Community Health Systems Inc (CYH) 2006 Q4 法說會逐字稿

Good morning. My name is Jody, and I will be your conference operator today. At this time, I would like to welcome everyone to the Community Health Systems fourth quarter 2006 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [OPERATOR INSTRUCTIONS]

I would now like to turn the call over to Mr. Wayne Smith, Chairman, President, and CEO of Community Health Systems. Please go ahead, sir.

Thank you very much. Good morning, and thanks for joining us for our quarterly conference call. With me on the call today is Larry Cash, our Executive Vice President and Chief Financial Officer. The purpose of the call is to review our financial and operating results for the quarter and the year ended December 31st, 2006. We issued a press release and an 8-K after the market closed yesterday that included our financial statements. For those of you listening to this live broadcast of this conference call on our website, a slide presentation accompanies our prepared remarks. I would like to begin the call with some comments about the quarter, and then turn it over to Larry, who will follow with a more detailed account of our financial results.

But before I begin, I would like to read the following statement. Statements contained in this conference call regarding expected operating results, acquisitions, transactions, and other events are forward-looking statements that involve risks 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 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 Securities and Exchange Commission, including the Company's annual reports on Form 10-K, and quarterly reports on Form 10-Q, and current reports on Form 8-K. These filings identify important risk factors and other uncertainties that could cause actual results to differ from those contained in the forward-looking statements.

We are pleased to report another quarter with continued growth in volume and revenues. We had strong consolidated same-store revenue and volume growth, with same-store volume up 3.2% for the quarter. Net operating revenues for the fourth quarter ended December 31st, 2006, totalled $1 billion $154 million, a 17.6% increase, compared with $982 million for the same period last year. As-reported adjusted EBITDA for the fourth quarter of 2006 was $165.5 million compared to $152 million for the same period last year. Income from continuing operations increased to $53.6 million or $0.57 per share compared to $0.54 per share for the fourth quarter last year. Net operating revenues for the quarter ended December 31st, 2006, totalled $4.4 billion compared to $3.7 billion for 2005, a 16.8% increase. EBITDA for the year ended December 31st, 2006, was $572 million. Excluding the third quarter's increase in the provision for bad debt, EBITDA would have been $637 million compared to $573 million for the same period a year ago, or an 11.1% increase. Income from continuing operations for the year ended December 31, 2006, was $171 million or $1.78 per share. Excluding provision for bad debt adjustment, income from continuing operations per share would have been $2.20 versus $2.02 for 2005.

With that, I would like to review some key operating accomplishments for the quarter. Our same-store adjusted admissions were up 3.2% for the quarter, and same-store revenue up 5.9%. These year-over-year gains reflect our capacity to improve the level and scope of our services. The Company recruited 594 new physicians for the year, compared to 534 recruited physicians for the same period a year ago. Our 2007 physician recruitment target will be about 600. Our standardized and centralized approach to physician recruiting and practice development increases utilization, as well as generating positive volume. Our turnover remains less than 6%, or approximately 260 physicians.

We acquired a total of eight hospitals this year, with trailing revenue over $360 million and a trailing margin in the low single-digits. We acquired two hospitals on November 1st, Weatherford Regional Medical Center, a 99-bed acute care hospital in Weatherford, Texas. That has a trailing revenue of approximately $50 million and a trailing margin of less than 5%. Union County Hospital, with 25 beds, is located in Anna, Illinois, approximately 25 miles southwest of the Company's existing facility in Marion, Illinois. The Company has operated this hospital under management agreement for the past five years. Additionally, we have one definitive agreement to purchase a hospital in Ruston, Louisiana. This has been our second most successful acquisition year in the past ten years. Our Company continues to lead the industry in selectively acquiring non-urban hospitals in attractive growth markets, and our pipeline is very active.

The Company is updating its previous issued guidance for 2007 as follows: Revenue, $4.95 billion to $5.05 billion, EBITDA, $700 million to $720 million, with EPS from income -- EPS for income from continuing operations $2.30 to $2.38. Annual admission growth rate will be 1% to 2%. We also expect to acquire three to four hospitals in 2007. At this point, I would like to turn the call over to Larry to provide you a summary of our quarterly and year-end financial results.

Thank you, Wayne. We are pleased with the financial and operating results we achieved, both for the quarter and the year. As we discussed last quarter, the Company changed its methodology for accounting for bad debt from the [Clip] method of 150 days, to a percentage of self-pay accounts receivable, without regard to the agent category, and fully reserved all [inaudible] self-pay accounts aged over 365 days from discharge. We are reserving 64% of all of self-pay accounts as of December 31, 2006. Again, we believe this new methodology will pick up the changes in payer trends earlier and provide a better matching self-pay revenue. Since the financial statements for the year ended December 31, 2006, released last night, reflect a $65 million increase in the balance sheet allowance for [inaudible] accounts and provision for bad debts made in the third quarter, our discussion from this point is in relation to the year end December 31, 2006, will be before [inaudible] affected as increase.

Our consolidated admissions growth for the quarter was 15.7% compared to the same period last year. Adjusted admissions had a 16.7% growth rate over the fourth quarter last year. Our same-store admissions increased a very strong 3.2%, adjusted admissions also increased 3.2%. Same-store self-pay admissions increased approximately 80 basis points year over year, but declined 10 basis points as percentage of total admissions. This increase is much less than the 4.4% increase in the self-pay admissions for the nine months ended September 30th, 2006. Net revenues in the quarter increased 17.6% compared to the same period last year, or $1 billion $154 million versus $982 million. On a same-store basis, net revenue increased 5.9%, with outpatient revenue up a strong 8.1% and inpatient revenue up 4.3%. Same-store net revenue per adjusted admission for the fourth quarter 2006 versus the fourth quarter 2005 increased 2.6%, and same-store net revenue on a sequential basis was flat. Same-store surgery increased 1.6%, same-store Medicare case [fixed] increased slightly for the quarter, and all payers decreased 80 basis points versus last year.

I would like to make a few points on revenue. Out of the last seven days of the year, between Christmas and New Years were very weak, with revenue approximately 50 basis points lower than our normal usual run rate, and revenue per adjusted admission lower by approximately 50 basis points. Additionally, the Medicaid volume was higher than the overall growth, and from a revenue per adjusted admission standpoint, Medicaid is our lowest payer. Another point is that self-pay volume growth was lower than our overall growth, which is good, and our self-pay admissions has the highest net revenue per adjusted admissions, which affects our overall net revenue per adjusted admission growth.

EBITDA was $165.5 million versus $151.8 million for last year, or an increase of 9%. On a same-store basis, EBITDA was down slightly from the prior year. Adjusting for the increase in stock-based compensation, same-store EBITDA would have been increased 2%. Consolidated income from continuing operations was $54 million versus $51 million, an increase of 5.5%. EBITDA margin for the quarter on a consolidated basis was 14.3%, down 120 basis points from a year ago, due to the low single-digits margins of acquired hospitals, as well as an increase in bad debt. Same-store EBITDA margin was 14.4% compared to 15.3% for the quarter, a decrease of 90 basis points. Adjusted for the additional stock-based compensation, the a margin -- same-store margin would have been 14.8%, a decrease of 50 basis points from 2005. For the fourth quarter, our non-same-store margin was 13.8%, with about 2% coming from the revenue in the quarter recorded from the Medicaid-related state provider tax for our new acquisition. In this quarter, [premature] [inaudible] in all expense categories for non-same-store and trailing margins before acquisitions for non-same-store hospitals is approximately 3%.

Consolidated operating expenses for the fourth quarter as a percentage of net revenue increased 120 basis points from the prior year, primarily due to the expenses of acquired hospitals, stock-based compensation and bad debts. Payroll and benefits increased 50 basis points, bad debts 120 basis points, supplies decreased 30 basis points, and other operating expenses and rent decreased 20 basis points. On a same-store basis, operating expenses increased 90 basis points, with an increase of 30 basis points in payroll, and a bad debt increase of 130 basis points. These increases were partially offset by decreases of supplies of 30 basis points, and other operating and rent of 40 basis points. I would like to point out the increase in payroll and benefits relates to the -- expense increase the number of employed physicians. Also contract labor, which we categorize under operating expenses, declined 30 basis points on a consolidated, 20 basis points on the same-store. Business taxes also increased 40 basis points for the quarter.

On a year-to-date basis, admissions were up 11.9%, adjusted admissions were up 12.5%, same-store admissions were up 1.1% compared to our 2006 guidance of 1% to 1.5%. Adjusted for flu, respiratory declines as a result of no flu season in 2006 and one-day stay and service closures, same-store admissions would have been 2.6%. Adjusted admissions were up 0.9% and same-store self-pay admissions were up approximately 3.7% on an absolute basis for the year, and also up 20 basis points as a percentage of total admissions. Our guidance for same-store admissions growth for 2007 is in a range of 1% to 2%.

Net revenues for 2006 increased 16.8% to $4.4 billion. On a same-store basis, net revenue increased 7% per year. Same-store inpatient revenue was up 5.5%, and outpatient revenue was up an even stronger 8.8%. On a same-store basis, net revenue per adjusted admission increased 6.1%, with same-store surgery volume increasing 2.7%. Our Medicare case mix for the year ended December 31 increased 60 basis points, and our same-store all payer case mix increased 50 basis points. Excluding the allowance adjustment, EBITDA increased 11.1% for the year compared to 2005, 637 versus 573. On a same-store basis, EBITDA increased 5.3%. Consolidated EBITDA margin for the year ended December 31, 2006, was 14.6% versus 15.3% for the same period a year ago, due to the low margins of acquired hospitals and stock-based compensation.

Excluding stock-based compensation, EBITDA margin would have been 14.9% and same-store margins down 20 basis points. Adjusted for stock-based compensation, EBITDA would have been 17.9% and EBITDA margin would have improved 20 basis points. Non-same-store margin was 9.1% and the trailing margin was approximately 3%. And again, the consolidated operating expenses as a percentage of net revenue for the year were up 70 basis points from the prior year. This was due to the low margins from acquired hospitals, stock-based compensation and bad debt increases. Payroll and benefits increased 30 basis points -- excuse me, 10 basis points. Bad debt increased 100 basis points, and supplies decreased 30 basis points. And other operating and expense and rent improved 10.

Operating expenses on a same-store basis increased 20 basis points year-over-year, with improvements in payroll of 20 basis points, supplies 40 basis points, offset by the increase in bad debt and a smaller increase in other operating expense. Again, other operating expense does include contract labor, which decreased 30 basis points on both a consolidated and a same-store basis. Payroll and contract labor combined decreased 50 basis points on a same-store basis.

For the fourth quarter, consolidated bad debt increased 120 basis points, 11.4 versus 10.2. Charity increased 10 basis points, administrative discount increased 40 basis points. Our combined consolidated bad debt charity administrative self-pay discounts as a percentage of adjusted revenue are up 170 basis points for the quarter, up to 18.2%. For the year, consolidated bad debt, excluding the increase to revision was 11.1%, an increase of 100 basis points versus the prior year. Our combined consolidated bad debt charity administrative discounts as a percentage of adjusted revenue are up 130 basis points, or 17.3% versus 16%. Represented an increase of 20 basis point increases in both charity and administrative discounts and bad debt is up 90 basis points. Our bad debt guidance remains at 11.5% to 12% for 2007.

Self-pay revenue for 2006 was 11.9% of consolidated revenue, plus it was 11.5% for 2005. Self-pay revenue per adjusted admission was approximately $10,000 for 2006. For 2006, same-store self-pay admissions increased 3.7% or approximately 800 admissions. The self-pay growth in Tennessee hospitals accounted for about 60% of the increase, due to the disenrollment of TennCare beneficiaries in the latter part of 2005. Consolidated cash receipts were 103% of net revenue less bad debts for the 12 months ended December 31, 2006. We've taken the following actions to improve our bad debt performance, and again, improving point of service collections, which currently runs about 9% of self-pay revenue, qualifying more self-pay per Medicaid, evaluating non-emergent visits for collections or redirection, and expedited related verification of benefits prior to or during service. When considering the effect of bad debts, which have higher net revenue, it's appropriate to look at same-store net revenue less bad debts. And excluding the third quarter adjusted, the increase would have been 5.8% year-over-year.

Same-store operating expenses, less bad debt and stock-based compensation, would be 5.4% year-over-year. In summary, revenues has grown 40 basis points faster than operating expense for 2006 when a bad debts is left out of both revenue and operating expenses. Total AR days were 62 at December 31, 2006, on a same-store basis. AR days were 60. The allowance for doubtful accounts was $479 million or 38% of total net patient accounts receivable at December 31, 2006. Self-pay accounts receivable net of contractuals increased $747 million from $726 million due primarily to the growth from acquired hospitals in the quarter.

Community Health Systems continues to have a favorable payer mix. For the quarter ended December 31, 2006, net revenue by payer source on a consolidated basis was as follows: Medicare, 30.3%; Medicaid, which has increased to 12.4%; managed care, 24%; self-pay, which has decreased is 11%; and private and other, 22.3% of net revenue. Additionally, managed care does include the managed Medicare fee for service. On a year-to-date basis to break down was as follows: Medicare, 30.7%; Medicaid, 11%; managed care, 23.9%; self-pay, 11.9%; and private and over, 22.5%. Our cash flow from operations for the quarter was $82 million versus $75 million the same quarter a year ago, with $21 million in additional cash taxes paid in the quarter. Cash flow from operations for the year was $350 million compared to $411 million for the same period in 2005, a decrease of $61 million. This decrease is primarily the result of a buildup in accounts receivable from recently acquired hospitals of $24 million, cash paid for additional income taxes of $60 million over the prior year due to no tax benefit of the additional bad debts recorded. And we also had a change in cash flow presentation to tax benefit from stock option expense, resulting in a decrease of about $25 million for 2005. And we had an increase of $16 million in prior-year taxes paid in 2006. The decrease in cash flow from operations is offset by an increase in depreciation and an increase in stock-based compensation.

Our percentage of cash from other operating activities to EBITDA for 2006 was approximately 61%. Our 2007 guidance for net cash provided by operating activities is from $410 million to $430 million, a decrease from previous guidance because of an expectation of paying higher cash taxes in 2007. Capital expenditures for the quarter just ended were $75.9 million. For 2006, we spent $269 million or 6.2%, of which $50 million represents replacement hospitals and a new corporate office building. The capital expenditure guidance for 2007 would range from $320 million to $330 million, or 6.5% of revenue. Approximately $70 million is related to the construction of replacement facilities, and we also scheduled several large improvement projects during 2007. The balance sheet cash at September 30 of 2006, was $41 million. At the end of the quarter, the Company had available credit of approximately $400 million.

The Company amended its existing credit facility in the fourth quarter. The purpose of this facility was to refinance our previous credit agreement, repay our indebtedness, and fund general corporate purposes. Changes to the credit agreement were as follows: we refreshed and increased our stock buyback basket and refreshed the sale of asset basket. The credit facility's accordion feature allowing for an additional $400 million in new debt remains in place. We believe we have sufficient availability to fulfill our acquisition plans.

The Company concluded the 5 million share repurchase program in November, 2006. It was initiated in January of 2006. The total cost of the purchases pursuant to this program are $176 million, or $35.26 per share, of which 1,175,000 shares at an aggregate cost of $39 million were purchased in the fourth quarter. The Company has also announced a new open market repurchase program for up to 5 million shares of the Company's common stock. The new program commenced on December [13], 2006, and would terminate on the earlier to occur, the purchase of the aggregate 5 million shares not to exceed the total purchase of 200 million or December 13th, 2009.

Looking at the balance sheet, as of December 31, 2006, we had $446 million in working capital and $4.5 billion in total assets. Total assets [inaudible] debt at December 31, 2006, was $1 billion $941 million. The fixed rate debt is approximately 73% of total outstanding debt and our debt-to-capitalization was 53% and our debt to EBITDA was 3.4 times.

In reviewing our 2006 performance and 2007 guidance, please note the following: Our slide on page 17 shows the impact of the increased allowance for doubtful accounts and additional compensation for the year ended December 31, 2006. EPS, excluding these items, would have been an increase of 13.9%. 2007's projected have additional stock-based compensation, up $10 million to $12 million, or $0.06 to $0.08 per share. There were no significant equity-based grants in 2004 that would have fully vested in 2007. The Company assumes that future LIBOR rates for borrowing under credit will increase at a slower pace in 2007. Additionally, several swap agreements mature in 2007, reducing the interest expense savings impact of such instruments. We are also expecting our outstanding debt to range from $1.9 billion to $2.2 billion.

Interest expense will increase to a range of 2.4% to 2.6% of revenue compared to 2.3% in 2006. Interest will increase in 2007 due to an increase in LIBOR rates during 2006 and its affect on our variable rate debt, an additional expense due to the favorable swap agreements that matured in '06 and additional agreements that will mature in '07. Our tax provision will range from 38.3% to 38.7% in 2007. In 2006, our tax provision was -- year-to-date was 38.4, within our guidance. In the fourth quarter it was slightly less due to an enterprise zone hiring credit achieved in the quarter. The above-mentioned items have been included in our 2007 earnings guidance of 2.30 to 2.38. Wayne will now provide a brief recap.

Thanks, Larry. Our fourth quarter performance marked a solid finish to another outstanding year for Community Health Systems. Our same-store growth metrics are an important measure of our success in 2006 and reflect consistent execution of our operating strategy. If you would like to talk to us after this call, you can reach us at area code 615-465-7000. Before I turn the call over -- back to the operator for questions, I thought it might be helpful if I just answered this question that everyone seems to be asking about LBOs for us. As we said publicly a number of times, we continue to evaluate all strategic options that we think are in the best interest of our shareholders. If you look at our performance, our fundamentals and the opportunities that we have, in terms of organic growth and acquisitions, we still believe that continuing on the same course is the best strategy currently for our shareholders. Of course, we will continue, as I said, continue to evaluate this. And if things change, we'll change as well. So with that -- and our perspective on this, by the way, is about two to four years out. With that, let me now turn the call back to the operator, and we'll open it for questions for Larry and myself.

[OPERATOR INSTRUCTIONS] Glen Santangelo, Credit Suisse.

Yes, Larry, I just had a quick follow-up question on something you said in your prepared remarks. You talked about kind of the last seven days of the year as admissions kind of falling off a little bit. But yet, you saw a big spike in Medicaid. Did you see the spike in Medicaid during that time frame?

Well, not specifically. The spike in Medicaid was pretty much throughout the quarter. The last seven days, there was a slight more percentage probably on Medicaid in the last seven days. But predominantly that was throughout the quarter. And what we're trying to make a point was, our revenue growth for the quarter was 5.9%, a little less than we are here today at 7%. And we looked where we were for the last seven days, which had to do with the way the holidays fell, affecting the busier days of that time frame in the middle -- I think Christmas was on a Monday. And that caused us to have less revenue the last week, which caused a little bit of drop in revenue for the quarter. But the Medicaid volume growth was enough throughout the quarter, that it was an overall volume growth for the whole quarter.

So there was no read-through into early January, then?

No. That was -- well, other than you would have the first day -- January 1st, I think, was probably a Monday. Which you would have a little bit of slower time frame that first week. But really the first seven days were just running -- the last seven days we were running less than we would have anticipated.

Just one follow-up on bad debt. Obviously, you changed the methodology last quarter from the clip to the percentage self-pay. And I may have missed this, but could you kind of just comment on your collection experiences this quarter relative to that percentage of writing off up-front? Do you think your methodology is kind of where it should be now? Or do you expect any adjustments down the road? Any comments would be helpful.

We don't expect any adjustments down the road, as the results of just going through our work and our auditor's reviewing the work for the year. Clearly, we'll have to continue to monitor our collection activity, and we'll do that throughout the year each quarter. The self-pay business stabilizing should help us some. I think the allowance turned out to be about 64% versus, it was like 63.4%. So it was pretty close to what it was as a percentage of self-pay dollars. And of course, receivable dollars did go up a little bit as a result of the self-pay growth. But we were pretty comfortable that the lapse stayed in the 64% range for the year.

Okay. Thank you.

Tom Gallucci, Merrill Lynch.

Thank you for taking the time. I guess just as a follow-up to Glen's question there, first. Is there a particular driver that you saw in terms of the Medicaid being a stronger percent and self-pay down? Were there any changes in the state thresholds to qualify? Or an increased effort on your behalf to get people into Medicaid? Is there anything that you can talk about there?

Well a little bit would be, as we continue to recruit physicians, you will see a little bit more growth in Medicaid, specifically after you've had a bit influx of physicians. Some of the people who may be looking for new physicians early on would be Medicaid. We've seen events like this before when our revenue per adjusted admission didn't move up when the payer mix was a little stronger for Medicaid. But there's no new real state initiatives. There is a state initiative coming forth in Tennessee starting sometime this year, probably in the spring, will cover Tennessee, which should get more people access to Medicaid. But I think it had just to do with Medicaid was probably up about 5% versus the overall, and increased about 3.2%. But there's no real state initiative that drove that. We do work to qualify more people for Medicaid as we can. And we probably had a little bit of benefit from that. But no real driver as a result of something the states did.

Okay. So that would explain sort of the Medicaid side. And then on the self-pay side, on a relative basis, anyway, you saw a little bit of a deceleration there. Are we anniversarying anything in particular as you look at those comps? Or do you think there's something else that could be, at least, hopefully starting on a positive side?

Well, I think from a positive side, we've anniversaried a TennCare. And TennCare was a little more stabilized as related to our self-pay business. And then we actually did not have a lot of growth in '04 and '05 in self-pay business. And as Wayne and I have often said, a lot of the growth in self-pay was in Tennessee and in Texas, with Laredo and those locations, and where we had the hurricanes. So we were pleased to see that it stabilized and we'll just have to watch in future quarters to see what happens.

Okay. And then just one quick one more on the labor side. I guess you mentioned it's up a little bit due to employed docs. Your goal for recruiting this year is 600. Do you have an idea of how many you think may wind up being employed there? And how does it play out on the leverage side of things? As those doctors ramp up, should we see that percent go down, the cost, as a percent of revenue go down as they sort of get better leverage on their cost to you?

We should see some better leverage. What happened was, there was probably about 40 more employed in the last half of the year versus the first part of the year, and year-over-year we increased about 55% or 60% versus the preceding year. As they come on and get better, and we get better results, and them getting volume and operating, they should be a little bit better. But I would expect probably employed physicians to probably continue to be part of our strategy, because we think ultimately we make money on it, although it does affect our margins and affect our payroll line.

How many employed was it last year out of the 594, I guess, that you said you added?

Around 150.

And you'd expect something similar for this year?

Probably so, it could be up a little bit. And we will employ physicians, when we need to. But we're working hard to try to not have any more than is actually necessary. I think overall we have around 550 employed physicians out of our approximately 5,000 physicians.

Okay. Great, thanks for the color.

Gary Lieberman, Sanford Group.

There was an article in the Wall Street Journal today discussing an increase in foreign doctors coming in on, I guess, H1B visas instead of J1 visas, and that it was having a negative impact on the supply of docs in rural areas. I was just hoping I could get your guys' perspective on it, if it's had any impact, or if you anticipate it having any impact?

I haven't seen that article, but it really hasn't had much impact on us at all. I haven't heard any of our guys say anything about that, one way or another. So I can't -- and as you know, we probably recruit more physicians than anybody else in the country, and I haven't heard that as an issue at all.

Is that because there's just a different mix? Or most of your recruited physicians, non-foreign physicians, is that probably -- ?

We don't seem to have having a lot of difficulty finding physicians, in terms of opportunities for them. About 60% of our new recruits are coming out of current programs, residency programs. And as you know, we've moved up on the specialist side of it as well. We just don't seem to be having those kind of difficulties that some other people might have. I don't know why they would, because there certainly seems to be -- currently, there seems to be plenty of physicians around.

Great. Thanks a lot.

Adam Feinstein, Lehman Brothers.

Just to -- let's see, a couple questions here. Larry, maybe just give us a quick overview on pricing by payer class, and just what your outlook is there? And maybe I just had a couple of follow-up questions, maybe just starting with the pricing for each payer class?

That's a good question. Because while the revenue per adjusted admission was down in the quarter, we think it had to do more with mix than pricing. We still think Medicare will be in the 2% to 3% range. We've just got the market basket, and of course, the outpatient update, and there's transfer DRG issue coming forth this year, like there was about a year ago. Medicaid was 0% to 1%. We did get a little bit of money out of the Illinois provider tax, which will help our Waukegan facility. Managed care, which still should be in the 5% to 7% increase. And the other payers will probably be a little bit higher than that. So pretty consistent with what we've got, even though the revenue per adjusted admission was down, we think that was not a pricing issue, but more than a mix issue.

Okay. And maybe just, if we're talking about Medicare pricing, Wayne, I don't know if you have any comments about the President's budget that came out a couple weeks ago. But just some discussion in there about reducing payments for hospitals. Just wanted to get your outlook there.

Yes, I don't think -- there will be a lot of rhetoric around all this, a lot of discussion. But I don't think you can really get elected in 2008 if you're in favor of cutting the Medicare program. I think the more substantial risk is around administrative adjustments that might come from the bureaucrats more than anything else, like things that have happened in the past in terms of the DRGs. I think that's the greater risk. I just don't think this is something that will happen this round. I think the more -- out 2008 we'll have more risk.

Okay. And then just a question on mix, Larry. I know your outpatient volumes grew faster than your inpatient, and I know that had some impact on the revenue per adjusted admission here, as well. I was just curious for the surgeries, was the trend similar for outpatient surgeries relative to inpatient surgeries -- ?

In the quarter, the outpatient surgeries grew a little faster than it did, the inpatient surgeries. So outpatient grew a little bit faster.

All right. And then just, wanted to see if you had some of the numbers for the acquisition classes by year, some of the data you provided in the past. I was just curious if you had some updated numbers?

Yes, the class of 2001, still is in the 17% to 17.5% range. Class of -- that was a trailing margin of 2% we acquired. The class of 2002 was a trailing margin of about 1. It's about 11%. It's still got some opportunity in a couple of markets. Class of '03's done well. It's gone from mid single-digits to about 14%. Class of '04 has done well. It was in the high single-digits, up about 17%. Class of '05 is in the mid single-digits now. There's still some opportunity there, especially in one of our markets that do better. And the class of '06, it is a little too early to comment on, but it's on target.

Okay. And just a follow-up. You guys have announced a number of deals over the past 12 months. What's the margin profile of the deals you've done recently? I remember a few years ago, the margins were a little bit lower, as you highlighted back then. So what's the margin profile of some of the more recent transactions?

It's around 3%, the trailing margins. And the same-store margin on the class of '06 today is probably in the high single-digits.

All right. Very good. Thank you.

Eric Chiprich, BMO Capital Markets.

Thanks for taking the call. I just wanted to get clarity on guidance. Does the guidance include stock repurchases under your new 5 million share plan?

Well, the range of stock there, we expect to give out some more stock options, restricted shares, it does include some, not a major amount of stock options. What we'd expect to happen would be is stock options not be exercised, we'd probably buy that back, and then we watch the price. But not a major activity, because we watch to see what we think the price is, what acquisitions are, and we try to balance it out.

Is there a certain price that you are restricted to, you need to repurchase under, or is that not part of the plan?

There's not a certain price. Wayne and I discussed -- .

No, it's just opportunistic.

Okay. Great, thanks. And then finally, you did a good job on the other operating expenses. Curious if you could just talk a little bit about nurse, labor and professional fees. Kind of what level of dependence you are seeing on these folks now relative to historical levels, and what rate increases you're seeing for using these services?

We don't use that much of the -- what I call travel and the use of per diem nurses. We use about 1.7%, I believe, in total. And that's down from last year, of a lesser --- a little bit more amount on a yearly basis. And I think we'll continue to be around that level. The increase has been modest, it has gone up a little bit, but not substantial. It's in the single-digit range.

Thank you.

Christine Arnold, Morgan Stanley.

A couple questions. In terms of your 2007 managed care contracts, is the pricing looking similar to what you saw in 2006? And has there been a change in the composition of those contracts, i.e., floating going to fixed, or clauses in there, or duration changing? And then on your receivables. I'm still wrestling with your receivables. Could you help me with the sequential -- I know you got paid for Medicare. I think that was like $30 million. But then you had an increase of $24 million relative to acquired hospitals. What were the pluses and minus on the net increase in receivables?

Well, the first question. We'd expect to be in the same range we're getting now. There's been no real big switch take place. We do have a few contracts on the percentage of charges, primarily the smaller payers, and it's primarily on the outpatients. Most inpatient is on fixed. And there haven't been any major changes on that. As it relates to the receivables, a couple of things. The $24 million is of course, the annual number year-over-year, as it affects our growth and acquired AR. Sometimes we acquire AR, sometimes we do not, but still have trouble getting the opportunities to get the [tie in] notice we need to do that. If you look at our AR days, what happened, was last year, AR days went from 62 down to 61. This year, AR days consolidated and went from 61 to 62, but same-store is actually 60. So our consolidated AR day last year from the quarter went down one. And this year they went up two. And some of that's tied to the growth in the AR from the acquired hospitals. About $12 million average daily revenue makes an AR day, which happens to coincide with the growth of the acquired AR of about $24 million.

Can you give us net self-pay receivables, this year versus the same time last year?

I said that net self-pay receivables was $747 million.

Okay, thanks.

Ken Weakley, UBS.

Larry, do you have like net physicians added over each of the last, say, three years? We always talk gross. But I'm just curious how the net is growing?

I've got the two years here in front of me, and the other number would be similar. I think it was around 330 or so in '06, and 285 in '05. And my assumption would be something like 240 or 250.

And what was the net in '06?

'06 was 330.

Okay, good.

And then 280 or so in '05.

Okay. Wayne, I guess one question I have for you is about the size of the firm, looking at the model with I guess $5 billion in revenue next year. As you scale that up a over the next five years, you're going to be a $10 billion Company probably within five years. So tell me about scaling up your capabilities as a firm? And in terms of acquisitions, assuming the same-store growth on the top line is constant, it does suggest a lot more acquisitions going forward, relative to the prior five years. So can you talk strategically about how you grow a business from the level today, which is much bigger than it was, say, when you became public five years ago?

Yes, if you go back to 1997, it was about $350 million, $400 million or so. So we've come a long way in a relatively short period of time. I think our acquisition track this year is 360. I don't know if it will be that big or not next year. It's a year-by-year kind of thing. One of the things that seems to be happening, though, is that we seem to be finding and locating acquisitions that sort of fit for us, with a higher revenue base. So I think that's kind of helpful.

Is that in a larger market, or is it just -- ?

It's both. It's in larger markets and it's in -- a lot of them, though, are still markets that really work pretty well for us, in terms of being the sole provider. And sometimes it might be a market to where there's two hospitals in town. But if the price is right, as we've proven over -- our Easton project that we talk about a lot, and have talked about for years, in terms of having about $120 million in revenue. I think we bought it in 2004. It had about $120 million in revenue. It's got over $200 million now, and it's got -- it had 0 margin or 1%, 2% margin. It's got very high margin today. Those are opportunities that we like a lot. And if in fact, we bought Chestnut Hill last year, a fairly low amount, and it's got a lot of revenue in it.

So one is that we think there continues to be good opportunities for us, in exactly the same kinds of facilities we've been buying in the past. The $30 million, $40 million, $50 million, up to the $60 million, or $70 million, or $80 million. But on top of that, there seems tor to be more of these $120 million, $150 million facilities that are available. One of the other things I think, we consistently grow our same-store. We believe in the fact that we've still got a lot of organic opportunity in our same-store growth. So I think we're positioned really well. And our fundamentals, you look at our fundamentals in terms of volume and surgeries. Obviously, everyone's got the same issue around bad debt. But you put all that together, I think we feel pretty good about the opportunity for us growing in the future.

I want to ask you one last question, if I could, on the LBO. Your comment about the market, I understand. And you had said -- I think you said if things change, so will we, or something to that affect. And I'm just curious if the only issue with going private is the price. If someone comes to you with $65 a share, I'm sure that's something that will raise eyebrows. So what -- is it more -- ?

Do you have an offer at $65?

Is it more than just price in this debate about the strategies of the firm, in terms of going private? Or is it more complex than that?

Well, no, I think it is around what we believe we can do over the next two to four years. If you premium today, a 10% or 15% premium today on our current stock price, look at it today. And then you project that out over the next three years -- two to four years, I think from our investors, and I'm a big one -- I'm a big shareholder, we get a bigger share price under that scenario, than we do taking a premium today. And we continue to look at that. And one of the good things, I think, Ken, that's going for us is the fact that we've got a good balance sheet. We can continue to buy hospitals, we can rev up our CapEx if we needed to, to increase our same-store, we can buy back shares. So we have a lot of flexibility. Particularly, this is important, particularly, when you have times when volumes aren't all that great, you're under pressure from bad debt. So we do have a lot of flexibility. And that's what I mean about us continuing to evaluate and the fact we do have flexibility to do whatever we think is in the best interest of the shareholders. This has very little -- this has nothing -- people ask me this question all the time, wouldn't you rather be private than public? This has nothing to do with management comfort. This has to do with value going forward.

Understood. So if someone were to take that growth into account, then it would make more sense. You're just suggesting that they're not at this point?

I don't think people look out three, four years in terms of this.

Understood. Okay. Thanks so much.

Darren Lehrich, Deutsche Bank.

A couple things here. I just wanted to talk a little bit more about some of the things you're going with regard to collections and perhaps improving the bad debt trend, with better collections and better procedures. , I think you're testing some sort of products to look at estimating self-pay, and probably a little bit better on the outpatient side. Can you just talk about where you are with that? And whether you think that will be important as you go through 2007 to get at some of this self-pay that you're not collecting up front. I think, Larry, you said 9% is what you're collecting up front.

Yes, if you go back and look a few years ago, it was 4% to 5%, now it's 9%. It can be higher than that. We are putting in some more automated efforts with one of our systems companies we use, to try to better identify the co-payments and [deduct] What we're trying to do a better job of verification. We've got a company, and it's here locally, that helps us with verification. Trying to make that information come back to our registration people in a smoother way to do. But we have been putting a lot of emphasis on it. We moved it up. We should continue to try to move it up. But [inaudible] of course, 70% of our bad debt probably is pure self-pay. And again, another 70%, 75% comes in the emergency room, and another 10% of that comes through OB, which is just another form of emergency. There's not a lot you're going to change about that. You can improve the collections on deductibles and coinsurance, but most the bad debts are an uninsured issue, which is hard to do. We can try to qualify them for Medicaid. And I think we'll continue to look for other ideals and try things and put more analysis, more effort, more incentives on it. But we still believe that bad debts at least in 2007, will probably in the 11.5% to 12% range.

Okay. And then just, I know this was sort of asked before with regard to the decelerating self-pay admission trend, but I think it's important. Can you just give us a little bit more insight in terms of what you're hearing from your doctors, in terms of their own practices, and whether there's any changes in the markets with regard to coverage changes that you think might be driving this, or specific to your own procedures in the emergency room that might be a factor, as well.

I think what we've tried to describe to people was that the big growth we had in the 2006 had to do with the TennCare disenrollment. It was at one-time, 70% of our admissions, and ended out the year about 60%. We also had some growth in Texas markets, which is a tough state from a bad debt perspective, very tough. And then we had some from the markets where we had hurricanes, because of the economy and construction workers. And I think it's stabilized, it's one quarter, it was good, it stabilized. I think the TennCare thing is definitely looking behind us. We should get a little better with Cover Tennessee. I think the markets would have -- lower Alabama and Florida should get better. Texas, with the immigration, we'll have to watch. There's no real big improvement -- lowering the self-pay business just because of what Medicaid did. We worked hard to qualify for people. But we're getting similar qualifications, maybe a little bit better in '06, than we did in '05, but not materially.

One of the things I think you have to keep in mind, one quarter certainly does not give you a trend. There's a lot of estimates and actuarial work that needs to go on, in terms of looking at all of this. And as we said last quarter, we believe that our issues around bad debt revolved, as Larry just said, around Tennessee, the Gulf Coast, and the border, where we have a big hospital in Laredo. You would think that those things are moving in the right direction. But I wouldn't want anybody to misunderstood that we think there's been a major shift in this trend.

Fair enough. And then just in terms of what's embedded in your guidance, I know you're guiding to 1% to 2% admissions growth. Can you just give us -- maybe I missed this. But net revenue per adjusted admission and just same-store revenue in total, what's embedded in there?

Well, in the same-store, it's in the 6% to 7% range. And revenue per adjusted admission would be in the 4% to 5% range from a revenue growth perspective. Revenue adjusted admission. And I think I gave the pricing a while ago, which would support the 4% to 5%.

Okay. And then just last thing here, really more of just a housekeeping question. Inside your guidance, regard to working capital changes in 2007, I think in your previous guidance it was -- working capital was a source of cash. And in the current guidance, it's a use of cash, I think $20 million to $30 million or so. Can you just remind me what the delta -- ?

I think our cash taxes will continue to be a little challenge for us going forward. Looking at our guidance, and looking as we accelerated bad debt reserves, we're not getting immediate tax reductions. We'll have to weight how the IRS looks at bad debt is just different than accounting profession. So that would be the primary issue, I think, there. And we're probably a little more cautious on receivable performance, being somewhere in our range of the low 50's, low 60s, or high 50s to low 60s.

Great. Thanks very much.

Jason Gurda, Bear, Stearns.

Most of my questions have been answered. I was hoping if you could just give a little bit more color on some of your either opportunities or potential challenges you see in the other cost lines, besides bad debt, for 2007.

Ladies and gentlemen, this is the operator. I apologize, but there will be a slight delay in today's conference. Please hold and the conference will resume momentarily. Thank you for your patience.

Okay, are we back on the call?

Yes, sir, you are back on.

Do we have a question?

[Shelly Knoll], Goldman Sachs.

Did Jason Gurda get a chance to ask his question?

I don't think so. But let me apologize to everybody. We don't know what happened. We got disconnected. But we're here. Go ahead and ask your question.

Okay, great. Thanks. I guess at this point, my question would be, are there any state level reforms that you're watching that would expand insurance coverage that you are watching with particular interest?

Yes, the good news about the uninsured is that -- and I don't know if this is a political, probably is related to the politics of the day, is the fact that a lot of states now are beginning to talk about ways that they can solve this problem with the uninsured. First wave of this is coming out, it has to do with children and the children's program. But hopefully this will catch on. Part of it has to do with the economy, too. In that the state's budgets are in better shape today than they've been in a long, long time. So we're encouraged by that. That's not something that's going to happen overnight. But hopefully, over the next year or so, we'll see a lot more activity around this. At least discussion is the first step towards getting something done. And particularly during this election cycle that we're going on, we're very hopeful that states -- Tennessee has done it. California is talking about it, Massachusetts is doing something. There's three or four other states that are working on it now. But just about every state is talking about. We would hope that it would move up to the federal level fairly quickly.

Great, thank you.

Jason Gurda, Bear Stearns.

Morning, I'm back. Most of my questions have been answered. I just wanted to get a little bit more color on your outlook for some of your other cost lines besides bad debt for 2007. Maybe where some of your opportunities are, and potential challenges.

Yes, if you look at payroll, I think we've always done a pretty good job of payroll and contract labor combined. We will have to be aware of the employee physicians costing a little bit more, as the new ones come on and before they get productive. Supplies, there's an opportunity to continue. We generally used to average about a 20 to 30 basis point improvement in same-store supplies. We did better than that this year, but I think we can continue to get back to the 20 to 30 basis points. I think the year finished out at 40. I think our other operating expenses, malpractice, insurance and workers' comp, and health insurance should all be in the similar single-digit range that we'd expect it to be. I don't see any real substantial cost increases of a concerning nature, other than probably, as everyone knows, is bad debt is probably going to go up more than the revenue is going to grow.

Okay, thank you.

Rob Hawkins, Stifel Nicolaus.

Kind of a quick question about the doctors that you're employing and similar relationships you have there. Are these physicians under incentive? And then how are these physicians doing on an incentive productivity basis? How does that look over time?

It really varies. Some have salary, some got productivity, some have incentives, it's not a standard contract under all arrangements for all doctors. And there's 10% of our medical staff is about employed, a higher percentage of specialists of primary care, as you'd expect. But there's not one plan throughout, and it varies based on location.

Okay. Looking at your outpatient volumes, a lot of the other operators have experienced drop-offs in outpatients, despite those operators also stepping up their recruiting. What are you guys doing differently? Or I guess -- or maybe, rather than compare yourself, what's your formula for success in terms of outpatient?

Some of this has to do with our demographics. We still have a lot of opportunity within our markets. We've got a pretty good -- unemployment is down, the growth rate is about 1% overall. So some of it -- and lack of competition. Some of our competitors may have more competition in their markets from this proliferation of outpatient surgeries and diagnostic centers. So I think part of it has to do with that, part of it has to do with our physician recruiting, as well. Larry, you want to add anything to it?

Our diagnostic imaging, we spent a lot of capital on that and continue to spend it. It's part of the emphasis on our outpatient growth. Our CAT scans, MRIs. It's part of our spending last year and be part of our spending this year, and probably will be in the future.

All right. And then I guess, finally, have you guys gotten a sense -- I mean, of the Part D benefit. It seems like your Medicare, on a same-store basis, was up, but maybe overall for the Company it came down a little bit as far as your pair mix. And I know some of that might be due to the self-pay. But are you guys seeing any kind of trend related to Part D, whether that's really impacting either admissions or outpatient volumes?

Well, most of our Part D deals with fee for service. We've got about 3% of our revenue is Medicare Advantage. We used to do about 2%, so it's come there. We've contracted with certain payers. We'll probably contract with a few more. We don't have any really aggressive managed care plans or aggressive HMO type plans so far in our markets. So at 3% of our revenue, it's probably going to continue to move up a little bit. It does affect -- back to a previous question, it probably affects our AR days about a half an RA day, which I probably should have said, when asked about it. AR days have gone up a little bit from that, but not substantially. So I don't think in our type of markets, we look at where people want to sell this, they probably want to sell it where there's a lot higher payment rate from the government, and that's not in our markets.

All right, thanks.

Matt Ripperger, Citigroup.

I just had a question on your CapEx outlook of the 320 to 330. When you net out the replacement hospital, 70, how much of the remaining 250 is inpatient spend versus outpatient spend? And does that fluctuate much year to year?

Well, if you look at it, we look it more in categories of spend. [inaudible] -- good amount we spend on them, we spend a lot on the radiology diagnostic, a lot on the operating room area, which could be both inpatient and outpatient. Facility renovations probably is about probably 7% or 8% of it. So if we look at it -- and then I'd say the real outpatient, that we've got probably 7% or 8% of the nonreplacement hospitals related to diagnostic centers or ambulatory surgery centers. Which we're rethinking that strategy and how much we'll spend. We probably had a higher amount. We brought it down a little bit recently. But if you look at it more in categories, ER, surgery, radiology, diagnostic, and what you might focus on, MRIs and CAT scans on an outpatient basis, that may lead to some inpatient business.

One of the things that we would hope is that we wouldn't have this continuing cost of replacements. And we're very careful. We've done a good job through the years in terms of return on our CapEx. So we're going to -- particularly when you've got times when volumes are relatively light and you've got bad debt issues, we're very focused on the CapEx.

Great. And the second question I had is related to the imaging business. There were some pretty meaningful cuts that went in in January for the Part D business that impacts doctors that own their equipment, freestanding players. Have you seen any rationalization of that market or any of that volume start coming back to the hospital?

Not as of yet. It's a little early on that. And clearly some of those -- we don't have that much diagnostic outpatient competition in our markets. We have some. We have not seen a lot of movement yet. We'll watch that to see if it happens. You are correct, there's a chance that could benefit us in '07.

Last question I had, is just Medicare managed care rates relative to Medicare fee for service. Can you just give a comparison of the two?

Well, we generally get a similar DRG in outpatient payment, especially on the fee for service, you'll get the same. But most of the times we're getting very close to the same DRG, including capital pass-throughs and other reimbursements that we get, so it's fairly comparable.

Great. Thanks very much.

Kemp Dolliver, Cowen and Company.

Cash interest and taxes for the year?

We'll provide that in our 10-K when we release it, okay?

Okay, that's fine. Secondly, is on the volume guidance for this year. What are the main couple of drivers to that in the context of say, population growth in your markets, say any particularly large capital projects, or other things you think will drive the growth at that level?

I think the number one driver has been/will be, will continue to be, is physician recruitment. And we continue to be able to do a good job on recruiting physicians. Having said all that, our markets are less competitive, we don't see all the issues that other people do, in terms of around a lot of these competitive threats in terms of diagnostic centers and outpatient surgery centers and all those kind of things. But clearly, the main driver of this is physicians. And then the second component of that, if you dig down into it just a little bit, is for us to continue to look for the specialists that we don't have in the market, or where we need to expand, where we have one or two, we might need two or three. It might be cardiology, it might be general surgery, it might be orthopedics, those kind of things. So we have done a specific plan for every hospital, every market, looking at the opportunities. We base this on population and demographics and growth in the population. And that's how we get to our numbers every year of what we need for the coming year. And you can basically see from our numbers, from our same-store volumes, that we've gotten pretty good growth. This was a pretty good quarter for us in terms of admissions, and our surgeries were okay. So it's working, and that's been the main thing for us for the last number of years.

The population growth is a little under 1%, and only capital project would probably be -- of a substantial nature, spending money on the ER has been a big driver for growth.

Super. The last question, as you just moment ago mentioned that you were rethinking what may have been the ASC and/or the diagnostic imaging strategy, could you just elaborate on that?

Let me just say one thing about the ASCs quickly. The change in reimbursement for outpatient surgery centers, we don't -- even though our markets are not all that competitive, it seems to be that there's less interest, in terms of physicians, as far as joint ventures are concerned for outpatient surgery centers today than there was maybe a year or two ago. That in itself is helpful to us, and it also is helpful due to the fact that we're always better off if we can do it in our existing facility, where we've got all that fixed cost, as opposed to going somewhere else. So that's one item.

And I'd just say, I think the top end of our guidance for CapEx in October was 340. Now it's 330. Probably the principal reduction was the thought [inaudible] less ASCs or outpatient diagnostic centers where we thought we may have to do some for both defensive and offensive to gain more business. We only kept our 40% of the surgeries in our markets, so it's a good thing. And we thought some places, outpatient surgery centers would be good. And I think we've changed our mind in a couple of locations.

That's great. Thanks.

Doug [Deter], Bank of New York.

Just a couple quick questions here. I noticed in your presentation you explained what CapEx for routine is. For the remaining amount of CapEx, could you break that down between what you'd be spending on expansion in current facilities versus acquisitions?

Well, replacement hospitals for '07 will be $70 million of the range. Probably equipment is in the neighborhood of probably a half of the spending, and then major projects would be the other portion of that.

Okay. Second -- .

One comment. Maintenance CapEx probably is about 1.5% of revenue, and that would come out of the total.

Okay. And others have been kind of alluding to the question about ASCs and imaging and then asking some general questions. I just wondered in terms of your expectations for next year, if you can kind of talk about what you're doing to expand your outpatient? It does count for about 40% of your revenue. So I'm just trying to understand what you're doing on that side to keep the growth.

We just talked a little bit about that we are probably backing up from the expansion in terms of outpatient surgery centers and diagnostic centers. For a couple reasons, reimbursement is changing. And we don't have that many to start with it. So it's not a huge threat to us. And there seems to be lack of, currently less physician interest in those things, in developing those kinds of relationships in joint ventures. I think what we're doing and will continue to do, is enhance our facilities and equipment, and the services that are available within our facilities. We're always better off if we can do it under the same roof, where we have all that fixed cost.

So you're still expecting continued growth in that space?

Yes. The revenue was actually up 8%, I think, for the year, and also for the quarter. Adjusted admissions actually were 3.2%. So we had pretty good growth in outpatient in the quarter, and we expect it to continue.

Last question, I don't know if you disclosed this or not. What percent of your outpatient revenue comes from imaging and [inaudible]?

You're correct, we don't disclose it.

Okay. Well, thank you very much.

[OPERATOR INSTRUCTIONS] Gary Taylor, Banc of America.

A few quick ones. Larry, I think you gave the self-pay gross AR and I didn't catch it?

It was actually net. Net was 747, and the gross was a little higher than that. But there's a small [contractuals]. But the net is 747. I think the percentage of receivables is like 34%, or something like that.

Okay. I don't think you mentioned supplies expense too much. But obviously, that's really moderated in the back half on a per unit basis, and also percent of revenue. So as you look into '07, do you still see that growing at a slower rate than revenue per unit, where you're actually going to see margin leverage there?

Yes, we, over the years, other than one year, have had improvement of same-store supplies of 20 or 30 basis points. This year it's 40. I think we'll revert back to the 20 to 30 as the purchase and group [inaudible] are doing a good job, and we'll work with them. And also we've got opportunities on some of the compliance items. This year, we did real well in areas of drug expense. It's something we focus on a lot, and film, [inaudible]. So I think you'll still see us have opportunity, probably not as much in 2007 as we had in 2006, though.

Okay. And can you tell us, or just describe a little bit this trend towards physician employment, as opposed to perhaps historically you may have just recruited those docs with income guarantees. You're not the only hospital company talking about more physician employment. What's really driving that trend?

Gary, it's Wayne. I think there's a few things that have happened historically over the last few years. One has to do with the malpractice crisis that occurred a couple years ago. Even though malpractice has moderated, I think we had an uptick in physicians who want to be employed because of the malpractice issues going on. Now for us, it might be different than it could be for other people. They may be doing it for strategic reasons in big competitive markets. We're doing it because it works better for us in a particular smaller market to attract the right kind of specialists to get to that market. Even though it's part of our strategy, it's not our main strategy. Of course, like most people, we really don't want to employee too many physicians unless we just have to. But that trend has ticked up a little bit. We think it probably won't go up as fast this year as it did last year, in terms of employed physicians. And you'll see this -- you'll see this come and go through the years, based on a couple things, like malpractice and whatever it might be happening in terms of the specialties that we need. It's more around specialties for us, than it is anything else, I think.

Okay. Then my last question, I do want to just come back to the LBO thing just one more time. Is it fair to interpret your comments that you would consider offers, but you're not actively seeking offers? Is that fair, or am I saying too much?

I think it's fair for you to consider the fact that we, as a management group, continue to look at all kinds of strategic alternatives that we think would provide the best value for our shareholders going forward. That includes a bunch -- if that's not -- that's not an economic term. But that includes a lot of things that we think about all the time. And there's an array of those things. So, yes, we would look at and talk to anybody and everything about all kinds of possibilities, because we think we owe it to our shareholders to do that.

Okay. Thank you.

John Ransom, Raymond James.

Wayne, it was good to see you the other day. I wondered if you could give us an update on the private companies, and what you perceive in terms of their appetite for acquisition activity? Obviously, we know the public companies have largely pulled back. But I wondered what you saw going on with some of the private. I suppose some of the ones that were started recently, and the ones that have been started a few years ago. Thanks.

Yes, I think if you look at the ones that historically have been around for a few years, we don't really see them very much out in the acquisition -- doing acquisitions, or working on acquisitions. They seem to be working on their current facilities more than anything else. It's the new start-ups. And we've seen a few of those, and we actually lost one to a new start-up company along the way. Of course, as I've said over and over again, we don't lose any sleep over losing one, because there's so many opportunities as evidenced by the fact that we bought eight this year and already have one lined up. I don't think that they're a huge competitive threat in the market to us. They will pay up sometimes because they might need a facility to try to get started. But generally speaking, experience and reputation trumps new start-ups when it's all said and done.

So we will see them periodically, but there's a lot of other people that we have seen in the past that are not in the marketplace, both public and private companies. So I think the acquisition market, it really is not dramatically changed over the number of years, either from competition or price. Our pricing is essentially the same as what it's been for a number of years.

Great. And my other question is, if you look at some of the macro data, it would suggest the not-for-profits are doing a little better than people might perceive. The collective returns from the for-profits. When you guys are looking at distressed not-for-profits to buy, are you seeing anything different out there? Is there a new reason to sell? Is there a -- are there fewer distressed properties than there were five years ago? Just what are the dynamics there that you see with the not-for-profits? Thanks.

Well, if you look at the trailing margin of what we bought, it's been about 3%, some a little higher, some a little lower. So it's about the same. We probably averaged 4% to 5% over the last several years. The only thing I'll comment a little bit about that. If you look at where a lot of the bad debt challenges are, it's in some of the southeastern states, where we've had the hurricanes and other things, in Florida and in Texas. And I think proportionately, for-profit hospitals have a little higher percentage of ownership in Florida and Texas than some of the not-for-profits.

Keep in mind, we've only bought not-for-profits. We bought eight not-for-profits this year. We had the biggest year we've had in terms of acquiring facilities since a few years back. So there continues to be a lot of opportunity among the not-for-profits for us, both from the community owned not-for-profits and the faith-based not-for-profits. On all of the above, there continues to be lots of opportunity. So we haven't seen any change in people's attitude towards selling their facilities.

I think I have this number, Larry. But remind me what the revenue multiple this year has been, either on a trailing or forward basis? However you look at it.

Trailing, it's about 80%.

About 80% of revenue? Okay. Thank you.

One other question I think somebody earlier asked about cash taxes and cash interests, it will be in our K to be filed next week. But it's around $220 million, $225 million.

[OPERATOR INSTRUCTIONS] There are no further questions, sir, at this time. Are there any closing remarks?

Yes, thank you. Thanks for spending time with us this morning. We believe that our ability to deliver quality healthcare services continues to differentiate Community Health Systems in the non-urban hospital market. We continue to pursue an aggressive acquisition strategy with a proven track record for finding suitable hospitals and successfully assimilating them into our system. More importantly, we have enhanced the level of healthcare in more communities throughout the country. As we look to 2007, we will continue to pursue our ongoing strategy of recruiting qualified physicians, adding new health services, and investing in our existing facilities. We're excited about our prospects for growth and remain focused on delivering value to both our shareholders and the communities we serve. We also want to specifically thank our management team and staff, our hospital Chief Executive Officers, Chief Financial Officers and Chief Nursing Officers and group operators for their continued support in operating efficiencies during this difficult operating environment. Again, there's a slide presentation that accompanies our conference call, available on our website at www.chs.net. We believe our success in the markets and our favorable reputation as an acquirer of choice will continue to extend our leadership position. Once again, if you have any questions, you can reach us at area code 615-465-7000.

Thank you. This concludes today's Community Health Systems fourth quarter 2006 earnings conference call. You may now disconnect.