Community Health Systems Inc (CYH) 2008 Q4 法說會逐字稿

Good morning. My name is Rachel and I'll be your conference operator today. At this time I would like to welcome everyone to the fourth quarter and year-ended December 31st 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) Thank you.

I'd now like to turn the call over to Mr. Smith, Chairman, President, and Chief Executive Officer of Community Health Systems. Please go ahead, sir.

Thank you, Rachel. We're very pleased with our solid financial and operating results for the fourth quarter and the year-ended December 31, 2008. As a reminder -- I'm sorry, as a reminder I have to go back and read the statement here. Before I begin, I'd like to read the following statement. Statements contained in this conference call regarding expected operating results, acquisitions, transactions, other events are forward-looking statements that involve risks and uncertainties.

Actual future events or results may differ materially from those statements. Such forward-looking statements are made pursuant to the Safe Harbor Provisions of the Private Security Litigations Reform Act of 1995 and are made on the management's current expectations, beliefs as well as assumptions made by and information currently available to management. We refer you to the documents filed by Community Health Systems, Inc. with the Securities and Exchange Commissions including the Company's annual reports on Form 10K, the quarterly reports on Form 10Q, and current reports on Form 8K. These filings identify important risk factors and other uncertainties that cause actual results to differ from those contained in the forward-looking statements.

With that, we are very pleased with our solid financial and operating results for the fourth quarter and the year ended December 31, 2008. As a reminder, in our reported consolidated results, the prior year fourth-quarter 2007 includes Triad's performance while the year-end 2007 results represent the year's performance for CHS and includes Triad as of July 25. Our same-store results reflect the combined performance of both 2008 and 2007.

EBITDA for the fourth quarter of 2008 was $392 million, and income from continuing operations was $0.61 per share compared with $0.36 per share for the same period in 2007, excluding the change in estimates made in the fourth quarter of 2007. This represents an increase of almost 70%. For 2008 same-store admissions were up a strong 2%. This represents the best annual same-store growth since 2005.

As reported, net operating revenues for the year ended December 31, 2008, totaled $10.8 billion, EBITDA was $1.525 billion, and income from continuing operations was $206.7 million or $2.19 per share for the year ended December 31, 2008, versus EPS of 2007 of $1.72 excluding the change in estimates and including the Triad operations since July 2007, an increase of 27%. We also had very strong cash flow from operations of over $1 billion in 2008.

With that, I'd like to review some of the key operating accomplishments for the quarter. We had a very strong physician recruiting year in 2008. The Company recruited 1,472 new physicians for 2008 compared to 769 recruited for 2007. Our standardized and centralized approach to physician recruiting and practice development identified physicians' needs in the communities, increased utilization, and also aids in generating additional volume. We continue to have a turnover rate of approximately 6%. Our new target for 2009 will be 1,500 physicians.

We reached a settlement -- we reached an agreement to settle litigation with Texas Health Resources to sell our 80% ownership of Presbyterian Hospital in Denton, Texas to them. The sale is based on their exercise of a right related to Triad's change of control. We would anticipate this closing some time in early 2009. Bank debt will be paid down by the net proceeds of approximately $100 million. We acquired a small hospital in Siloam Springs, Arkansas on February 1st for essentially no cash. This hospital is strategically located near the Oklahoma border with three of our Arkansas hospitals nearby.

Trailing revenue was approximately $35 million with a high single-digit margin. As disclosed by the local press, we have one letter of intent in Wilkes-Barre, Pennsylvania. This facility has trailing revenue of $295 million and a single-digit margin. The purchase price is less than 50% of revenue. This transaction could close in the second quarter.

We're also updating our previous issued guidance for 2009 to reflect the sale of Denton, Texas. Annual same-store volume growth is expected to range from 1% to 2%. Our projected revenue range is expected to be from $11.650 billion to $11.950 billion. EBITDA is expected to be $1.625 billion to $1.665 billion, projected EPS for 2009 is expected to be in the range of $2.45 to $2.65, an increase of 12% to 20%. We've included the hospitals we recently acquired in Siloam Springs, Arkansas as well as the hospital in Wilkes-Barre, Pennsylvania in our 2009 guidance. Our primary focus during 2009 will continue to be on the improvement of our operations.

Our integration of Triad continues to be successful. For the year ended December 31, 2008, we've achieved our synergy goal of $145 million. For 2009 we are targeting approximately $100 million in improvements for the Company.

Now, I'd like to take a few minutes to update you on the government investigation in New Mexico. As we previously disclosed, we were notified in 2006 that the federal government was investigating the way in which three of our New Mexico hospitals have participated in the state plan program for funding of Medicaid's sole community provider program. The state of New Mexico provides these dollars directly to hospitals to pay for the hospital services provided to indigents. The State relies on intergovernmental transfers from the counties which have a stable statutory -- have a state statutory funding obligation to apply for federal matching funds. In this investigation, the Department of Justice takes issue with the way in which our hospitals provide funding for local services and made donations to counties in which they operate.

We have cooperated with the government's investigation, but it appears that our efforts to resolve this matter have not been successful as the government recently advised us that it intends to file suit in New Mexico against our three hospitals for violating the Civil False Claims Act. In its correspondence to us in January of 2008, the government calculated that our hospitals had received $27.5 million of ineligible federal participation payments from 2000 to 2006. They also advised that they would seek treble damages and other penalties if this went to litigation.

Let me be clear, this is nothing more than a funding dispute between government agencies. It's not a dispute over the level of quality of care provided to our patients, our coding, our claims for care, and the government has never alleged that the New Mexico hospitals received reimbursement under the sole community provider program for services that hospitals did not provide.

We have sought and continue seeking an appropriate resolution to this matter but without resolution, we will vigorously defend this case.

With that, I would like to turn this call over to Larry to provide you a more detailed summary of our financial results.

Thank you, Wayne. Our consolidated admissions were 163,664 in the fourth quarter 2008, adjusted admissions were 296,329 for same period. Our same-store admissions decreased 0.9% when adjusted for service closures, primarily OBs, weather-related issues in several of our markets and our lack of respiratory business; increased to newly constructed hospital competitions and three of our markets admissions have increased to 0.1%. Most important our same-store managed care and other admissions had a positive increase for the quarter. Same-store adjusted admissions decreased to 0.2%.

Net revenues in the fourth quarter were $2.762 billion, an increase of 10.9%. Adjusted for all conforming and change in estimates, net revenue increased 6.8% on a same-store basis, net revenue increased 7.4%, or 3.4% excluding all the conforming adjustments. Some of these adjustments would have applied to fourth quarter of 2007, which have increased to 3.4%.

Also, revenue is reduced 50 basis points due to a drop in deferred compensation investments classified in other revenue. As reported same-store net revenue per adjusted admission increased 7.6% year-over-year, due to good outpatient growth. And adjusted for all conforming and change in estimate, same-store net revenue per adjusted admission increased 3.6%.

Same-store surgery volume increased 0.2% for the fourth quarter from outpatient growth. Our same-store Medicare case mix increased 0.2% for the quarter. As with the first three quarters, same-store revenue growth continues to be affected by the implementation of the discount policy at our legacy hospitals in the first quarter this year. The impact of this implementation was approximately 80 basis points on both revenue and revenue per adjusted admission for the fourth quarter. Same-store revenue would have increased 4.2% and same-store net revenue per adjusted admission would have increased 4.4% excluding a discount policy implementation.

Consolidated EBITDA growth was $392 million for the fourth quarter versus $181 million for the same period. Excluding the change in estimate and conforming adjustments made in the fourth quarter of 2007 of $166 million, EBITDA increased $44 million or 12.7%. On a same-store basis, EBITDA was $385 million for the fourth quarter, a 10% increase excluding adjustments made in the fourth quarter of 2007.

EBITDA margin for the fourth quarter on a consolidated basis was 14.2%, an improvement of 80 basis points excluding the change in estimate in conforming adjustments. The same-store EBITDA margin was 14.4%, a 90 basis point improvement, again excluding the adjustments. On a sequential basis same-store margin improved 20 basis points. For the fourth quarter our non-same-store margin was approximately 7.8%.

Consolidated operating expenses decreased 80 basis points excluding the change in estimate and conforming adjustment in the fourth quarter. Bad debt and supplies increases were offset by decreases of 100 basis points in payroll and benefits and decreases in other operating expenses. Again, excluding the change in estimate, same-store operating expenses improved 90 basis points with decreases in payroll and benefits and other operating, and an increase in bad debt. Our expense management during the fourth quarter has been exceptional with improvements in purchase services, repairs and malpractice. Our same-store operating cost increased only 2.3% in the quarter with a 3.4% increase in same-store revenue, again demonstrating our strong expense control. Adjusted for the change in estimate, same-store revenue minus bad debts was 2.6% in the quarter while our operating expenses minus bad debts was up only 1.2% for the quarter.

The financial statements reported reflect the pending sale of Denton, Texas for approximately $150 million in revenue and a double-digit margin. Its financial results have been moved to discontinued operations. Guidance for 2009 has been adjusted. The EPS for the first three quarters for 2008 have been reduced as a result of Denton operations being reclassified to discontinued.

For 2008 consolidated admissions were 663,000 and adjusted admissions were 1.197 million. Same-store admissions increased 2% and adjusted admissions increased 2.2%. Adjusted for the flu, leap day, services closures and other items, the previously discussed same-store admissions would have been up 1.7%. Managed care and other same-store volume increased more than the Company average for the year. Our volume guidance for 2009 for adjusted admissions is from 1% to 2%, and please remember that 2009 did have an extra day in February, and thus far flu volume was not materialized in the first quarter.

Net revenues for 2008 were $10.8 billion, an increase of 54%. On a same-store basis, net revenue increased 6.6%. Same-store inpatient revenue was up 8.1% and outpatient revenue 6.1%. These were reported revenue numbers. On a same-store basis, net revenue per adjusted admission increased 4.3%. Our same-store surgery volume was up solidly 0.03%. Same-store Medicare case mix was down 0.9%.

As we previously discussed, same-store revenue growth has been impacted by the implementation of the discount policies in our Tennessee hospitals in the third quarter of '07 and remaining legacy hospitals in the first quarter of 2008. The [2000] impact of this implementation was approximately 100 basis points on both revenue and revenue per adjusted admission. Same-store revenue had been up 6.7% and same-store revenue per adjusted admissions would have increased 4.4% excluding the discount policy.

Consolidated EBITDA for the year was $1.525 billion, same-store EBITDA was $1.511 billion, same-store EBITDA increased to 17.7%. Adjusted for change in estimate, consolidated EBITDA increased to 53%. Consolidated EBITDA margin for the year at December 31, 2008, was 14.1%. Adjusted for change in estimate, same-store margin improved 140 basis points and non-same-store margin was up 6.2%. For calendar 2008, we had the highest percentage of our same-store hospitals achieving growth in the last three years in all the metrics including admissions, adjusted admissions, surgeries, ER visits, net revenue, EBITDA, and EBITDA margin.

For 2008, consolidated operating expenses pursuant to revenue improved 260 basis points from the prior year. Excluding the change in estimate in 2007, consolidated operating expenses improved 40 basis points in improvements in all items but supplies. Same-store operating expenses excluding the change in estimate improved 140 basis points from 2007, with decreases in payroll and benefits, supplies and other operating expenses.

Our same-store man hours per adjusted admission improved 200 basis points for the year. Excluding the change in estimate, our same-store operating costs per adjusted admission increased only 1.6% for the year while net revenue per adjusted admission increased 3.3%. On a same-store and adjusted basis, net revenue minus bad debts increased 5.6% compared to a 3.5% increase in operating expenses minus bad debts, demonstrating our strong expense management for 2008.

For the year, consolidated bad debt increased 130 basis points -- or decreased 130 basis points. Excluding all the conforming and changing estimate adjustments, consolidated bad debt for the year decreased 20 basis points. Same-store admissions decreased -- same-store admissions increased 4% over the year and increased only 10 basis points as a percentage of admissions to 6.4%.

Our fourth-quarter self-pay revenue trend as a percent of total revenue decreased on a sequential basis. Our combined consolidated bad debt, charity and administrative self-pay discounts divided by adjusted net revenue was 17.7% for the quarter and 17.5% for 2008. Our combined consolidated bad debt, charity and administrative discounts as a percentage of adjusted revenue were up 60 basis points for the quarter and down 10 basis points for the year related to Triad having lower uncompensated care. As we've previously said, the real cost of treating the self-insured is represented by an incremental cost of care and excluding the change in estimates, in conforming adjustments our same-store operating cost for adjusted admission increased only 1.6% for 2008. Consolidated cash receipts were over 102% of collectible net revenue for the year ended December 31, 2008. Our 2009 guidance for bad debt ranges from 11.8% to 12.5% of net revenue compared to an actual 11.2%.

Total AR days were 53 at December 31, 2008, a decrease of one day from 2007, and same-store AR days were 53 at the end of the year. The allowance for doubtful accounts was $1.103 billion at the end of the quarter or 40.6% of receivables. The allowance for doubtful accounts related to contractuals for self-pay was approximately 80% of the hospital's segment self-pay receivables at December 31, 2008.

Community Health System has a favorable payer mix. In the quarter ended December 31, 2008, net revenue by payer source on a consolidated basis was as follows: Medicare 27.4%, Medicaid 10.1%, Managed Care and Other 52.4%, and Self-pay 10.1% of net revenue. On a year-to-date basis the breakdown was Medicare 27.5%, Medicaid 9.1%, Managed Care and Other 52.7%, and Self-pay 10.7%.

Cash flow from operations for the fourth quarter was $372 million versus $283 million the same quarter a year ago. Cash flow from operations is $1.057 billion compared to $688 million the same period in 2007, an increase of $369 million, reflecting greater net income of $188 million as well as an increase in other assets of $29 million, a net increase in non-cash expense of $350 million, which $174 million would be related to depreciation and approximately $200 million related to a change in deferred income taxes.

These increases were offset by decreases in cash flow from supplies, prepaid and other current assets of $3 million, and accounts receivable $189 million, and accounts payable and accrued liabilities and income taxes of $6 million. The decrease in cash income taxes was primarily the result of prior year pre-paid tax positions used to offset taxes during the current year. Our 2009 guidance for net cash provided by operating activities will range from $900 million to $1 billion, an increase from our October guidance of $850 million to $900 million. This is somewhat lower than 2008, due to an increase in estimated cash taxes.

Capital expenditures for the quarter just ended were $221 million versus $240 million last year. Year-to-date we spent $684 million or 6.3% of net revenue. This amount includes $123 million or 1.1% of revenue for replacement facilities -- or a new facility. Our 2008 actual capital expenditures came in at 13% to 17% lower than our original guidance of $775 million to $825 million. We've lowered our previous 2009 guidance by approximately $100 million to $650 million or 5.2% to 5.5% of net revenue which is below our 2008 capital spending.

The balance sheet cash at December 31, 2008, was $221 million. As of December 31, 2008, the Company had available credit from its revolver of $650 million after outstanding letters of credit. We did take the $100 million of low cost [of the late draw] in December and drew an additional $200 million prior to the end of January 2009.

Looking to the balance sheet as of December 31, we had $1.7 billion in working capital and $13.8 billion in total assets. Total outstanding debt at December 31, 2008, was $8.967 billion, of which approximately 93% is fixed. Our debt-to-capitalization at the end of the quarter is 84%.

During 2008, we purchased $90 million and 4.8 million shares of our stock. We also bought $110 million of our 8 7/8 coupon bonds back in open market during the year. Our credit agreement allowed $200 million of stocks and bonds to be repurchased. This was basically accomplished here in 2008. We are working to update our ratings that will allow for an additional $200 million purchase opportunity with the focus being on debt repurchases.

At the end of December, we are a party to $5.3 billion in interest rate swap agreements, an increase of $500 million from the end of September. These agreements limit the effective changes of interest rates on a portion of our long term borrowings. As of December 31, 2008, approximately 93% of our debt is fixed.

As Wayne said earlier, we've updated our 2009 guidance. I'd like to review some of the changes to updated guidance that again excludes Denton, Texas. The guidance includes two acquisitions, one of which has been completed. The 2000 interest expense will range from 5.5% to 5.8% of revenue and assumes the borrowing under senior credit facility remained relatively stable for the year. Cash from operating activities is $900 million to $1 billion, and would decrease from 2000 level due to some changes in cash tax payments. The capital expenditures guidance has been reduced for 2009 and now will range from $600 million to $650 million, which is down $100 million from our estimates in late October and represents 5.2% to 5.4% of net revenue.

Bad debt guidance has been increased on the high end from 12.4% to 12.5% to reflect recent economic changes. Depreciation and amortization are projected to be 4.5% to 4.8% of net revenue for 2009, and the 2009 projection does assume an accounting change for the $0.02 to $0.03 for expensing of acquisition costs due to new business combination rules. The EPS guidance is $2.45 to $2.65 based on outstanding weighted shares of 92 million to 94 million, and no significant share repurchase has been assumed for 2009. Wayne will now provide a brief recap.

Thanks, Larry. As you can see, 2008 was a very successful year on all levels. Strong volume trends coupled with good revenue growth, strong expense management have enabled us to solidly improve our same-store margins. While the macroeconomic trends indicate further pressure on hospital volumes, we believe our continued success in enhancing healthcare services and recruiting and retaining qualified physicians in our markets will support our growth in 2009 and the foreseeable future. As we look ahead to 2009, we will continue to leverage our considerable assets. We have a proven ability to deliver favorable operating results through our standardized business platform and the use of best practices throughout the Company.

With that, I'll now open the call for questions.

Thank you. (Operator Instructions) Our first question comes from the line of Ralph Giacobbe of Credit Suisse. Your line is open, sir.

Great. Thanks. Just wanted to clarify when you talked about the -- you said you had the $145 million in synergies from Triad, did you also say you expected another $100 million improvement in synergy; is that right?

That's correct. That $100 million is the Company, which most of that is related to Triad, but we wanted to quantify some improvements we're going to make on the consolidated Company.

So $100 million consolidated for the Company and you haven't released that before, though, have you?

No, we have not.

All right. That's helpful. And then in terms of your bad debt guidance, is there any way for you to -- either from the low end to the high end or maybe just the midpoint talk about what the unemployment rate assumed would be?

Well, the unemployment rate moved up from I think 4.8% to 6.8% at the end of December. You look at it, we have not had a lot of hospitals that have gone above 10% that were below 10% a year ago. I think we've had 8% or 9%, and most of those are smaller hospitals, but it has moved up. So what we originally had stated was there were a 100 basis point increase in the unemployment rate, but (inaudible) of 20 to 30 basis point increase in same-store subpay admissions and likewise bad debts. So we've taken that information and tried to project, and we gave a broader range because of that, because it has moved up. We increased to 10 basis points because it moved up a little faster than we would have anticipated when we put the guidance out in October 2005.

Just quickly on bad debt in general, it seems to me that as you look at where we are today and what's happening, the uninsured population is down about a million people, because about a million of those illegal immigrants have gone back across-the-border because of lack of work in the US. I suspect that trend will continue. We just had the stimulus package which really is support for the Medicaid programs across the country. I don't think that -- may or may not increase the eligibility, but it certainly will support the current program so you will not have people that might be disenrolled for whatever kinds of reasons.

You also have Cobra, this $30 billion worth of Cobra that's in the stimulus package which should be helpful to those people who are laid off, so I think -- I don't know if we have stability or not in terms of bad debt currently. We do have rising unemployment. Our markets are about 7% now. They are up about 2% from last year, when it's all said and done. I think our unemployment is growing a little slower than national average, and we don't have that many markets that are over 10%. It's only a handful when it's all said and done, so I don't think we're going to have runaway bad debt. I think that it looks a little more stable to me.

Okay, and then just my last one on payer mix. You kind of gave us the Q4 numbers and then just comparing the 4Q to the full year, big jump in the Medicaid component. Just wondering if there's some sort of seasonal variation that we need to consider or if that's kind of a run rate you think kind of going forward?

Well I think what we've got is we've done a really good job of qualifying people for Medicaid. I know our efforts with the Triad hospitals have improved a lot and have also continued to do it ourself. That's where you contract with Medicaid and private pay screening vendors to help you doing that. We've done a very good job of getting more people qualified this year. I think our actual payment percentage on that work is up 100 basis points and that's one reason to be up, and especially at the end of the year where there's a lot of focus to get that done.

Okay, thank you.

Thank you. Our next question comes from the line of Shelley Gnall of Goldman Sachs. Your line is open.

Hi thanks. Just a question on the same-store guidance that was retained, the 1% to 2%. A few questions. I guess first of all, you've seen a little acceleration in the unemployment trends and that caused you to raise the high end of bad debt guidance, but no adjustments to same-store guidance. That's a little bit counter to what we're hearing from some of your competitors. I guess my first question is, are you expecting to see the unemployment impact your volumes more so now than before? The next piece of the same-store question is, are you expecting any benefit from Cobra, and can you clarify the extra day impact and how that's going to offset the test flu comp? That's it.

Let me kind of start in terms of our view where we are in terms of the same-store. We had a very strong year. Our same-store volumes were up 2%. I think it's clearly higher than anybody else in the industry, even though we had a weak fourth quarter for a number of reasons, and we think the first quarter is a difficult quarter because of the fact that we had flu last year and we had leap year, but having said that we're pretty confident about our 1% to 2% increase in same-store volume going forward for the year, and primarily around the fact that it's sort of the basics that we continue to talk about.

We only have about 50% market share, so we have a lot of opportunity in terms of growing our markets going forward. Our case mix index is still relatively low, so we have opportunity for not only volume growth, but we have opportunity in terms of intensity growth. And then if you look at our physician recruiting for this year, where we recruited 1,472 physicians, that in itself it should help us in terms of not only volume retention but volume growth as we go forward.

We think all those things are helpful to us, and as I mentioned earlier it looks like unemployment is growing a little bit less than it has in the past -- in our markets than it is on the national average. So -- and I do think to the last part of your question, I do think Cobra can be helpful to us. The problem is that all these things, you can no longer, I don't think, correlate unemployment and volume because of Cobra and how Cobra layers on over a period of time in terms of layoffs.

So the other thing I think all that is helpful is support for the Medicaid programs. I think that helps as well. So all those things, I think this is different for us than it is for other people, and I can only speak for us in our markets, but I think we have very good opportunity going forward to continue to have volume growth.

Just to add to that, Shelley, leap year probably for the quarter last year was about 120 basis point help, and flu was similar, 120 or 130 basis point help. So for the year, it's 30 basis points headwind going the other way. The only other thing in 2008 or in 2009, we had four -- three replacement hospitals, and one new one opened up. That will help us in volume, and we also had 15 large projects over $10 million we completed. You just sort of look at our understanding of the volume we're going to get that for 2009, that's probably going to be about a 1% increase off those capital spending which are completed and done for the most part.

Okay, just a quick follow-up though. Thank you for that color, but just because we have seen further deterioration since the first time guidance was put out on unemployment trends, and assuming there will be some impact on volumes, a little bit of slowdown, are there any specific efforts to expand market share? I know you've talked about improving ED admit rates and going after share. Are there specific initiatives that either have been accelerated or new initiatives in place to help offset some of the slowdown?

Yes. I think our physician recruiting is probably the best thing we can do to increase market share. We have all kinds of initiatives. We look at our markets -- we look at our hospitals as markets and how we develop those markets, everything from inpatient services to outpatient services. But having said that when it's all said and done, physician recruiting is probably the driving component of that, that we get the most out of in every instance, and I think it's clear that we have excelled in physician recruitment every year, year in-year out, and I think we will continue to do that.

Just a little bit of color on unemployment at least through November, my understanding a large percentage of that was in the 18 to 34 age-group which is usually a lower utilization of healthcare versus the older population. And again, Medicare and Medicaid are 60% of our admissions, and so to some extent unemployment should not have that big of an effect on the Medicare and Medicaid. And a lot of our business through the emergency room, 60% of our admissions almost come through there; we don't think a significant effect to that will be affected by the unemployment.

I guess long story short, just to sum this up, we think we're about as well positioned as anybody is to manage through this challenging environment.

Great. Thank you.

Thank you. Our next question is from the line of Adam Feinstein of Barclays Capital. Your line is open, sir.

Okay, thank you. Just maybe a quick question here, just to talk about the states a little bit. I just wanted to talk a little bit about Indiana and Alabama Medicaid. Any updates or any things going on there as you guys are thinking about 2009?

Yes. As it relates to Indiana, I think it's stabilized. We did have a challenge in the second quarter of 2008, and clearly one of those programs is gone, and reallocated a disproportionate share. We're still working on the issue that we didn't get reimbursed for in Indiana and still got some opportunity there, although nothing to report specifically. Alabama, like a lot of states, there's been a lot of dialogue and it seemed to slow down in most of the states as a result of the stimulus package that Wayne talked about. So there's no specific resolution on those states, but most states dialogue and the legislature has gotten quite a bit less intense than it was three or four months ago.

Okay, great. And just to follow-up, a lot of questions so far about the economic environment and obviously you guys have a lot of different states you aren't dependent upon on, one. But just wanted to talk about the Indiana market. Just curious in terms of you guys have a very strong presence there in the Fort Wayne market. Any anecdotes in terms of how that market has been doing, and if you can't comment specifically about the hospital, just about the economy in general?

Yes. For 2008, Indiana markets and the division they're in had a very good year, very good volume growth and then we had very good success up there. The unemployment has not grown any faster there than it has for our other markets collectively, and I think we've had real good success and they've done a very good job operating that state.

The few markets, Adam, that we have and I mentioned earlier that we're tracking that have a little higher unemployment are relatively small markets. We haven't seen it any of our large markets.

Great, okay, good. And then Wayne, with Triad, you guys got your synergy target and did a great job there. So clearly, you've had some history with it now. As you look at that transaction, I guess what are the biggest items that you would still like to do in terms of integrating the former Triad hospitals? Are there any additional things? I remember a year ago you were talking about some of the clinics they owned and trying to reduce some of the losses there; just any other major initiatives outside of the synergies you talked about earlier?

Yes. I think I said this a couple times. The two things that I suppose that we didn't absolutely realize when we did this transaction, we knew about margin improvement, we knew there was opportunities for expense control which we've demonstrated. We didn't realize that there was a bigger opportunity than we thought in terms of physician recruiting, and it's one of the reasons you've seen the acceleration in our physician recruiting this year is because continually filling those gaps, and there continues to be opportunity there going forward.

The other thing that I think we have accomplished and now we are really beginning to focus on in terms of improvements, is how we manage our emergency service. We talk about this a lot in terms of our 55% to 60% of our admissions come through our emergency rooms, so we're very focused on that. We have gotten in our system that we always talk about, our Pro-Med system, in virtually every one of the Triad hospitals.

There's two or three that have a McKesson system that's very similar, but generally speaking we have that system in every place. So we're really now over the last three, four, five months, we're really focused on operations in those markets. So we have continuous improvement opportunities, not only in terms on the top line in revenue, but we have a lot of continuous opportunities in terms of expense improvement, supply expenses for example.

The other thing that we've been able to accomplish is that we're making great progress on some of the clinic opportunities that I've talked about in the past in terms of improving the losses in those clinics. So all that is moving forward and we're -- as I continue to say, we have made really good progress, we've not had any catastrophic events among those, we've not had any doctors leave us, any of those kinds of things. So this is going about as well as we could expect, and then there continues to be because of the market share opportunity being only about 50% and a lot of Triad hospitals are in pretty high growth markets, in Arizona, New Mexico, other fast growing areas, we have a lot of opportunity there to the future. So we continue to be pretty excited about the opportunities.

This is Larry. Let me give you one comment here. The margin probably of hospitals required in 2007 was 11% to 12%. That class is now over 13%, so we actually did a pretty good job improving the margin of that class.

Excellent, sounds good. Thank you.

Thank you. Our next question comes from the line of Jason Gurda of Leerink Swann. Your line is open, sir.

Good morning guys. Just wanted to check in on the same-store revenue growth up, I think, 7.5% despite volumes being negative. That's been really strong for two quarters now. I was curious what you were attributing that to and how long that can continue.

Well, let me clarify a little bit; that is the reported number, but I think we disclosed in our slides that as you exclude all of the conforming adjustments, it's like 3.4%. And clearly, that excludes all of the adjustments, but we've had good revenue growth throughout the year, and I think it's as a result of our payer mix is good. We've commented that our managed care admissions have done better than overall growth of 2%. So unlike other people, we've still got good growth in that area. I think we've had a pretty good job of managed care, getting the rates in the 5% to 7%, and we've done a good job of case mix. It has been relatively stable and hasn't moved up, but it's an opportunity there for the future.

You just mentioned your payer mix has been holding up well. Any additional color on that, particularly related to commercial admissions?

Well, I think as a percentage of revenue it's up over a year ago, and we would expect it to continue to do well. We've had overall increases of 5% to 7%. Some of our improvements in 2009 will be in that area. We're continuing to get good increases above what we expected, and I think that we have not lost any contracts. We got an 80% plus of our 2009 done and probably 50% of our 2010. It's one of our areas that standardized and centralized has worked very well for us, and I think we've historically commented that maybe Triad focused on the five largest payers, our group focuses on all the 4,500 contracts [through Scott], and I think that's helped us get good increases. And keep the volume without any loss of volume due to negotiation issues.

I'm sorry, Larry. I might not have been clear. I was actually asking about the commercial volumes.

Yes, the commercial volumes, we don't give absolute number. It's just both for the quarter and year-to-date, it's above the Company average.

Above the company. Okay. And then just last question is in the release you mentioned that TRICARE is considering a change to the outpatient system which could have a negative impact on revenue. Any thoughts on the timing of when that might come out?

If anything happens, it would be some time late second quarter or third quarter and it's been proposed for several years and then continue to delay. We just thought it was important to let that be known out there, there was likelihood that if something got done in this year, it wouldn't be a change in reimbursement, but it has been put off quite often.

They reopened it for comment, so we'll have an opportunity to make comments, and the Federation and AHA and everybody else will have an opportunity to make comments on it now. So it may change from where they had intended to be in February, and the comment period is open through May, I think.

Okay, great. Thanks.

Thank you. Our next question comes from the line of AJ Rice with Soleil Securities.

Hi, everybody. A couple questions real quick. First of all, Larry, on the $200 million of additional bonds I guess you're trying to buy in, my back of the envelope says if you were successful at doing that that's about $0.10 in EPS. A, how confident are you that you'll get the approval? And B, what would be the time frame on being able to do that?

Well, we visited with the various rating agencies. We expect to hear in the next 30 days about that. We would expect to have that approval and then we would pick the appropriate time in the market to do that, and try to time it as we did in the fourth quarter and buy at a good price.

Have you factored that into the current guidance that's out there?

There's a wide range there of interest expense and other activities which would be considered in probably the high end of the range.

Obviously with the stimulus package just passed there's provisions in there for healthcare IT, and we're at the early stages of figuring out what those standards and all are going to be. But does that -- do you guys have any thoughts about whether that impacts your CapEx budgets in any way for IT and how you might think about that? And I don't know if you have any broader comments about the benefits of the stimulus package and the SCHIP legislation and how that's factored into your guidance?

Yes, AJ. I think it's too early to tell about the IT piece of it. I think there's money on the way. I'm not sure yet what the definition is of electronic medical record. There's a lot of those kinds of questions, so I think the caution here would be for the industry is that we get some definition about what we're trying to accomplish. Otherwise, IT can always be a black hole if it's not well defined. So I think that has to happen before and I think that will take a while. Surely the government is not going to put this money out without some clear definition of what they are trying to accomplish.

You guys delay any purchases?

No, it hasn't changed what we're doing. Look, we're fundamental operators. Our systems are operating systems. We're doing clinical improvements and clinical systems and all those things, and we have -- and like I said the definition of electronic medical records is different to different people, but we're making good progress. We will not have a complete electronic medical record in every facility in the next number of years for sure because it's an expensive proposition, but we gauge our facility, we gauge our development based on the size of our facilities.

Having said that, sort of the second half of your question in terms of the stimulus package, I think there's probably more money today in reimbursement wise in healthcare than there has been in a long time, when you take the $87 billion in terms of supporting the Medicaid, the expansion of SCHIP, the IT piece, the Cobra piece, and we're getting market basket and our rates from commercial are 5% to 7%. I think there's more money today than there has been in a good while.

Okay. And just last question real quick, on your physician recruitment, obviously you got another big goal for the year ahead. Is anything about what's happening in the economy either changing the terms you're willing to offer or the specialties that you're going to go for, and has the weak economy in any way affected the availability of supply?

Not so far. As you can see, we had a booming year and we don't -- our prospects haven't changed all that much in terms of the 2009. So we haven't seen any changes in mix or changes in specialty or changes in people reluctant to move because of the house price, any of those things -- none of those things have adversely affected us. Now, as we go through the next year, there's always that possibility, but keep in mind we're recruiting -- about 60% of the people we recruit are from new programs, so they are finishing their program and so they are looking for a place to move, so that's very helpful. The rest are transitory, but it's sort of the opposite of that. The people are looking for stability, and one of the things that we think we offer is stability in our markets.

Right. Okay. Thanks a lot.

AJ, just one comment. On the SCHIP in thinking it would be something we understand, I think we had about $100 million of children's self-pay revenue in 2008, so that gives you a flavor of the opportunity that if it works correctly that if all that gets qualified for Medicaid, that will help eliminate $100 million of bad debts.

Okay. That's good. Thanks a lot.

Thank you. Our next question comes from the line of Robert Hawkins of Stifel Nicolaus. Your line is open.

Thank you. Would you mind expanding on the New Mexico investigation, just exactly what the disputes are between the two agencies? I know it's fairly minor, but I'd still kind of like to understand it a little better.

Yes. I think I've said about all there is to say about that today. We'll wait and see when the government files their case and we'll just see where we are then, but look as I said, this is a very straightforward issue. It's a dispute about funding intergovernment agencies, and I think I've said everything I can say today without -- there's nothing -- that's all we know.

Okay, fair enough. And then quickly, you've got in your guidance it looks like free cash flow of about $300 million to $400 million this year, and I know you've already talked about that you might -- you're going to try to be able to buy another $200 million in stock or bonds. What do you guys think you'll do with the other $100 million to $200 million? Are you guys going to try to stockpile cash like we're seeing a lot of folks do, or where would that money go?

One of the things that as you can see, we've sort of converted in terms of trying to figure out ways we can accelerate our deleveraging by pulling back on our CapEx, and fortunately, our operations are good so we're improving our cash flow. So we're moving that direction more than anything else. We clearly won't have enough cash on hand and we have availability if we need additional cash, but our direction is not doing acquisitions, pulling back on CapEx and looking for other ways that we can deleverage over the next couple years.

And there's a couple ideas we got in mind, but we'll wait until we pursue those further before we talk about it.

Okay. Thanks, I'll jump back into queue.

Thank you. Our next question comes from the line of David Common of JPMorgan. Your line is open sir.

I'm sorry. I apologize. My questions have been answered. Thank you.

All right. Our next question comes from the line of Wei Romualdo of Stone Harbor. Your line is open.

Yes, I just need a clarification in the cash flow statement, there is the use of $192 million for the 2008 classified and other operating -- increases in other operating assets. What is that?

Yes, a couple of things that's about. One is it deals with our MIS, not equipment purchases which would be software purchases, because we are in the midst of trying to do some conversions there. We also got some MIS deferred cost of physician recruitment, a minor investment we made with an outside vendor, and then also our captive. When we fund money into our captive that's where -- captive for malpractice company, that's where that goes.

Okay. Out of these few that you named, is there a significant category?

Well, the larger one would be related to the software MIS conversions, that would be the larger component, and there's also some money in for some escrow. I think we had some land sales and escrowed some money back in the early year, so that's in there also.

Okay, and then a question on the minority interest -- minority investment into joint venture. That also is cash consuming. Is that ongoing? I had thought maybe at least it would offset the charges, the net income statement, but --.

What you've got there is, we do get dividends and sometimes the dividend, the [earnings that the] Company reinvested. And while we participate for our Board members, it's not something we can dictate to cash flow come in, so it varies some. I think we've never gotten a dividend from one of our investors until we got involved and got one last year and that's just the difference -- timing difference.

Okay, but the minority interest, the JVs are not -- are you putting additional investment into these JVs because at least for 2008, there was additional $60 million put back if you add back.

I think that's got to do with us with buying out minority investors, that $60 million does. We bought out some minority investors, one in (inaudible) and one in Oregon.

Okay, got you. And the last question I have is on what you were talking about getting approval for additional $200 million of bond buyback, and then later I had another question. You were talking about visiting rating agencies. I think I'm a little confused. Who are you seeking approval from?

The credit agreement allowed us $400 million, with the first $200 million we could do. The second $200 million needed to have a reaffirmation in the ratings so it wouldn't be affected as a result of that, and we expect that to happen.

Okay. So this is a one-time sort of basket or is it annual?

It's a one-time basket.

Okay. Is there an annual basket?

One-time basket.

Okay. No annual basket beyond that one-time then?

That's what one-time means, yes.

Okay, all right, yes.

Thank you.

Thank you. Our next question comes from the line of David Bachman of Longbow Research. Your line is open.

Hi, good afternoon. Most of the questions have been answered here, but can you just clarify what your pricing expectation is for 2009, just on I guess on an adjusted admission basis?

Well, I think if you look at our overall perspective, it would be somewhere in the 4.5% to 5.5% to 6% same-store revenue growth and then volume being at 1%, it would be somewhere in the 4% range. Depends on what the volume essentially is, probably be in the range of 4%.

Okay. I just saw backing out the volume there; I just wanted to clarify. Okay. And then your net physician adds for the year were -- you said turnover was steady, but what was the net add then on physicians?

It was about 12,500 physicians with about a 6% turnover, so that gives you the net number approximately.

Got it. Okay, and then how many employed physicians do you currently have and is there any change on that front?

It's a little over 10% of the total population, and it's moving up a little bit but not substantially.

Okay. That's great. Thanks.

Thank you.

Thank you. Our next question comes from the line of Erin Blum of Goldman Sachs. Your line is open.

Hi, thank you. I was just trying to understand why it looks like the net income guidance is down a little bit, but cash flow from operations is up, so is that a change in working capital or is it related to --?

The net income would be down from previously amount of that because of the Denton exclusion.

So then why was cash flow from operations guidance up from last year?

It's not up from last year. It's up from where it was previously.

From the previous guidance I mean.

Previous guidance, the $850 million, we did a better job in collecting receivables and we also had better results of some tax planning and also some activity in the accrued payroll came out a little better than we thought it would in the previous guidance, but most of it was in the receivables did better.

Okay, perfect, thank you.

Thank you.

Thank you very much. And our last question comes from the line of Gary Taylor of Citigroup. Your line is open.

Hi, good morning. A couple quick ones. Are there any other Triad put potentials or are we clear of the timing of any of those?

I'd say we're predominantly clear of the timing of those. There's always a chance that you could have a partner facility with Triad that could have some issue but there's no puts or such.

There's none that you're aware of. Is there a point in time where those opportunities have expired?

I think they've all legally expired, but we have a joint venture.

Okay. On page 23 of the slide show where you show your Medicare case mix, I just hadn't -- this is probably the same presentation as historic, but I just hadn't paid attention to it maybe. But for example, when you show quarter end case mix is up 30 basis points for the quarter, that wouldn't be any different than what you experienced throughout the quarter, right? In general you'd say it contributed 30 basis points to the quarter?

That's correct. It's on a same-store basis.

And is the year-end number, I think I just dialed in when Wayne was talking about which stats had which, but the down 90 basis points year-over-year, is that the entire base of hospitals?

That's the entire base including the Triad hospitals, as best we could put it together from January 1. We've attempted to have same-store, have Triad in it from January 1st of 2007. One reason the 90 basis points was the strong flu season the first quarter of 2009 brought case mix down, and then we've had a fair amount of success in ER management which sometimes brings in a little bit lower acuity admissions.

So it looks like though with your pricing mix guidance for next year, you're assuming that case mix is relatively flat, not a drag?

Relatively flat. We did some work throughout the end of the year to try to make sure we appropriately documented and improved our case mix and hopefully that will move up, but it's predominantly flat in the assumption.

Okay, and then Wayne, just a question for you about acquisitions. I think you kind of answered it in a previous question, but is there -- I guess there's some good reasons to focus on the delevering one. It's a way you can drive earnings growth, and two, with your overall leverage, maybe it's just something the street would like to see. But on the other hand, presumably the old kind of core community acquisition targets in those small communities that most of us haven't heard of, presumably, the financial distress at some of those assets would be greater now than even it was over the last two or three years.

So kind of a two part question. One, is there a leverage level where we should anticipate your willingness to do more acquisition picks up again? And two, are those old community type acquisition targets too small to move the needle, or at some point do we see you back doing some of those smaller asset acquisitions?

Yes, I think if you -- strategically, I think we think we're better positioned today because we're in both the non-urban. We still have 85 hospitals we're the sole provider, which helps in terms of risk of course, and those are relatively small communities out across the country. But we also have these midsize markets, so our targets would be both when it's all said and done. We just think we've already done and we've announced two for 2009. We think that is enough. The other thing is I would say, we continue to have so much opportunity since the Triad acquisition, our executives are performing extremely well. Our CEOs, CFOs and CNOs and Division Presidents are making great progress on the assets that we currently have. So I think we've got time before we do anything else to work on deleveraging kind of going forward. But as we did Siloam Springs, I don't know if you understand the Siloam Springs project or not, but basically, it's no cash in and it's a lease for four or five years and then we replace it.

There will be those kinds of opportunities as we look to the future, as you say. There are a lot of properties out there that are having trouble and we're getting a lot of calls, but we've decided that we have so much opportunity now that we'll just continue to work on what we have for a while. We've got these two acquisitions that we're doing in 2009, and then we'll revisit again some time in 2010 or next year some time. We're always opportunistic, but we think we have a good opportunity to bring down our CapEx and improve our cash flow and deleverage some here this year, and it's a good thing for us to focus on, particularly with the economy the way it is.

Do you have a thought process in terms of the balance sheet needs to be at four times debt to EBITDA before we see you doing --?

(inaudible) -- if our debt-to-cap, whatever it is goes down, then we would be back in the market. I think it really is based on our growth and our earnings and where we are now, but I think we've got plenty of room. You're absolutely right, Gary, though. Our model of layering on acquisitions has been a very successful model for us and that's what this Company is built on, and we will continue to do that at some point in time. But there's no reason for us to do that right now. We've got plenty of growth built in where we are. Two years from now that might be a different story, but right now we're in good shape.

Gary, you might remember I think we were debt to EBITDA back in 1997 was like nine times, and we're down to about three times in 2006, and clearly we think we can work this down over time also.

Yes. Okay, thanks.

As you can see, 2008 was a very successful year. We acknowledge the challenges of our uncertain marketplace. We're confident in our ability to perform. We believe that our ability to deliver quality healthcare services continue to differentiate Community Health Systems in non-urban and midsize hospital markets. We want to specifically thank our management team and staff, our hospital Chief Executive Officers, Chief Financial Officers and Chief Nursing Officers and Division Operators for their continued support and operating efficiencies during this challenging operating time.

In closing, I continue to be excited about our business prospects. We are very well positioned to manage through this challenging environment. We are convinced that solid performance will propel the Company to another level of success, extending our leadership position and healthcare facility sector. Once again if you have any questions, you can reach us at area code 615-465-7000. Thank you very much.

Thank you for your participation. This concludes today's conference call. You may now disconnect.