the revenue projected increase and sort of look at how that factors, Medicare is about 1% of that, Medicaid is about 40 basis points and managed care about 2.3 basis points and private is about 5.5%. Where the increases versus, we've been running about 5% in managed care and the private area so we're running a little bit better this quarter over what we ran, say last year.

You cut out a little bit on me there. The managed care is running better than 5% this year, is that what you said?

The managed care is running about 2.3% of the 9.3% revenue projected in the increase. Last year that was like 1.3.

Okay, thanks a lot.

Your next question, Sir, is from Darren Lehrich of Suntrust Robinson Humphrey.

You're still cutting out a little bit so I'm not sure that the problem has been solved, but I guess we really received a lot of different takes on the volume increase in the quarter and I'm not sure I heard you correctly in the prior answer, but I'm wondering if you can just give us your best read on really what's going on out there with the docs and what your markets are seeing. And then, in terms of how the volume pattern fell in the quarter. I think you said that March was a little bit better and April was a little bit better. So can you just confirm that for me, please?

Yeah, that's basically what I said. I said if you look at - - and Larry has given some facts about this, our respiratory related DRGs are down about 12% from the prior year, so there was some flu in the first quarter of last year. There's virtually no flu in the first quarter this year. And if we factor that back in, as we've said, we'd be up about 2.6%, which is still lower than our trend. I think the first quarter of last year we were up about 3% or so in terms of admissions. But we did do strong in both in-patient and out-patient surgery volume. I think the other thing, obviously that's impacting is the country, you know the economy as well as the war and the paralysis around all of that. I think it's very hard for us to quantify that, but I think that clearly has had some impact on us But beyond that, we don't see anything systemic. I said earlier and it may have cut out, that we've done a fair amount of analysis to look at our hospitals across the board and we haven't seen anything that's - - this is not in one or two or three hospitals. This is virtually across the board. So it's nothing that we can see that's systemic as it relates to a doctor problem or any other issue involved that we can find. So we believe that it's clearly environmentally related, it's the flu and the weather. We did have some very unusual weather and the counts were a little bit altered. So we're encouraged by the fact and I said, and hopefully this didn't cut out, that we had not changed our guidance in terms of admissions or our revenue growth. We haven't changed any of our guidance going forward. So we feel pretty comfortable about the opportunities that we have based on the markets that we're in.

Okay, thanks. Then, Larry, could you just talk a little bit about what you're doing with the captive that you've talked about for medical malpractice? I think you were evaluating that at year end. I just wanted to know where you are now. Then in terms of current period P&L impact, how much med mal expense is running through as a percent of revenue this year versus last year if you didn't give those numbers. Or if you did, I apologize.

No problem. The last question first. Malpractice expense is 160 basis points of revenue this year versus the first quarter of 110 basis points. We ended up the year last year, 2002, for the whole year at 130 basis points, so we're up over where we were last quarter and last year in last quarter. On the captive, we're working to set up some captive in the Caymans around June 1st. We're talking to various reinsurance carriers now to set up a program for us for our 70 hospitals. We expect to get that done. We're getting the reviews in from what the reinsurance will be and it would still be a self-insured retention, either $1 million or $2 million. Today, we have a $2 million retention, and we think over time, we may not see the benefits the very first year we do that, but having a captive just in honor of the hospitals, such as ourselves, we have better experience and we'll be able to save ourselves some money once the market gets a little softer and its not quite as difficult.

So we should just assume that that occurs on June 1 and you're just doing all the work now for that?

We're, right now, this week as a matter of fact, talking to the reinsurance companies and expect to have that done by June 1st. We've done the necessary governmental work and are waiting for the regulatory approval of it and to work with the reinsurance carriers.

Okay, and then one last thing. Just on the West Tennessee hospitals, I think you said that there was the A/R buildup there. Are there any provider numbers at this point that you still need to get? Was that the issue or was that another issue that you saw in the quarter?

We got the Medicare and the Medicaid provider numbers in March of 2003. We may still be missing a home or a DME provider number which is pretty small. But we've got the main provider numbers of Medicare and Medicaid in March and, of course, that was the reason we were not able to collect most of the money, much of the money in the first quarter. And as I said earlier, we didn't buy the receivables from the seller which caused our collections to be low.

So should most of the catch up then happen in Q2?

Q2 or Q3. Some might go into Q3.

Great. Thanks very much.

Your next question, Sir, comes from Michael Weisberg of ING Direct.

Great.

Sorry about that problem.

It's a little bit better, but you guys are still cutting in and cutting out a lot. You started taking about the components of the same store revs and I think you said 2.3% of the increase came from managed care?

Yes. Of the 9.3%, sort of looking at how it breaks down, 2.3% of that comes from the managed care side for this quarter.

What were the other components of it?

About 40 basis points from Medicaid and about 100 basis points from Medicare and abut 500 basis points for private.

500 basis points was private did you say?

Yes.

Great. You were talking about operating margins, Larry, and I think you said you added two hospitals in the quarter into the comp store mix and that brought down your margins in the March quarter.

I think (inaudible) was the actual number and if at those two hospitals had not been in there, it would have been about 6% which is about equal to where we were in the fourth quarter of 2002.

Was that negatively affected by admissions? Is there any way of saying what that might have been had the admissions trends been more in line with it?

Well, clearly if the admissions had been in the 3% range, we'd have had a substantial amount of additional revenue and an improvement in margin and EBITDA and EPS.

One final thing. When you mentioned the patient days would have been plus 2.6 if not for the flu, was that not for the flu and weather or just the flu?

It was admissions, not patient days. Admissions had been up 2.6, And had it not been for the flu and the weather combined, of that breakout, the weather is about 60 basis points and the flu is 240 basis points. And the patient days are up 80 basis points which is the first time we've had an increase in patient days and it was not Medicare patient days which helped our intensity for the quarter.

Great, thanks a lot.

And your next question, Sir, from Ken Weekly of UBS Warburg.

Thanks. Good morning. I'm just wondering - - I know your growth has been fantastic and you've done a lot of acquisitions over time, but Larry, at what point in the future do you envision maybe some of the other metrics, you know, by which financial strength is measured, such as EBITDA margin or maybe return to equity. When do you think those numbers will really look a little more robust? I mean, if you compare your margins to other people in the rural sector, there's a big difference. I'm just wondering about what time frame do those increases really manifest themselves?

If you take the hospitals that have been around since 1998, they run between a 19 and 20% margin right now which is still less than maybe the leader in the industry but much better than what we're running totally. If you take the 1999 and 2000, we're running in around 18 to 19%. Where are margins are hurt is the 200o acquisitions are probably running about 2% up to about 12% first quarter and about 7 last year. And I think over time we'll keep moving that up. We see no reason why they won't move up to the 18 to 20% in a year or so. The 2002 margin is probably 8 or 9% that we're running right now and, of course again, it was 2%. What we just acquired is running a little bit better at about 8 or 9% right now. I think, from a consolidating perspective, I think you will probably see some margin driven in the last half of the year versus what we have been seeing during 2002. Although I would say that those hospitals that we're looking at right now have single digit margins and they're about $100 million in revenue and both have got a margin between 6 and 8%. So with prior levels, that could have a tendency to bring the consolidate margin down, I think the cost indicators that are holding us down, malpractice, contract labor. Contract labor is about 180 basis points of revenue right and that's about what it ran last half of 2002, so that's sort of hit a plateau and we hope to see they get a little better as the year goes on. I think utilities will work itself out and we won't have the problem that we had in the first quarter. It's just a usage thing with weather in the markets. And malpractice probably will continue high in the second quarter and then the comparisons with the third and fourth quarter we won't have quite so much of a growth but we're still going to have some growth in malpractice.

So if you had to guess say by 2005 do you think 18-19% on a companywide basis is doable?

I think it's doable, but you know, one of the things we do is if we find a good opportunity like the West Tennessee hospitals that puts $150 million of revenue on the books, and a 6% further margin, we would do that. But doing the normal 2 or 3 hospitals which is what the guidance is, I think you can see that end.

Okay, last question. Do you see anymore on not-for-profit rural acquisitions that are of that size in the West Tennessee transaction?

Well, there's currently one going on now, the Baptist in Alabama. It doesn't' really fit us because most of those are urban hospitals. There are a few non-urban in that crowd, but I think we will see more of those as we go forward. I say this over and over again, it's the unintended results of BBA97 and those big, large metropolitan, urban facilities trying to monetize these peripheral referral facilities, and so I do think we will see those opportunities going forward.

Very good. Thank you.

Your next question, Sir, comes from Adam Feinstein of Lehman Brothers.

Great. Thank you. Hey, Larry, did you give out an outpatient visit number?

We do not report the visits because in our visits, we've got home health and clinic and other activity that were reported in outpatient surgery's 5.1%. We did double digit growth in MRI and medicine and other categories like that. The outpatient revenue was up 8%.

When you look at visits and registrations, we do have home health but it's about - we're down in the 3% range. We don't really capture an outpatient registration report.

Okay. Just a question on bad debt. It's been a common theme with most other companies this quarter that they're seeing bad debt move higher. What are you guys thinking there? Is that a trend you think we will see really take place throughout the year? And if so, are you doing anything different now in order to be ready for that? Thank you.

Well, bad debts were 9.5% up 10 basis points over a year ago and up 40 basis points sequentially. Second quarter trends down just a little bit ant that's how it was handled. We're working - - we have our own collection agency put a lot of time and effort on that and we've just done a pretty good job of making it work. It's marginal for us. We are seeing ourselves (inaudible) which used to be about 12% and now we're like 12 to 13% of our total revenue. So you'd expect that to have some effect on bad debts going forward, I would think we'll see somewhere in the low 9s to mid 9s on bad debts. Once again, the basis of the company is 87% of our hospitals were the only hospital in town so that means we get all the ER business that comes there, both with and without insurance. But we're working very diligently and we've made a lot of progress in our A/R base and we've made some progress in the last year.

Okay, and then, one follow up question. The revenue per admin you have pretty high in the quarter and you spoke about why earlier. Is that a trend that you are modeling for the full year? So is that 9.3%, that type of number we'll see throughout the year or something close to that, or should we be thinking more kind of the mid single digits? Thank you.

I would think (inaudible) as we're more stabilized from our Medicare volumes (inaudible) on a quarter by quarter basis, more in the 5 to 6% range.

Great. Thank you.

Your next question, Sir, from Robert Mains from Advest.

Yeah, good morning. Hey, contract labor expense kind of flat versus last year - - a lot of folks have been talking about less contract labor usage. Is that because of the acquisitions?

The acquisitions do run a little bit higher than the company as a total, but we're having a little bit more use of contract in New Mexico and Arizona and California. We've got various programs and I think we've stabilized it as a percentage of revenue, but compared to a year ago, it's up 30 basis points on consolidated and about 20 in same store. We're working to bring that down. Like I said, it's just been a challenge in those areas of the country. A little bit more in the Northeast where we've got some new hospitals with barbers.

Right. And that increase - - is that volumes or pricing?

It's about evenly split between volume and price.

Okay, so you're paying a little bit more but you're also using some more?

A little bit more, yes.

Robert Mains. Okay. Second question - - the cash flow from operations. To add back the A/R buildup would still have been a little bit below where it was last year. Are there any timing issues going on this year versus last year that would account for that?

Good questions. Another couple of issues, we had to make a tax payment this year of about $6.3 million. Last year we didn't have a similar type tax because we had an audit that said to hold down our federal taxes. We made a repayment on our cost support settlements, if you may remember, we commented that we've got some third party cost support settlements that we put in accounts payable and not added against the A/R and we made a payment this quarter refunding some cost support settlements that we got overpaid on in the last couple years from Medicare and Medicaid. When you consider all of that collectively, we're still up probably 20% over a year ago which is good increase. Last year, we had real strong cash flow, like $285 million out of $362 million EBITDA. We would expect this year to be somewhere in the 50 to 60% of our 2003 EBITDA.

Okay, could you give that cost support settlement amount again? You faded off.

Wayne Smith. $7.8 million.

$7.8 million. Okay and the 6.3 from the taxes. Okay. Thanks a lot.

Your next question, Sir, from Andrew Bhak of Goldman Sachs.

With - -

Sorry, that totally cut out.

Is that any better? Sorry about that. Having completed so many acquisitions in 2002 and also year to date in 2003 and also moving back and thinking about the class of 2001, could you just remind us (inaudible). What sort of ramp up in admissions and out-patient visits and out-patient surgery you typically experienced within that addition?

Yes, we start to go back to 2001 and I think we probably acquired somewhere in the neighborhood of $250 million in revenue this year and probably this last year they were probably $300 to $310 million so it's pretty good growth off of that. Now it's at a run rate of about 300 to 360 million of revenue. Surgical growth would probably be a little bit better than the company average and the admissions, the company average is not materially different The margin (recording difficulties)

Ladies and gentlemen, please continue to hold. Your conference call will be underway momentarily. Again, ladies and gentlemen, please continue to hold, your conference cal will be underway momentarily. Mr. Smith, please proceed. Ladies and gentlemen, if you wish to ask a question, please key in star one again.

Sorry about that. What I was trying to comment was taking our 2001 results and clearly the revenue has moved up in admissions and surgery run a little bit better than company average. We've got some good margin as well, it's about 11 or 12% versus we're currently below 2%. Andrew, was there any other part of that question that I didn't' get?

Andrew, if you could please key in star one, I can put you right back in the queue box. Sir, you may proceed.

Yeah, I'm all set on this end. Sorry for all this technical difficulty.

Okay, thanks. Sorry, guys.

Ok, Sir, your next question from Frank Morgan of Jeffries & Company.

Good morning. You talked about the margin expansion being the cause of the weak margin expansion on the cost side. But I'm curious if you looked at it from the volume side, like what kind of margin expansion could you have potentially seen if volumes had been more normal? Because I think that's what a lot of people are focused on right now is just how high can you grow your same store margins? Then secondly, a minor question just on the tax rate. It looked like it was a little bit lower. Has there been any change in guidance there? And finally, do you just feel like that new acquisitions are ramping up at slower rates than they have in the past? Thank you.

The question about the tax rate - - it's 40%. I think last year we were around 41%. We've done some work on our state tax rate. We had one of the highest state tax rates, an effective rate of about 7%. It'd be about a percent lower this year so we should see about a 40% effective tax rate this year. I think had it been 41%, we still would have had a 33 cent EPS quarter but I would expect going forward to see about 40%. As far as the ramp up, I think we've had good success in the first quarter related to (inaudible). The revenue up $40 million and the margin a little under 10% and we picked those up around 6%, so we've had good success with that. The answer abut the volume - - we picked up another couple (inaudible) which would have probably been about another $6million of revenue or, on a margin basis, probably another couple of million of EBITDA that we would have had seemingly because the costs are not clear to the (inaudible) penny per share or so in improved margin. But we didn't have that, so we're effectively at 4%.

If there are any further questions at this time, please key star one. Okay, Sir, it appears there are no further questions.

Okay, thank you. Thank you very much for spending time with us this morning. Our track record of consistent quarterly growth and our ability to deliver the highest quality healthcare services continues to differentiate Community Health Systems in the non-urban hospital market. We believe that these accomplishments solidly position us to continue to meet our strategic objectives in 2003 and deliver value to our shareholders. Again, we want to specifically thank our management team and staff, our hospital chief executive officers and chief financial officers and chief nursing officers and our group operators for their excellent operating performance during the year. These contribute to our success and excellent results. Again there's a slide presentation on the company's conference call label on the website, www.chs.net. We remain focused on our business strategy of improving results. Also, if you have any questions you can reach us at area code 615-373-9600.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes your program for today. You may now disconnect.