Community Health Systems Inc (CYH) 2003 Q3 法說會逐字稿

Good day, everyone. Welcome to the Triad Hospitals Inc. third quarter 2003 earnings release. This call is being recorded.

The discussions today may contain so-called forward-looking statements which are statements that do not relate to historical or current facts. These forward-looking statements are based on the current plans and expectations of the Company and are subject to a number of uncertainties and risks which could significantly affect the current plans and expectations, as well as the future financial condition of the Company.

Such uncertainties and risks include, but are not limited to -- the highly competitive nature of the healthcare business; the efforts of various public and private peers to reduce reimbursements to providers; possible changes to government programs to further limit reimbursement; the enactment of various federal and state healthcare reform legislation; changes in general economic conditions; the ability to attract and retain qualified management and personnel; claims and legal actions relating to professional liabilities and other matters; fluctuations in the market value of our common stock; changes in accounting standards; future acquisitions, joint venture developments or divestitures which may also result in additional charges; the ability to enter into managed care provider arrangements on acceptable terms; the availability and terms of capital to fund and expansion of our business; changes in business strategy or development plans; our ability to obtain adequate levels of general and professional liability insurance; potential adverse impact of known and unknown government investigations; and timeless (ph) reimbursement payments received under government programs.

As a consequence of these and other risks and uncertainties, current plans, anticipated actions and future financial conditions and results may differ significantly from those expressed in any forward-looking statement made by or on behalf of the Company. You are importantly cautioned not to unduly rely on such forward-looking statements when evaluating the information presented here or on the Company's press release.

This call and webcast the property of Triad Hospitals Inc. Any redistribution, retransmission or rebroadcast of this call and webcast in any form without express written consent of Triad Hospitals Inc. is strictly prohibited.

At this time for opening remarks and introductions, I would like turn the conference over to Ms. Laura Baldwin, the Director of Investor Relations.

Good morning, everyone, and thank you for joining us today. With me this morning are our Chairman and CEO, Denny Shelton; our CFO, Burke Whitman; COO, Mike Parsons; General Counsel, Don Fay; Senior Vice President of Finance, Bill Huston; Senior Vice President and Controller, Steve Love; and our Vice President of Marketing and Public Affairs, Pat Ball. I'm going to turn the call over to Burke Whitman, CFO.

I am going to make some opening comments. Mike Parsons, our COO will follow me, and Denny Shelton, our CEO, and then we will get to some questions.

We issued a press release earlier this morning announcing our third quarter results. In the release we reported diluted earnings per share of 14 cents on revenues $982 million and adjusted earnings before interest, tax, depreciation and amortization -- or adjusted EBITDA -- of approximately 100 million.

The results included a $51 million pre-tax adjustment to our allowance for doubtful accounts on our balance sheet and a similar amount added to our provision for doubtful accounts, also called bad debt expense, in our income statement that we previously announced on October 14. The $51 million adjustment reduced our adjusted EBITDA by that 51 million to the 100 million that we reported for the quarter. And the adjustment also reduced our EPS by 41 cents to the 14 cents that we reported.

The adjustment represents the perspective non-collectibility on our current receivables balance, and we made the adjustment to reflect the growth in self pay receivables and the deterioration of the collectibility of that particular category of receivables, which has resulted, we believe, from a combination of job market weakness, growth in uninsured population, higher insurance co-pays and deductibles, some price increases that we have implemented in response to rising costs and some market specific factors that may be unique to Triad.

You will note in this release that we defined and used for the first time the term "adjusted EBITDA". Adjusted EBITDA, the definition of it is identical to the EBITDA that we've used in the past; that is, it excludes not only interest, tax, depreciation and amortization, but also excludes litigation settlements, ESOP expense, gains and losses on sale of assets and minority interests. We expect in the future to use the term EBITDA to mean just pure EBITDA in accordance with growing preferences among government regulatory agencies and accounting professional organizations, and we will use that pure EBITDA probably in our financial filings. But we may also continue to use this adjusted EBITDA in our earnings releases, as we have this time.

Let me just talk about some of the results. Except for the deterioration in our provision for doubtful accounts, we were pleased with our performance and progress in the quarter. Let me start with the topline.

I mentioned on a same facility basis inpatient admissions increased 2.9 percent, adjusted admissions increased 3.9 percent, patient revenue for adjusted admissions increased 7 percent, patient revenues were 11.2 percent, and total revenues increased 9.8 percent. That's all over the same period a year earlier.

The admissions rebounded somewhat from what it had been two previous quarters of relatively flat growth. One quarter doesn't make a whole year, and we saw some markets in which the admissions growth is flat or negative, but the rebound was generally broad-based across our markets and across our service lines. As a result, I would say we are cautiously and modestly optimistic about volumes in the next few quarters, hoping that they might remain at least modestly positive despite continued pressures from increasing numbers of uninsured and healthcare plans that are putting more financial burden on patients.

Other revenue trends were consistent with what we had been forecasting and telling you that we anticipated they might be really for the better part of a year now, which reinforces our own comfort with those elements of our earnings forecast and prior guidance. I will touch on a few of those things that are kind of consistent with what we've expected.

First, inpatient surgeries, which had been growing faster than our overall admissions, grew roughly in line with admissions at about 2 percent this quarter. As anticipated, we saw a slower rate of year-over-year growth in inpatient surgeries because by the end of last year we had completed most of a deliberate expansion of capacity in that area in response to market opportunities that we had identified in the prior two years. But the surgeries still grew, and we expect them to still grow.

Secondly, our mix shifted slightly from inpatient to outpatient, with outpatient surgeries growing at faster pace -- 2.9 percent -- as cases that previously would have been handled on an inpatient basis were increasingly handled on an outpatient basis. That's fine for us financially.

Thirdly, revenue per adjusted admission increased seven percent. We a been saying for about a year that we expected our revenue per adjusted admission to continue growing, but that the rate of growth would slow somewhat. And that's what we've seen. You may recall in the first quarter of this year, revenue for adjusted admission grew 12.1 percent over the same period a year earlier; by the second quarter that rate of growth was 8.8 percent and then on the third quarter 7 percent. And we would expect that rate of growth to continue to moderate further in the fourth quarter, all else being equal, to reflect the underlying rate of growth in our limited rates across the Company.

The reason that the rate of growth was higher earlier and has been coming down is that we completed several actions over the two-year period, largely through the end of 2002, that drove rate growth higher for a time. And I present (ph) we deliberately increased part our acuity during that period by adding surgery capacity and eliminating some of the unprofitable, unneeded and lower acuity service lines. We improved the structure of many of our managed care contracts to include price protection against unusual costs by incorporating stop-losses, passes-throughs and car-valves (ph) and we implemented some price increases in the markets to counter increases in our own costs.

So overall topline performance was both relatively solid on an absolute basis and encouraging in that it tracked more or less in line with our expectations.

Moving to expenses, our salary, wages and benefits expense was 40.9 percent of revenue, which is the lowest number, or most favorable number, that we've achieved in a couple of years. We achieved improvement in SWB expense in spite of adding a number of employee positions to our payroll in certain select markets over the past year in order to counter the reduced access those physicians had to the medical malpractice insurance market. In fact, our SWB would be a couple points even better if it were not for expenses employed physicians.

We expect those to continue, but to just illustrate to you that we've had some good success, we achieved the improvement in SWB through a number of deliberate actions. One, we reduced contract labor, both as a percent and in absolute dollars and we achieved gains in labor productivity, measured both in dollars and in physical resources per patient, all while maintaining the same level of quality, care for patients and without measurable change to the perceived quality of that care.

Our other operating expenses increased from 18.6 to 18.9 percent. That was due largely to increases in medical malpractice cost and contract services to support the greater number of physician practices. Those offset other broad-based improvements to a number of the other expenses in that category. Supply expenses grew from 5.7 percent to 5.9 percent, in small part due to the introduction of drug-coated stents.

Bad debt expense, we discussed reflected $50.6 million adjustment. I want to review again just very briefly the method we use when we're trying to estimate an appropriate allowance for doubtful accounts.

Triad uses an analytical method to estimate this. What we do is first we reserve an allowance for all receivables over 150 days old -- all receivables. That's done at every facility. That's a first simple step that creates a consistent procedure performed by each hospital. It does mean that at the facility level we will always be reserved for anything over 150 days.

But that does not mean that this alone would yield an adequate reserve against our current receivables on our balance sheet. So we do more than that. In addition to booking everything at 150 days, we also estimate the collectibility of our receivables prior to 150 days by evaluating through our look-back of historical collections and other considerations, such as increases in self pay or deterioration of collectibility of self pay, an appropriate reserve relative to our current receivables of all ages -- 150 days and things that are aged less than that.

As a result of that approach, we currently estimate that we actually need, and therefore have recorded an allowance sufficient to reserve for, all receivables over 103 days old. So the fact that we booked an adjustment to reserves means that the 150 days was not enough of a reserve to correctly reflect our estimate of the collectibility of the current balance of receivables.

I would also just point out that historical collections don't necessarily, in our experience, equate to adequate current reserves for the current (technical difficulty) Just by example, even before we reported this adjustment, our cash collections as a percent of revenue less bad debt during the prior 12 months were 102 percent. In other words, our cash (indiscernible) were 102 percent of revenue less bad debt. And also our DSOs -- or days sales outstanding -- had improved from the 70s down into the 60s. But despite that favorable collection history we determined we need an additional allowance to adequately reserve for the current balance on self pay.

Operationally on bad debt, we are implementing a number of things that we hope will improve upfront cash collections and collectibility of self pay. We talked about the on the call we had on October 14th. But just a couple of the highlights -- we're reinforcing skills of our registration staff over the next year. That will be improving the pre-registration process for patients, increasing our upfront cash collection goals and programs for doing that. Installing an automated verification process for patient addresses and phone numbers, installing express billing packages to allow patients to pay their bills online and looking at expanding further our patient loan program, which has been successful so far on an experimental basis.

So summarizing our operating performance, it was generally on track across the board, other than our doubtful accounts. Mike Parsons, our CEO, will discuss some of the operations behind these numbers in more detail in a few moments.

Cash flow from operations was $130 million before cash, interest and cash taxes. Cash flow was affected negatively, but only temporarily to the extent some of somewhere approaching $20 million by a short-term delay in Medicare payments by one of our financial intermediaries. This is a glitch on their part that has since then corrected. We have collected some of those dollars already in October.

We did commence during the quarter construction on what will be our third hospital in the Tucson, Arizona marketplace in Oro Valley. It is scheduled to open 2005 and we continue to build another new hospital in Mesquite, Nevada which is currently scheduled to open in 2004.

Looking forward, we do expect by December to provide new earnings guidance for future periods. Between now and then we're going to complete an updated evaluation of our businesses, most importantly our provision for doubtful accounts and our other operating parameters, but also a possible refinancing, some possible capital transactions and some possible portfolio rationalization decisions.

We issued a separate press release's morning roughly concurrent with the earnings release in which we announced commencement of a tender and consent on our existing $325 million of 11 percent senior subordinated notes, the closing of which will be conditioned upon our completing a new offering of at least $450 million of new senior subordinated notes.

Upcoming capital investment and portfolio management activity includes entering into a joint venture with not-for-profit McKenzie Willamette Hospital in Oregon which we closed October 1st to operate the existing facility and build a replacement. Also going to doing the same, we anticipate, with not-for-profit Valley Hospital in Alaska, which we anticipate closing on or before December 1st. These two growth opportunities, we believe, are a direct result of our strategic objective to be a preferred partner for not-for-profits, based on what we believe is differentiated operating strategy. And these two represent really just two of many such potential attractive opportunities for mutually beneficial measures with not-for-profit hospitals around country over the next few years.

We also expect to close on the acquisition of four Arkansas hospitals currently owned by Tenet, and expect to close that on December 1st we anticipate we may also sell two hospitals and three surgery centers in Kansas City to HCA through its exercise of a call option of those facilities which HCA currently leases for us for $18 million a year.

Interestingly, looking at the our acquisition in Arkansas and our potential sale in Kansas City, will pay in really broad round numbers around 140 billion for the Arkansas facilities and we anticipate receiving something in that same range for the Kansas City facilities. We will give up around $18 million in EBITDA from the Kansas City facility, but have the potential over time to generate certainly that or more from the Arkansas facilities, which currently generate approximately $0.25 billion in revenue.

In closing, we do expect to remain concerned in the near-term about the deterioration of bad debt and self pay receivables. We need to keep watching that over the next few quarters. But we do believe the healthcare market will adjust over time to this new reality, beginning as early as 2005. And we continue to believe that our prospects for long-term performance are better than they've ever been; that we are positioned exactly as we hoped to be when we launched Triad as an independent company in 1999, with the goal being a preferred partner for not-for-profits, the ability to grow externally and improve internally and the expectation that we will continue to build value for our shareholders and accomplish our mission of care to the communities we serve.

With that I'll turn it over to Mike Parsons, our Chief Operating Officer.

What I will do is I will go quickly through the income statement and give a little color to some of the trends that Burke talked about.

Starting off with our revenues, as you saw from the release our patient revenues increased a little over 11 percent. That breaks down 4 percent volume on an adjusted basis and about 7 percent from price and intensity increases.

Breaking down the intensity front for you a little bit, on the inpatient side we saw a 0.7 percent increase in our case mix index for Medicare, 0.9 percent overall. So close to a 1 percent increase in our case mix index for the overall inpatient business.

On the outpatient basis, a couple things going on in the outpatient intensity. Firsts, as Burke highlighted, the increase in our outpatient surgery was pretty strong for the quarter. Secondly, and I think really more impactful in terms of some of the intensity, is the elimination that we've been doing over this past year for the low revenue, little or no margin business of things like home health and rural health clinics. So those two things together really popped up the outpatient intensity. And I think one of the reasons for that shift that you have seen over the past couple quarters and more outpatient as a percent to the total than inpatient.

On the managed care side, pretty much the same as what we've been talking about. Pricing trends in the 5 to 7 percent in rates going into this next year. And we now have close to 80 percent of our contracts negotiated for '04.

Salaries, wages and benefits, as you saw in the release, dropped from 42.5 percent to 40.9 percent, 160 basis point decrease. The majority of that did come in the salary and wage area, where that dropped from 34.9 percent of net revenue to 33.6 percent. That's about 130 basis increase. And really the two areas that Burke mentioned, improvement in productivity of around 2.7 percent, that includes the roughly 60 physician increases quarter-over-quarter. The other thing is the decrease in contract labor on both a percent and an absolute basis of about 15 percent. So overall, the salaries and wages came down pretty significantly.

And our benefits dropped this quarter too as a percent of net from 7.6 percent last year's third quarter to 7.3 percent. You may recall that we started experiencing some pretty significant benefit increases second half of last year. So now with this third quarter we have a pretty good comparable year-over-year. I think you can see that those increases have not only moderated, but we're now enjoying some of our productivity gains showing up in our benefit costs as well.

So really, as you can tell, it was a good salary and wage benefit quarter for us, and really feel proud of the team for the hard work. I think yew saw, for those of you that came in the June investor meeting, Bill Huston, Division Management Teams, Hospital Management have really been doing a good job focusing on this area and real pleased to see those results this quarter.

Supply costs, 15.9 percent, up slightly from last year and last quarter of 15.7 percent. Really our analysis of this area reflects no major issues. We see some of the acuity increases showing up, seeing some of the surgical increases, as well as some of the technology increases showing up in the supply costs, but really no major trends there to speak of.

Bad debt, I think we've been talking about bad debts awhile an Burke alluded to it some more in his comments.

All other, the two areas that Burke talked about were the biggest increases in the all other area, going from about 18.6 percent last year to 18.9 percent, ticked up slightly from last quarter from 18.8 to 18.9. Really those two areas, insurance is predominantly malpractice increases. Once again, though, those increases are starting to moderate and we kind of expect to see that trend continue over time. And the physician practices. As we talked about in the last couple quarters, the malpractice situation really did hit a lot of our markets, a lot of our physicians, pretty harshly. And we did have to, as a last resort, employ physicians in several of our markets to insure that they in fact could stay in the markets and wouldn't have to leave, not only the area, but the states in which they practice. So that was a decision we made. And while we don't see much of that going forward, we did have a lot of that this year. As I indicated, about 60 new physicians were brought on board along those lines. We tend to outsource the management of those physician practices, since that's not really a core competency that we have. So that expense shows up in the contract service line in our financials and a reason for some of the increase in all other expense category.

So with that, I will turn it over to our Chairman and CEO, Denny Shelton.

I think most of the things have been covered. I really don't have a lot new to add. Why don't we do this -- why do we go get Kathy and go directly to questions. Kathy, if you can help us queue those up, we will start taking as many peoples' questions as we can.

(OPERATOR INSTRUCTIONS) Lori Price, J.P. Morgan.

I noticed that your non-patient revenues were off a bit 8 or 9 percent year-over-year. I'm assuming most of that change relates to QHR. So I was hoping you could talked about QHR's performance in the quarter. were they are specifically any significant changes in contracts under management? What are the revenue expense trends? And how are you doing in your effort to continue to off-load malpractice expense onto those practices?

The answer on that is that QHR actually has done really good. We've been really pleased with their abilities to get contracts changed to minimize our risk go forward. They've done a really good job with that. While we have seen fairly dramatic increases in malpractice costs on that business for the last couple of years, I think we have done a real good job of managing that risk. And I think with time we will see that moderate fairly significantly because of the performance that we have had. We continue to add a number of new contracts. The managed care business, the management of the hospital business, seems to have stabilized and is actually beginning to grow. And we're pretty pleased with that.

The business that has not done well this year compared to -- it is not so much they haven't done well, but a couple years before the Cambio business, which is the crisis management business, which is part of QHR, had done really well. And over the past year, the business from Cambio or the amount of contract volume by Cambio has been significantly less than what we had seen previously. So that is really what happened there, is that we've had less business on that crisis management side than we had had previously.

And we will tell you this, that's one of the areas that we are looking at in terms of is that a piece of the business that we need to keep because there's the built-in conflict in that business. What I mean by that is that between Triad and QHR being able to provide long-term management services and also doing a number of joint ventures with non-profit hospitals, it's sometimes difficult and we get conflicted between the crisis management piece. So if a non-profit hospital is having some trouble looking for a capital partner, it's very difficult for them to bring in a Cambio and at the same time not to have some arm's length in terms of discussions with Triad about future relationships.

We've found ourselves in the last year, unfortunately for Cambio, we found ourselves talking and working with several non-profit systems that may have used or would have used Cambio, or may not have used Cambio, would have gone directly to a relationship or a discussion about a relationship with Triad, if not for the fact that no they are one in the same. So that has caused some conflict. When we talked about rationalizing the portfolio, that's a piece of the business that we are looking at in terms do we do something with Cambio or do we stay the course. But clearly it has had an impact on our business.

And as it relates to Cambio, are there logical buyers and do you have a sense as to what it might be worth on sales?

We do have some interested parties, including the current management team. And we're having discussions with those individuals about that being a separate organization breaking apart from Triad, and we're looking at it now. Other than that, I don't have any information I can give you. Hopefully more to come in the near-term.

One last question, if I could. In terms of thinking about some of the trade-offs and positive and negative offsets that could affect your P&L as you get ready to give us guidance in the next month or so, I just want to make sure I'm thinking about this in the right way. As far as the Health Midwest facilities are going to be sold to HCA, you expect maybe 135, 140 million net proceeds. So if you were to invest those net proceeds just simply by paying down debt and then you get rid of the D&A on those facilities, which offsets against the 18 million lease expense that you forego, it looks like that would cost your P&L about 4 cents.

That's about right.

On top of the 33 cents for the 100 basis point pickup in that debt accruals. And then as a positive offset you've got, say, if you refinance your 325 million in 11 percent bonds, that gives you about 9 cents after-tax and add-on? And then it looks like, depending upon the assumptions that you make on the Tenet facilities that you're acquiring in terms of EBITDA margin, it looks like it could be 5 to 10 cents accretive next year.

I think you're thinking directionally about all the elements you described. There are yet other elements that we need to build into this and that's why we're holding off on providing any updated guidance. I think everything you said is directionally correct. But there are still other elements that we're working on. And that's why we're waiting until -- it may be prior to December, but at the latest (multiple speakers)

The reason Burke gave that kind of as a timeframe and we said over the next few weeks is simply, we're finishing up budgets and business plans as we speak. We should finish sometime around the second week of November. And we have our corporate Board meeting is scheduled for around the 20th of November, which we plan on presenting our budgets and business plans to our corporate Board on the 20th. So that is kind of what we're waiting to get through. But I think a lot of this -- and you're thinking just like Burke said; I think you're thinking of it correctly, but there's a lot of pieces to it, and there's a number of positive pieces, and that's why give us a chance over the next three or four weeks to give some thought to this and be able to come out with something sort of meaningful.

That's great. Thank you.

Darren Lehrich, SunTrust Robinson Humphrey.

Good morning. Just wondering if you could go through in a little more detail the estimated collectibility that you're seeing now within the self pay class; give us a little more color on that, breaking down between the uninsured and then the self pay for co-pays and deductibles. And a couple of follow-ups along these lines.

We've been doing pretty good detailed analysis over the last two or three weeks. And I think the biggest challenge we've had is that while the bulk of co-insurance is going up, we're still doing a pretty good job collecting those and still seeing the patience that are paying basically the same share that they had before. It's really on the pure self pay, is where we've probably seen over the last three or four quarters, where we're not really seeing any increase in payments from that classification of patients. And so on a percentage basis, obviously that's dropping somewhat. However, we're still getting somewhat upwards of the 25 percent of collections on those pure self pays, depending on different hospitals and different markets and those type of things.

But that's really for us is the challenge. We think we've got some good plans of action, in terms of being able to how we're going to address that. But that's really kind of been the biggest challenge, is we have kind of seen more of a flattening out of our collections in terms of on a per patient basis on a pure self pay.

You've talked about the self pay category. I think in gross revenue terms, I think I've heard use a 4-5 percent. Can you talk about what that translates to net and what it is relative to last year?

I do not think we've ever given out a specific number. I think what we're saying is it increased by about a point roughly as a percent of our total gross revenue over time. That's been part of the trend. Actually, we've seen an increase in volume and in gross revenue, and of course that means the increase in net revenue is even greater with respect to how much of our business is represented by self pay. That's really what happened. That doesn't seem to be mitigating at all. That's what we try to incorporate into this estimate that we use to adjust earnings this quarter.

Of the other relevant touchstones, we've talked about the fact that a little more than 40 percent of our total receivables on our balance sheet represents self pay. That's both types of self pay; that's the pure uninsured and also the co-patient and deductibles.

I know we've seen a big jump and really some bounciness in the relationship between the allowance and your balance sheet to the gross AR that you show. I'm wondering if you can talk a little bit about that and why we saw those changes throughout 2002. I think some of it may have had to do with Medicare receivables.

A couple of things that would impact that. As you look to consolidated allowance, there are also components to that. One involves allowance related to physicians and physician receivables, also the mix related to cost reports as you alluded to in the cost report mix. And additional to that, if you remember when we did the Quorum transaction back in 2001, you had a different mix because of the Quorum transaction coming over related to cost reports, physician practices, etc. So when you trend those out, you have to be careful of all the components.

If we look at pure hospital operations, hospital operation receivables and allowances have a very consistent.

That piece has been unchanged. It is the other unusual things moving around it that have changed, particularly things related to changes we've made to the former Quorum facilities post-acquisition.

One last thing. With regard your prior guidance, I just want to clarify what the embedded bad debt expense level was in that guidance.

We had been assuming that it would stay somewhere in the 8s, similar to an eight kind of a handle on it. And we're going to refine that. We said we think it's going to be in the 9s now, and that's, again, part of what we're trying to refine our view on going forward.

We are going to -- just an administrative note here -- try to limit it to one question per caller if we can. If you've got a follow-up (indiscernible) just try to be courteous to everybody else who's online waiting to ask questions. I appreciate it.

A.J. Rice, Merrill Lynch.

Given that guidance maybe I'll try to do one quick one, here and then the broader question for Denny.

I guess the broader question is, obviously this morning we've had two announcements related to consolidation in managed care -- United by Mid Atlantic and Anthem by WellPoint. Can you just refresh us as to what happens to your contracts with those types of payers when this kind of consolidation events occur? And does that kind of activity present opportunities or challenges for you?

And just a technical clarification, on the comment about the new debt you plan to issue, it says at least 450 million, maybe, Burke, could you just comment on what would be the determinants to decide how big an issuance you would do? Is it just a function of market availability or are there some other things behind the scenes you're looking at try to figure out how much to do?

I am going to answer your second piece first. The amount we actually raise, our expectation would be it will be at least for 50. It could be more, based on market conditions, depending on the rates that we're able to get from the marketplace when we get there.

We've said before that we believe that there are really two adjustments we would like to make over time, all else being equal to our balance sheet. One is that we become more -- less leveraged, and we're still on track to do that over the next year or so, as we have from our beginning. Secondly, on the debt part of our balance sheet we've got a little more than we would optimally like to have in floating-rate bank debt close to fixed rate long-term bonds. We do have two $100 million swaps that swaps some of our floating-rate exposure into fixed rate. One of those rolls off in January. So that figures into the thinking as well.

So its elements of both interest rate risk management, as well as just market reaction and the rates we get when it comes out. But we would anticipate at this point it would be at least 450 and could be more.

On your first question, I think in most cases the contracts are enforced, whatever the terms of the contracts are. Most of those contracts, I believe, without going back -- and we will look at them -- require that these contracts be honored. So I don't anticipate that that will be meaningful in the short-term.

Those of you heard me talk, you and I have had these discussions in the past -- this is an industry about leverage and consolidation of insurance companies, just like consolidations of the hospital delivery system, is about leverage and being able to get leverage to be able to get the best pricing you can, whatever side of the equation that you're on. Clearly, as the insurance industry consolidates, they will get some leverage. There's no question about it. And it will have some impact in terms of the providers.

I would say on the hospital side, though, the two things that still continue to make me feel very strong about the industry, one is that we're moving down, I believe, over the next year or so to 4500 or so hospitals in this country, and the biggest issue is going to be about having enough beds to take care of the people that need healthcare services. So I think that bode well for the industry as a whole long-term. And then I think the other piece that is probably worth noting is as this takes place, especially with high medical inflation, I'm convinced that American business and industry outside of the healthcare sector -- in essence, the people in the private commercial side -- that are paying the majority of the bill, which is business and industry, are going to have a continued more say-so in terms of who are their employees and their beneficiaries going to have access to, and they are going to have more say-so in terms of trying to get some control over costs by being able to direct business. While that hasn't happened dramatically yet, I think it's coming.

We've seen a couple markets where -- and a good example is we have a group of hospitals up in northwest Arkansas that have not participated in Blue Cross Blue Shield of Arkansas. Wal-Mart is the largest employer in that market. Just this fall they're doing benefit redesign. Basically they're using Blue Cross as a TPA. They are self-insured, as most big businesses and industry are. They are directing that business saying that they want to have competition in the marketplace, and they want our hospitals and our physicians in that market to be able to at least be choice. And they wanted their employees and their dependents to have it.

I think we are going to see more of that. So even with consolidation on the insurance side, I think a lessening number of hospitals and the ability to take care of patients who need care, and that combined with rising costs and business and industry wanting to have competition for those healthcare dollars, are going to continue to be other additional forces that come to bear, and I think we're sitting in a pretty good position in that regard. So that's kind of how I view today's announcement.

Thanks.

Adam Feinstein, Lehman Brothers.

Just a couple of things. I'll ask them together.

First, I'm trying to get a sense -- your volumes are higher than what we have seen from others. I know you had the one hospital, the Las Cruces Hospital; I know you said a couple of weeks ago you didn't want to break out the impact from that, but maybe if you can just ballpark a pretty broad range to help us get a better understanding of what the true same-store growth is.

And secondly, on the bad debt, if we look at the 50 million or so as an extraordinary items, that would imply bad debt expense of about 8.5 percent of revenues for the quarter, which sounds kind of low considering you're saying before that you see it as moving higher than 9 percent going forward. So just trying to reconcile that. Thank you.

Let me answer the first one. We're not going to give out the individual hospital -- let me say this. That hospital came out of the box last summer pretty strong, so almost every day that goes by the difference between the impact it has in terms of year-over-year is becoming more and more negligible. But that hospital, just so you understand why we do that, not (indiscernible) about just competitive issues, the competitor in that market has hired a consultant. They've been looking at either divestiture, partnership; they've been looking at other alternatives in that market. And we're just we're not going to give that information out, especially at a very critical competitive time right now in that marketplace. But, that being said, almost daily it becomes almost minimalist in terms of the impact in terms of the Company as a whole.

I will tell you this to give you just a good example. We gave you numbers that I said on the call, the pre-release a week and a half ago, two week ago, I indicated I started to see some significant surges in terms of volumes beginning in late August. And we actually had roughly 4.5 percent year-over-year, looking at September to September. And we are almost through the month of October, and we're seeing not quite as high but fairly similar trends during the month of October. I expect a lot of that has to do with the way the month falls too. October ends on the end of the week, and that always makes a big difference.

But nonetheless, we continue to see fairly healthy volumes (indiscernible) back in May, June and July, in that period, we told you that kind of 0 to 2 would be a pretty good goal for us for the next year. That's part of why we're doing the budgets and taking a hard look at this thing, maybe starting to feel like 1 to 3 might be a better number. But we're going to tie that down and maybe feel a little bit better about volume projections going forward.

A lot of it goes back to that access issue that I talked about a minute ago on A J's question. We're feeling better about the volumes, that's for sure; still don't know that two months does a trend make, but we're following it pretty closely. But the New Mexico deal, almost every day becomes less and less of an issue. In a matter of weeks it's not even an issue at all. So that's kind where we are.

On the other part, Adam, the bad debt expense, if you strip out the 50, then there is about 8.4 percent. This is our whole point -- that's what you would get to if we just booked to 150 days across the Company and didn't do anything else. That's what our expense would have been. We have already said that part of the 50 million represents in effect a catch up, but part of it is the additional ongoing run rate. That's why you haven't seen us break out that 15 or stake any claim on that 8.4 percent; it's got to go into the number of things in it.

What we've said so far -- just a rough guess and very much subject to our continued look over the next couple of weeks -- is that that number probably goes from a run rate in the 8s to a run rate in the 9s. And we're continuing to look at that. But that's what we are thinking is a guesstimate right now.

I think what is kind of interesting is we've seen several reports written, several comments made, about bad debts saying if you -- and I think one point that Burke made clear at the beginning is we have always written -- everything is 100 percent written off at 150 days. There's been some misunderstanding about that. It's not the exposure beyond 150 days; it's just the belief that that doesn't cover it. So if you look at -- what did we say 103 days -- we're trying to do better than that because to say that we write everything off at 150 days and that should take care of it, and you to go through it analytically, that doesn't make sense. We've gone way past that. We've been doing right down to 150. That's the way the policy reads. And we've been doing better than that. And so I think that if you have issues on that, or you still don't quite understand that, (indiscernible) certainly feel free to follow up with Burke and Laura who will try to help walk you through that. But what we're trying to do is get this down to what is reasonable, and what we're actually doing, not just focusing on a policy that's a global 150 days and you write it all down during that period of time.

Thank you.

Gary Taylor, Banc of America.

Two questions. One, you had mentioned in your release you lose 18 million of revenue with the HCA leases. What depreciation comes off your annual income statement when those go away?

It's about 6 million a year in annual depreciation.

And my second question -- I apologize if you've been through this; I stepped out for a minute. On the labor side, it looks like you just did an unbelievable job this quarter, and looking at labor per adjusted patient day only up a little north of one. And we'd certainly be modeling a lot higher than that into the next year. Were there any onetime cost savings you actually mentioned that would be even better without some physicians? Was there anything nonrecurring about this? And what would you be looking at in terms of labor inflation run rate into next year?

It was a pretty clean quarter from that standpoint. One of the things that did help, obviously, was not only the productivity gains, but that contract labor coming out carries a premium with it as well. So we would not expect to see year-over-year those continued gains because we're getting that pretty low. That's one of the things that helped us this year too. The labor inflation is running more in the 3 to 5 percent category as opposed to last year with some of the nursing adjustments and some of the technical adjustments we had to make who were at least a couple points higher than that. We're seeing that moderate, and we're expecting to see that be in that category next year. We still have some pockets where we will have to do some adjustments, kind of rifle shots. But I think some of that is normalized a little bit and is one of the reasons why we're starting to see that kind of come back in line.

Would that be 3 to 5 percent excluding benefits costs?

That would include benefit costs.

Thank you.

Ken Weakley, UBS.

Good morning. A couple of questions. I Know I can only ask one question, so let me ask it (multiple speakers). Your inpatient revenues this year dropped from 56 percent of revenues to 52 and outpatient has gone from roughly 44 to 48. So can you walk us through, first, case mix changes on a sequential basis, as well as pricing and gross charge (indiscernible) within your business models? And secondarily, why is it that despite the drop off in inpatient revenues as a percent of total, your supply costs are actually going up?

In terms of looking at some of those intensity increases, our case mix has gone up about 2 percent this year year-to-date. And I think a lot that mix between inpatient an outpatient has to do with more with the intensity of the outpatient vis-a-vis dropping off the home health/rural health clinics supported by the higher surgical growth. So I think a lot of that shift is between the inpatient/outpatient has to do with that. When you look at the 2.2 percent, I think it was outpatient visit increase, considering that we actually dropped out a lot of the home health and rural health care clinic visits to that, that are really a lot of visits but low revenue per visit, you can see kind of how that trend has been pretty strong this year.

Is it true a 2 percent increase in case mix would de facto lead to a 2 percent increase in revenue per visit or is it non-linear in some sense?

It's not quite that way. For Medicare it was. Medicare is a direct correlation with that. Some of our managed care contracts equate to that. I don't have the percentage off the top of my head, but some of our managed care contracts have a DRG basis to them too.

The other way that that intensity shows up is it tends to come with some of the higher specialty, whether it be cardiology or orthopedics. I think that's what we're seeing more than anything is kind of the revenue push and some of that intensity is finding its way into our supply costs. That's why I say when we look at the individual line items, whether it be orthopedic implants, or stents, or pharmacy, or some of the drug costs, nothing really jumps out. It all seems to be following kind of the procedures and revenues associated with those. So it's kind of the cost of those programs showing up in the supply costs.

The last part was in terms of gross charges on inpatient or outpatient, is that a number you tell us or no?

We've never given that out, the gross charges. We may end up doing that eventually, but have not been doing that so far.

Do you derive a meaningful percentage of your commercial business from contracts priced that way?

(multiple speakers) our price increases do tend to follow our cost increases. So we do have a percentage of our managed care contracts. Let me see if I can find that. We probably have a third our contracts maybe, maybe a quarter of our contracts, have a component of that too.

Is that roughly comparable on a percent of revenues? Or is it less or more?

I think that is -- it would be comparable.

Thanks so much.

Gary Lieberman, Morgan Stanley.

Could you give us an update in terms of what type of competition you're seeing on the outpatient side and what impact it had, if any, in the quarter?

The main thing it had an impact is on our surgery centers in Phoenix. That's where we have a lot of surgery centers. And Phoenix, that's where we have our partnership with Banner for those surgery centers in Phoenix. That's where we saw the competition the most. There's a lot of competition for surgery centers there in that market and we saw the impact there. Short of that, I think the outpatient surgery business is going up; 2.9 percent, that was really with flattish to slightly negative outpatient surgery growth in the Phoenix surgery centers. So if you take that out, the outpatient surgeries for the kind of hospital based outpatient surgeries actually went up more than that 2.9 percent. So that was one of the reasons why we saw some pretty good outpatient net revenue. And as Burke says, some of it swapping from seeing some of the inpatient move to outpatient, that's kind of a profitable line of business for us as well.

One thing that we're doing on the business plans, and this goes back to the issue about being able to give appropriate guidance, is that we do have -- one of the things we have in terms of building strong relationships with physicians in our communities is the fact that we still see a lot of competitive pressures and local markets for competing AFCs. One thing that we've been able to do is our physicians have at least given us the opportunity, when faced with a real dire threat to work with them on an AFC project -- we of five AFCs that are under construction or are in some phase of construction development now in Las Cruces; Bentonville, Arkansas; Hattiesburg, Mississippi; Florence, South Carolina; and in Lubbock, Texas. Over the next year, we're going to see some pressures just in terms of in a couple of markets we've got lots of growth in those markets. It's not going to have an impact. We're going continue to grow. A couple markets we are going to have some cannibalization of the impact of some of these ambulatory surgery centers. But with a good thing about it is we haven't been left behind. And we've been able to find ways to work together with physicians. But there are a lot of threats out there and we're seeing more on AFC side than we are any other area.

As Denny said, as we are knee deep in our budget process and doing the business plans, that's exactly the kind of thing we're spending a lot of time trying to quantify and put into the numbers that will be included in the guidance when we come out at the end of November, 1st of December.

Denny, you mention some of the September and the October admissions trends. Do you have it for what it was for the rest of the quarter?

No, I don't have it in front of me. It was obviously much slower in July, and it was a little better in August, and it was significantly better in September. That's the way it kind of trended.

Thanks a lot.

John Ransom, Raymond James.

Good morning. A technical question for '04. Your bad debt ratio will be affected, I presume, by your new charity care policy.

Yes it will. That's exactly right. And our revenue growth will be affected by it as well.

Do you have any early insight, just a kind of bracket, that impact for modeling purposes?

The guidance we gave before is probably as far as we should go with it right now, which is that it will bring that number, which gets up well into the nines potentially, probably down below nine percent again as a percent of revenue. But it also means, kind of back to Ken's question earlier, the rate of revenue growth will be less because we will actually be -- going to have uprising grid for folks who don't have insurance that is based on their ability to pay. And so rather than having a higher charge (multiple speakers) bad debt, we will have a lower charge with less bad debt to result in the same net bottom line.

We still anticipate at this time that the program as our is structured will be neutral to EBITDA, or more specifically neutral to net revenue minus bad debt. (indiscernible) less revenue growth and less bad debt. We're going to break out a little bit more detail when we give our guidance just exactly how our program is going to structured.

I think AHCA had an impact of about 100 bips of same-store. Is yours kind of plus or minus around 100 bips? Is it directionally close to that --?

Plus or minus directionally, that's right.

Secondly, any idea of rate quotes on your new debt facility? You're a BB, correct? What's the rate environment right now for ten-year BB --?

That is a question I would be asking too. Unfortunately, this is probably the one thing that I've been told I'm not allow to speak to because we have not yet entered the market for the new deal. So unfortunately I can't. I know if everything goes according to plan we able to say something about that several days from now. Sorry we can't right now.

Finally, I know HCA has a reserve to self pay above 85 percent. What is your current balance sheet reserved to self pay receivables? Where's that number trending with this latest adjustment?

We haven't really given that number, but it's a high number. You can sort of see we've got on 770 million of total receivables; we've got an allowance of 226 for total reserve. And the better part of, most of that on the patient side, is self pay. (multiple speakers) as Bill Huston said, it's considerably better for the co-pay and deductible piece than it is for the pure --

You said your collectibility is about 25 percent. I presume it's above 25 percent. Excuse me, above (multiple speakers)

That's right (multiple speakers) Yes, it's better than that when you include the co pays and deductibles.

Thank you.

Andrew Bhak, Goldman Sachs.

Denny, when you're talking about the monthly performance and volumes for September and into October, do you happen to have the comparisons that they're up against right now?

No I don't. You mean in terms of year-over-year?

Yes, just wondering whether they're particularly easy, difficult, or about as tough as what you'd experienced in the back half of this year.

I haven't looked for it, I really haven't. I kind of look at it month-to-month. I look at it every day, whether I'm traveling or not, just look at trending. Again, I haven't looked forward on it yet.

Secondly, was there any material change to the rate of growth and benefit expense in the quarter? And if you happen to have that, perhaps Laura could give that out.

We do have it. Benefits were 7.3 percent of net revenue versus 7.6 in the prior year.

That was the growth.

Thank you very much.

Ken Weakley, UBS.

One follow up question. Burke, on the balance sheet within your short-term liabilities there was a big pick up in other current liabilities, as well as accounts payable. I think was 65 million net sequential increase and that obviously helped the cash flow. Can you walk us through what is going on there?

We had more than usual, and Steve Love will answer that.

If you remember, if you read our Qs, you'll see HCA has done the settlements they had related to their cost report settlements and the indemnification aspect of that we always carry on our balance sheet, and we removed that effect this quarter and it will be discussed further in our Q. And that's for the indemnification related to the cost report settlements prior to the spend that we will completely indemnify (indiscernible) by HCA.

(indiscernible) we've been carrying, it's gone up and down a little bit, but it's tended to have an asset and a liability associated with it, so there's no net impact. You really think of it as a comp for a receivable that had been sitting in the receivables that has also now gone away that is the offset to this number.

David Dempsey, Avondale Partners.

Talking about development a little bit, obviously with Alaska coming on and Oregon, as we look to 2005 I wonder if anything has changed, at least globally, in terms of the expectations. And then obviously you're making some moves in terms of AFCs. I'm seeing a lot of action here, at least in Tennessee, on imaging centers. I wonder if that's in the mix for some of the things that you're looking at down the road to add to some of your facilities.

What we are doing on imaging side, in a couple markets we are building third party office development. We're putting in diagnostic centers that they extend out to outlying suburbs or communities. We've done that fairly successfully over the years. In fact, over the last several years. In fact, the third hospital that we're building out in Tucson, the forerunner of that was an office complex diagnostic center urgent care center that was the forerunner of the development of the hospital. So we're looking at that.

We've got a couple projects that we are doing in the Tucson market. One in Marana, which is an incorporated community in Tucson, and another down in the Green Valley area that we're looking at. So we're continuing to do that on isolated strategic situations that are driven strategically by the local hospitals need to expand and eventually maybe lay some territory for future Triad growth when appropriate.

What I think you can see for the next year or so is pretty much what we said -- not a lot on the acquisition side. I think people realize that this Arkansas deal with Tenet was an opportunistic situation that came along. We probably have looked at seven or eight potential acquisitions over the last year or two that we really were interested in, and we just couldn't get there. We could get in the ballpark. In fact, we or even close. And I think that is still holding true on one or two of the acquisitions that are on the market today that we've looked at that we've liked, but we can't get there from a price standpoint. So I would tell you that I would think that very little, if any, acquisition activity opportunistic, probably not a lot there.

I think the primary focus on development is going to continue to be these ventures with these nonprofit organizations, either in the form of being a capital partner in the case of Oregon and Alaska, or a strategic partnership as in the relationship with Texas Health Resources here in the Dallas market on the new project in Denton. And I think we've got more on our plate here than we would ever do. We're going to try to be selective and our goal is to do three to five a year.

Now, that being said, we said in 2004 we will not get that many done in 2004. I think the only thing that we see in 2004 is finishing up some projects that we're working on now and maybe get some more on the plate, but with the objective of, starting in 2005, that three to five would come on board each year thereafter. I think that still pretty good goal for us.

Let me mention real quickly, we actually did have some other callers. We're going to those calls. Apparently we just had a mis-communication with Kathy's team. If some of you are still on, we're going to keep going here. This won't be the last caller.

Frank Morgan, Jefferies & Co.

My question relates to the growth in the number of practices you're buying as a result of this medical liability issue. I've always associated owning physician practices with losing money, and I'm curious, could you talk about are those profitable and is the impact that we're seeing in expense ratios, is that more cosmetic? Give us a little idea of the economics of those practices you're picking up.

I think in general, there is obviously very low margin to them. They do have an impact on various lines of the business. These are a little bit different than some employment situations. At least in these cases we had existing practices that we brought into the fold. So not as much of a startup, as opposed to employing a physician right out of residency.

So I think the main thing there was to just give them an umbrella where they could stay in the market and not leave. As I said, I consider that a little bit of a onetime deal. And in fact, I know most of these physicians would prefer to be independent anyway. And that's the model we prefer as well. So I think we're, both sides, looking at today when maybe malpractice gets more in line where they would probably look to go back on their own anyway.

One thing you might look at it, look at it as kind of a lot of what we're doing now is what we call Triad-like, being able to -- what we're doing is being an ally to physicians who are really in trouble relative to being able to get affordable malpractice. So the employment relationship is kind of a crude term of eat what you kill, but being able to get some economies from being part of a larger base, providing malpractice insurance or maybe some other costs. What Mike is saying too, just being strategic. And it's not something that we would expect that would continue long-term. But as long as we need to do it to keep our guys healthy and in practice and being able to serve their communities, that's probably something we'll continue to do until this thing moderates somewhat.

Just a little bit further, I probably should have clarified too. This is just family practitioners, some of those things too. Some of these physicians were in fact hospital-based physicians like anesthesiologists and emergency room physicians where we had to bring them on the payroll for those same reasons.

Thank you. That's a good answer.

Kemp Dolliver, SG Cowen.

Two questions related to taxes. The tax rate for the quarter was up versus what you had shown earlier in a year. And also is there anything you could tell us with regard to the tax hit associated with HCA option exercise?

Our effective tax rate going forward should be similar, blended south of 39 percent. We have --

38.25 actually.

And we've got a couple of a modest permanent differences that flow-through that make the apparent rate, the effective rate slightly greater than what the actual marginal rate is. Quarter-to-quarter, there are just little nuances that then happen, but there's nothing fundamental changing that at all. That's what we expect it to continue to be.

I think the most significant point for us on taxes is that we will probably become a cash taxpayer in 2004. We have not been significantly a cash tax payer to date, but expect that we will be going forward.

The cash impact of that transaction by itself could be significant because we will probably be selling the Kansas City facilities for a gain, but that will get blended together with a number of other things that we're doing and so it probably make sense just hold off until we see all of it together and let you see what that is. But I think probably the most important thing is for us that we will be a cash taxpayer going forward probably in 2004.

So in terms of net after-tax proceeds on the Health Midwest, you really can't speak to capital gain outflow yet?

I'm going to hold off for now. It clearly is going to be by itself a gain if it happens the way we're anticipating that it may. But the tax that is attributable to that transaction alone, I'd rather hold off on until we get through all the rest of what we're working on over the next few weeks.

That's great. Thank you.

Charles Lynch, CIBC World Markets.

It seems to me that probably one of the most difficult things to quantify going into a 2004 outlook isn't necessarily some of these technical administrative items, but really from an operational standpoint what you might do to look at line item costs to offset some of the bad that increase. Can you give some color, or maybe some examples, of what you might be looking at, whether it's related to specific cost items or incentive programs and the like?

Let me tell you this -- I think we're doing a great job on the costs in terms of balancing between the communities' needs and being socially responsible and providing good services. And I think Mike and Bill and the operations team has done a great job of that.

I really don't think it's that. There is a fine-tuning of that. It is certainly working closer with physicians on appropriate levels of care, being able to make sure that resource management is appropriately used. There's still sayings there, and we're going to continue to find tune that and continue to see improvements on the cost side, but it is balanced with several other things. One is appropriate leverage in terms of pricing, hopefully seeing some improvement again on the volume side. We do have and have had some significant capital projects that we expect to pay off.

A good example of that, I was in Huntsville, Alabama a couple of weeks ago. We've got a $35 million expansion going there. The hospital does real well for us. We could basically put -- any bed we can get in use their, we could fill just simply because the hospital there does a great job and the medical community there is so good.

It's a combination of lots of things; it's not any one. And I wouldn't want anybody to believe that there's some big windfall coming from some significant cost reduction junk because that's just not the case. We're still on that, as Burke said repeatedly, kind of this methodical, slow improvement that balances our physician and other practitioners' needs with community needs in a responsible way. And I think we feel pretty good where we are on that, but with the understanding that we're going to see some continued modest improvement.

Before we go to the next call, I want to go back to one earlier. We a question earlier from Ken Weakley, and we gave a great answer but apparently to the wrong question. One of our team members has it. Steve Love is going to answer the question, maybe reiterate what it was (multiple speakers)

I apologize. I misunderstood your question. I thought you talked about the shift in current assets, and I think the question was why the change in the current other liabilities. And the other liabilities shift primarily on the balance sheet which he saw was because of accrued property tax; also, workers compensation accruals, accruals related to other insurance like health benefits, and in the general timing of accounts payable. So I think that will answer your question better than the answer I gave on assets.

What we thought the question was why the change in our other current assets. So that answer we gave earlier (technical difficulty) anybody has the question. I think we can go to the next caller.

Robert Mains, Advest.

I think my question has been answered. Average tax rate, you're saying it works out to be about 40 percent? Not effective, I am saying average on the financial statement.

Yes, it would probably be about that, plus or minus. That is about right.

Jim Rice, Oppenheimer Capital.

You mentioned on cash flow from operations that there was a delay in payment from a financial intermediary. How much of an impact did that have on cash flow for the quarter?

That was about $40 million for the quarter. And we have subsequently collected about 25 of that through to October. We expect to collect the remaining part, worst-case, some time in November.

Joseph Ciccarelli (ph), Oppenheimer & Co.

Just in connecting some of the dots, if I'll look at the admission trend in September and October, it sounds like August it's up, the outpatient acuity level is up and obviously you're also increasing your reserves for receivables, mostly because of self pay. On the surface that implies that a lot of the volume is self pay and in essence not terribly profitable relative to other business that you're doing. Maybe you can clarify that for me and possibly give some indication as to whether you're seeing employment rates increasing in your market. Or have I connected the wrong dots together.

I think in terms of the dot says in terms of the current self pay being a reflection of the adjustment made, that adjustment really goes back vis-a-vis the hindsight. I think that current employment, I think it's still too soon to tell about some of the employment trends in the market of some of our hospitals; is a turnaround there really dealing some of the increase in volumes. Although I guess anecdotally we kind of feel like some of the volume returns is a result of a little bit stronger financial situation in some of the markets, but I can't really quote to you improvements in the employment levels yet to give you that direct --

You're talking about seven or eight weeks. There's no real way to gauge. The trends that we've seen on self pay and what has been talked about today, really the trend has gone on over the last 12 months. I think we were the first one out of the box a year ago telling people the softness in numbers was a result of flu issues, etc. And I would say today it's too hard to tell you that over the last seven or eight weeks, some little tweak up in volumes or becoming more self pay that people come into a facility that don't have the abilities to pay. I don't know that we can tell you that over a seven or eight week period of time. I think we're optimistic, but we're cautious about it. We want to see. So you have to give us some time on that. I don't think you can connect the dots today over a little trend up in volume and what the impact on the pay is going to be. I don't think we've got enough good enough feel for it.

I guess the other side of the question is that in using your look back and looking at your current receivable based upon your historical results and saying that self pay has been higher, therefore the collectibility has been less, it could also imply that if the increase in volume currently is an increase in self pay, that the increase that you're putting in today may be inadequate three or six months from now.

That's always a possibility. Another way to look at it too is Mike talked about marked-to-market. I have to tell you, I see financially weaker hospitals competitively all across the country. We still have some strong competitors in a lot of markets. But we also have a lot of facilities that are a lot weaker today than they were a year ago. And if we continue to add services and to improve services, I like to think too part of it is a differentiator. It is that we are getting some of the business and will be getting some of the business that we're losing to our competitor maybe a year or two years ago.

So it could be combinations of things. But clearly on the negative side, if the trend were to continue to increase or escalate at kind of the rate we've seen, yes, that could be the case. We think we've accounted for that. We feel comfortable with it. But I sat here a year ago and I would have told you I felt pretty comparable at -- if somebody told me we were going to budget 8.5 percent of net revenue as bad debt, I'd feel real good about it. And today, 8.5 doesn't cut it. So that's something we're just going to have to continue to work at.

I mean I don't think right now you can connect the dots. I think we have a responsibility to try to get our hands around it. I think we have, but as we go forward in terms of some of these expectations, is to give some pretty good analytical thinking to what this thing is going to look like going forward without causing a lot of disruption. And we're going to do that. Just give us a few weeks and hopefully we can give you some numbers that we feel comfortable with.

Appreciate it.

At this time there are no further questions.

We appreciate it. I know this has been a tough subject matter, especially on this bad debt because you have got so many different companies doing it so many different ways. I think one of the clear things that Burke reiterated today is that anybody that things we haven't been writing off or completely writing off our accounts and having fully reserved by 150 days is mistaken. We're doing a lot better than that. So I think we really have been able to zero down to give you a pretty good number. We're still trying to fine-tune it. Even though I didn't like doing what we've done over the last two weeks, it was the right thing to do. And there is changes. And this isn't about Triad; it is about national health issues and evolving national health policy as it relates to reimbursing financing health care services. We're going to continue to be on the forefront of working with the government, business and industry and trying to find ways to make sure that good health care, affordable health care is provided in the communities that we work in. And we've got a good team and we're committed to doing that.

We feel good about where we are. We feel good about the progress that we're making. And as I told many of you, I think we've really crossed some bridges. Our best days are ahead of us. And I think we're doing some good things that are going to bear fruit over the next several months and quarters to come. We appreciate your support, we appreciate your listening in and look forward to talking and follow-up with those of you need more information. We appreciate your being on the call.

That does conclude today's conference call. You may disconnect at this time.