美國醫院公司 (HCA) 2002 Q4 法說會逐字稿

Good day, everyone and welcome to the HCA fourth quarter and 2002 year end earning release conference call. Today's call is being recorded. At this time for opening remarks and introductions I would like to turn the call over to the Senior Vice President, Mr. Vick Campbell. Please go ahead, sir.

Michael, thank you, and good morning, everyone. Welcome to our fourth quarter and year end call. With me this morning as usual, Jack Bovender, our Chairman, CEO Richard Bracken, Mark Kimbrough our vice President of Investment Relations and most of the senior management team based here in Nashville of the company is here to assist during the Q and A session.

As in prior's call this morning's call may contain some forward looking statements based on management's current expectations. Numerous risks and uncertainties may cause actual results to differ materially from those anticipated in these forward looking statements. We have listed on page 4 the release that you should have received this morning, a number of risk factors and I'm not going to read them all but encourage you to consider them. We'd also encourage you to look at other risk factors that we detail from time to time in our SEC filings. You should not place undue reliance on the forward looking statements and we undertake no obligation to update or revise any of these statements, whether as a result of new information, future events or otherwise. Remind you that the call will be available for replay. And it will be archived on our website if you need those numbers you can call our office to get them.

Also, I want to remind everyone that this call is the property of HCA, should not be recorded or rebroadcast without our written consent.

Again, I hope you received the earnings release this morning the nine pager. I want to take just a couple moments on the front end to address two or three items before turning the call over to Jack and Richard to talk about the quarter and the year. As you have probably seen and we previously reported back in December, we did reach a settlement understanding with the Department of Justice and as we told you in December we would record the charge in our fourth quarter. That charge is included, it's $418m net of tax and it's in the fourth quarter and full year results.

As we reported to you in December, our agreement is to pay $631m to the Department of Justice and we'd also reported that we'd be paying $17.5m to various state, Medicaid agencies. Those two numbers have not changed and are part of the earnings results. We also indicated in December that we would be responsible for paying reasonable legal fees of the whistle-blower's attorneys. We have included that charge in our fourth quarter number and it is an estimate of their fees of $35m. So these three amounts total $683m, just work you through the math. We deduct from that $80m which was a reversal of some previously recorded medicate allowances for the cost report issues under consideration with the department of justice. So that brings us to the $603m pretax charge which you see on the face of our income statements.

Now, as a result of this settlement, it drove our fourth quarter net into a loss position. And accounting principles when you have a loss require that potentially diluted increments, those were your shares that are associated with stock options must be excluded from your earnings per share calculation. So what happens is you end up using a lower number of shares in the quarter computation but you don't do that in the full year because you have -- you have a gain rather than a loss. The net effect of all of that was to increase the operating EPS in the fourth quarter by $.02 a share. Actual shares that -- used in that computation of the fourth quarter of 512m.

For the full year you'll see the numbers actually 525. So in essence the $.63 reported number includes that $.02 to take you back to $.61 had we had a gain and had not had that settlement in the quarter. Then finally, good news is that it does not impact your full year reported numbers. The $2.68 that's on the face of the statement is based upon the fully diluted number of shares and is a good as reported number.

Let me take just a moment or two to talk briefly about the President's budget as it relates to healthcare and Medicare in particular that was released yesterday. This is the President's budget for fiscal 2004. And as usual, as we see almost every year, creates a little confusion in people trying to figure out what it means or doesn't mean. In fact, some of the early media headlines I know some of you saw and called Mark and myself raising questions about indicated the budget contains cuts to hospitals but the reports that followed never really quantified that. Those of you that reviewed the text of the budget found that it was really silent on hospital payments.

However, if you really took the time and dug into the details of the entire budget package, back on about page 325, I think, you would find that there were some small reductions in market basket payments to hospitals in these detailed OMB schedules. In essence the number that was extended as a reduction is market basket minus .55 happens the reduction we have had this year in so what they built into some of their going forward schedules and their base budgets was a continuation of that .55. So, in essence, that appears to be what they would be comfortable proposing. There was also some statements made by HHS and CMS during the day yesterday. It basically implied some small reductions along the lines of those eventually recommended by Medpack(ph) and I think most of you know the Medpack was suggesting a market basket pine us .4 for 2004. That those type reductions might be included when the administration puts its full Medicare program out and proposals in the next few weeks.

So, in essence, what we're seeing here and I think what we told you we expected to see was a replay of last year's budget process. The administration doesn't come out and overtly propose reduction but implies that some small reductions might be okay with them. What happens next as it did last year is we'll see some members of Congress pursue a small reduction package. And others will seek increases in funding for hospitals and we can pretty much tell you who the players are on both sides. At this point no surprises. Pretty much the same individuals that were there last year and as you all recall after it looked like there was going to be a proposed reduction bill we ended up with the House passing an increase payment bill for hospitals and of course that never made it through the Senate.

So, in essence, a replay of last year, I think the good news to those of us in the healthcare field is that there's no one suggesting significant reductions of payments to hospitals. Hospital industry will be very vocal, make it clear that it feels full inflation payments are due it. And we'll work hard to try to get that done but I'm not going to predict the outcome of where this will go. But in essence, what we would expect to see is something of a status quo meaning that we would see minor changes in our Medicare payments going into 2004.

Last point I want to make, we are going to hold an investor day again in Nashville this year. We have sent notices out. If you haven't received it, you can go on HCA's website to see those notices or you can call our office. It will be held April 30 here in Nashville. It will be a little shorter than the past, try to make your schedules a little easier. We're going to start at noon on the 30th and it will go through dinner so that you can get out of Nashville early that next morning.

With that, Jack, I turn the program over to you and Richard to talk about the quarter and the year.

Thank you, Vick, and good morning to everyone.

2002 was an exceptional year for HCA meeting and in most cases surpassing our own internal expectations. Congratulations are in order to Richard to Jay Grinney, Sam Hazen and all our operations team, particularly our hospital CEO's and their management teams for the excellent results they have achieved.

In a moment Richard will discuss the fourth quart results. I would like to focus my thoughts this morning on some of the major accomplishments of this past year. We reported operating earnings per share of $2.68 for the full year 2002 up 29.5% over the prior year. This represents our third consecutive year of 19% plus operating earnings per share growth and what is most rewarding to Richard and me is this exceptional growth does not come at the expense of our future results. Throughout these years, as most of you know, we have been making huge investments in our hospitals as well as investments in our infrastructure such as shared services, patient safety and other initiatives that will provide a strong platform for our future growth.

We significantly proved our balance sheet again last year. Our ratio of debt to capital ended the year at 52.4% down from 56.2% at the end of 2001. Also, our EBITDA coverage improved 1.78 times down from 2.15 times a year ago. Cash flow from operations increased 38% to $2.8b compared to $2b in 2001. The 2001 number is adjusted for settlement payments made to the federal government in that year. The company repurchased 6.2m of its common shares during the year at a cost of $282m. We have 5.8m shares remaining on the previous 12m share board authorization.

A key accomplishment of last year, which we announced in December, was an understanding we reached with the attorneys of the civil division of the Department of Justice to settle subject to certain conditions, all remaining litigation involved by the department of justice to the company. Just this morning we announced an agreement in principle to settle subject to court approval the McCall(ph) derivative lawsuit which dates back to 1997. Terms of the agreement call for HCA to receive approximately $14m from insurance carriers and to implement and enhance to corporate governor plan which is consistent with our desire to continue to implement best practices.

I know many of you join me in looking forward to future investor calls and meetings when we won't have these distractions to discussions of our business. As I've said before, one of the benefits HCA comes out of this with is an extensive corporate integrity agreement, a model for the rest of the industry. This will serve us and you in helping to confirm we are operating this company with a highest degree of honesty, integrity and transparency.

Now quick update on our intentions to purchase the assets of Health Midwest. As most of you know, Health Midwest is a 13 hospital system located in and surrounding Kansas City, generating approximately $1b of net revenues annually. Health Midwest hospitals have 34% market share of Kansas City's 1.7m population, a situation which fits our strategy perfectly. I'm excited by the opportunity to become a part of a new market and to make significant contributions to the healthcare system and community at large in Kansas City. Sam Hazen, our western group President eventually announced our new management team to Kansas City. Brian Rogers, the CEO of our Riverside hospital in California will be the new division President for Health Midwest.

Last Friday a Kansas judge ruled favorably in several areas which should allow the Health Midwest transaction to proceed. This ruling conclude, number one, the process of sales was reasonable and fulfill the fiduciary duties of the board. Number two, the price was fair. Number three, the contract between Health Midwest and HCA is reasonable as written. And, four, a separate foundation in Kansas is not required. 20% of the assets or Kansas assets, therefore, 20% of any benefit should go to Kansas causes. You may recall that Health Midwest had reached an agreement with a Missouri attorney general whereby only 10% of the proceeds would go to Kansas. We are hopeful the completion of this transaction can occur by March 31.

Concluding, let me make a few comments about last Friday's announcement at Cedars Hospital in Miami. As part of its ongoing comprehensive quality assurance and patient safety program, Cedars Medical Center’s board and medical executive committee has suspended the interventional cardiac privileges of eight physicians. This action was taken pursuant to the results of a quality review of Cedars’ cardiac catheterization lab requested by the hospital and performed by the American Medical Foundation for peer review and education known as AMF. The AMF team leader is a Harvard medical school professor and chief of interventional cardiology at a Harvard teaching hospital. Another 45 physicians continue to practice in the lab. The AMF report raises questions regarding the medical necessity of some of the procedures performed by the physicians in the cath. lab.

Consequently the report is being provided to appropriate government authorizes, including the U.S. attorney in Florida for consideration of these issues. We are committed to the operation of a cardiac catheterization lab that is outstanding in all regards and we are committed to the highest quality of patient care in every part of our hospital. This issue at Cedars and the steps taken to investigate and resolve it should be seen and understood in the larger content of HCA's commitment to quality care and patient safety.

We are the only large hospital system in the country on a common clinical information system platform. This allows us to compare statistically, patterns of care across 179 hospitals and focus further research on any hospital which appears to have problems associated with specific programs and services. We believe in today's environment of heightened awareness and concern about patient safety and outcomes this ability and our commitment to take decisive action when problems are identified are distinct advantages in achieving our goals. In addition, as you know, we are developing and rolling out new technologies in medication administration and physician ordering which prevent errors as their source. We believe all of the above will be significant market differentiators for us. More importantly, they confirm our commitment to our mission statement above all else we are committed to the care and improvement of human life.

With that, I turn it over to Richard to talk about our fourth quarter results.

Thanks, Jack.

Good morning to everyone and thank you for joining our call. I am pleased to be able to present an excellent operations quarter for HCA. The fundamentals of our industry as well as our own operations remains strong.

As I have mentioned on previous occasions, the location of many of our hospitals in the suburban parts of America's fastest growing cities has favorably positioned us to enjoy growth in our business. For the quarter, admissions growth in virtually every major market performed well. In several large markets, Dallas/Fort Worth, San Antonio, Denver, Houston, South Florida, Orlando, volume increases were particularly robust. Same facility admissions increased 3% over prior years fourth quarter and 2.5% for the entire year.

Please recall these growth rates include the effect of closing certain skilled nursing and other sub-acute units. Adjusting for these closure, admission growth for the quarter was 3.1% and 2.8% the full year. Our marker locations considered in combination with an aging population, well capitalize facilities, management teams that are very focused on service levels, and fair reimbursement from third party payers has driven a solid top line growth.

Total net revenue on a consolidated basis for the quarter increased 10.7% and 11.7% on a same facility basis. This underscores the power of a balanced volume and pricing strategy. Net revenue per unit trend continue to be favorable in the fourth quarter increasing 9.1% on a same facility basis. For the year, same facility net revenue per adjusted admission increased 8.8%.

In addition to a strong top line operating margin for the quarter was 18.4%, an improvement of 70 basis points over prior year's fourth quarter. This is the third consecutive quarter in 2003 where we posted margin improvement and brings our margin for 2002 to 19.8%. This represents a 70 basis point improvement for the entire year. As Jack mentioned, this margin improvement was even stronger if normalized for gains of $60m were received in 2001 but not 2002. This would represent an additional 40 basis points of margin improvement. We were pleased with this margin growth positive the quarter and for the year especially given the level of reinvestment we have making. We firmly believe these long-term investments of hospital facilities, processes and infrastructure will continue to position our company favorably in the years to come.

There were no surprises in operating expenses for the quarter. Salaries, wages, benefits, supply expense and bad debts all expressed as a percentage of net revenue were virtually flat from prior year's fourth quarter. The category, other operating expenses, improved 90 basis points. Once again, improvement in this category is due to the fixed nature of many of these expenses being spread over a larger base of revenues.

Labor rate. Where the average hourly rate we pay each FTE increased approximately 5.3% positive the quarter consistent with the third quarter increase and in line with our expectations for the year. During 2002, this figure has ranged from a high of 6% in the second quarter to a low of 5% in the first quarter. For 2003, we believe that labor rate will once again increase between 5% and 6%. One aspect of labor costs which continues to be a challenge for the industry is the use of contract labor. Overall, the rate of growth of contract labor has moderated during the year and we consider this a small victory. We have taken many steps to address these costs and have achieved some level of success.

You might be aware we've been systematically rolling out our own internal nurse staffing agency. The program called All About Staffing continues to be successful. We now have markets in 9 offices and satellite offices in 18 additional markets with over 3700 nurses on our employment roster. We conservatively estimate in 2002, we avoided $32m in costs through All About Staffing. In addition to cost reductions or avoidance All About Staffing improves the quality of nurses available to our facilities since these nurses are universally trained on systems and use at HCA facilities. They then are able to carry that training to the multiple HCA hospitals they may work at in any given market. This is far more efficient and reduces orientation time in each facility. All About Staffing is also involved in our international nurse recruiting effort and today All About Staffing has placed 200 international nurses within the HCA system.

In addition to All About Staffing, our hospital management teams have been able to achieve favorable improvement in employee turnover rate, total employee turnover decreased 12% during the year and nurse turn over decreased by 7%. We believe these improvement are in part a by product of the company's effort to be the employer of choice in the communities we serve. In addition we have trained over 75% of over department managers at hospital or 12,000 people in basic supervisory skills, the lack of which is the leading cause of employee dissatisfaction.

The quality of our earnings remains strong for both the quarter and the year. Net days and accounts receivable declined to 63 days from 64 days last year. Additionally, net days that our patient account service centers continue to outperform those hospitals that have yet to transition. We now have approximately 80% of our revenues being billed and collected for these service centers. Some 55 additional hospitals that migrated into 10 centers this past year. These service centers now support 146 hospitals and the remainder of our hospitals will transition during 2003. Cash collections during the quarter were 103.5% of trailing 60-day net revenues less bad debts.

During 2002, we significantly increased our capital spending. And 2001, our capital spending was $1.4b. In 2002, we spent $1.7b or an average investment of almost $10m per hospital. In 2003, we are planning to spend $2b. This is capital that will be directed to our existing base of operations exclude any acquisitions we may have, specifically, Health Midwest. We continue to focus our capital spending on increasing the medical, surgical and emergency capacities of our facilities. In addition, we continue to fund new and replacement hospitals in several markets. During 2003 we expect a record $1.2b of projects to come online or be placed in service. And an additional $900m in 2004.

As you'd expect, we carefully scrutinize all projects for development and thoroughly review the results of our capital spending decisions. Results from recent capital projects that have been in place for one to two years is very encouraging with most projects performing significantly better than expectations. For example, a retrospective analysis of 25 capital projects that came into service in 1999 and 2000 indicate that these facilities significantly exceeded the financial projections used to justify the investment. The projects reviewed which represented 60% of the capital spend during that period achieved a two-year EBITDA return which exceeded our hurdle rates of 20 to 25%. In addition, these hospitals achieved an rated growth rate of in admission of 4.1% and emergency room visits of 7.3%. We think this is a good indicator of things to come.

Perhaps the most important indicator of our success of capital investment strategy has been the continued improvement of our return on invested capital. The company's return on invested capital at the end of 2002 was 13.2%, 140 basis point improvement from 2001. Additionally return on equity increased to 25.2% in 2002 up from 21.3% in 2001. Incidentally, we see no change in our managed care contracting strategies for 2003. Currently, over 80% of our managed care book is in place for 2003 with an average renewal rate of approximately 7.5%. In addition, we now have 25% of our managed care portfolio in place for 2004. At this point, I would say that a rate of increases in 2004 are similar to what we're experiencing in 2003 but, of course, contract negotiations have yet to be finalized for the entire year.

Although not without challenges, all in all 2002 was a very positive year for our company. Not only was financial performance strong but the groundwork was laid for continued improvement in 2003 and years beyond. I have shared with you in the past the components of our operating strategy so I will not repeat them at this time. Suffice to say we remain predominantly focused on an operations based strategy and are spending the vast amount of our management and financial resources on improving the access to and the quality of the services we provide to our patients.

With that back to you, Vick.

Richard, Jack, thank you very much. Michael, would you please come back on. That's the extent of our comments, to take questions. I would remind everyone in case Michael doesn't, that we would like you to hold your questions to one at a time so that everyone gets a chance to ask their questions.

Thank you. The question and answer session today will be conducted electronically. Anyone wishing to ask a question may signal by pressing the star key followed by the digit one. And once again, we would like to ask that you limit yourself to one question. Individuals asking questions should not use speakerphones and we ask that you lift the hand set if you are asking a question. Once again, that is star one if you would like to ask a question.

Looks like we'll take our first question from Lori Price with J.P. Morgan.

I wanted to ask about your same store equivalent admissions growth. It was a little bit lighter than your overall same store growth. It looks like it might be related to lighter than normal ER visits. Was there anything that was unusual in this quarter?

Lori, good question. We anticipated that we're going to ask each of our groups east and west to make a comment. Bill who is the CFO of the Eastern Group.

We didn't see anything in the quarter that surprised us or concerned us. Our outpatient surgery growth was consistent with the inpatient admissions. ER visits were fairly consistent, but a little bit down from previous quarters. Our outpatient visits or single procedure visits, those outpatient diagnostic and imaging trailed our inpatient growth. Pretty much a trend we've seen consistently all year primarily to those services being moved to free standing diagnostic centers.

I think when you couple that with we had very strong inpatient revenue growth with case mix and intensity growing as well as length of stay that had an effect of reducing our outpatient conversion factor which primarily explains that spread between tin patient admission and equivalent admissions you're looking at.

Anything else to add from the west? That pretty well covers it. I guess the last thing I would say is if you look at last year's stats, Laurie, the outpatient stats were strong. So the comp was probably a little tougher.

Thank, nice quarter.

Thank you, Laurie.

Moving on we have a question from Gary Lieberman from Morgan Stanley.

I was hoping you could talk a little bit about your salaries and benefit as a percent of revenue it was at the high end of the range but similar to the fourth quarter in '01. So I was wondering if there was any similarity there. Also if you could talk a little bit more about contract labor, what impact did that have on salaries and benefits in the quarter?

This is Richard. Let me take the first part of that. As you noted, SW&B is a percent of net revenue for the fourth quarter was similar to the prior year's fourth quarter, in fact on the mark. Typically the fourth quarter is a difficult quarter for us to really see that number come down much. Mostly that's driven by the fact that there were a lot of vacation periods during the fourth quarter and our hospital managers are loathed to cancel a shift and also they are paying for a lot of nonproductive vacation time that comes up. We always feel pretty good if we keep the comparison consistent from quarter to quarter and don't lose any ground. So we're actually pretty pleased with where the fourth quarter came in.

Could you tell us what percent of salary and benefit was contract labor this quarter? Maybe compare that to the rest of the year?

Yes.

Gary, this is Mark. Contract labor as a percent of total labor cost in the quarter was 7.4% versus 7.7% last year.

So 30 basis point improvement.

Great, thanks a lot.

Thank you.

We'll now go to John Hindelong with Credit Suisse First Boston.

Thanks, good morning. Say, Jack, I was wondering if you could talk a little bit about the compensation of the hospital CEO's in the field. How many are paid salary versus bonus. What kind of stability do you have there? I remember in the old days you used to change CEOs a lot but I don't think that's true anymore. At the senior level as you resume growth will there be changes in the senior management and specifically do you think you'll ever have a CFO?

John, good morning. That's several questions. Let me see if I can remember them and go back over them. First of all, the issue about -- let me deal with the CFO issue. We believe that we've got a first class financial management team in place with Milton Johnson and David Anderson and don't feel that we have to go outside or start looking for a CFO. I think we're in good position the way we're constituted right now and given the history of some companies, and I'm speaking outside this industry over the last couple of years, maybe having a CFO is not always the best kind of way to go. But I guess each company has to make that determination. We are focused on our operations and not on any kinds of engineering things that may go along with that kind of financial platform. And so we feel like we're structured appropriately for what we're trying to do right now. Now that may change in the future. But where we stand right now, we think we've got the right platform, going forward.

I think part of your question had to do with also senior officer turnover. I'm looking around the room now at a lot of our senior officers. First of all, I think they are quite happy and content and challenged with what we've got to do in this company for the next three to five years. I also look around and notice they are fairly young looking, although well experienced. I think they've got several years left in the saddle. And we don't anticipate any senior leadership turnover going forward.

As to the compensation, hospital CEO's, I don't have the specific numbers with me. We can share some of those but I guess the real message here is we spend a lot of time and effort comparing salaries, not only with our investor owned brethren but also with not-for-profits in our markets to make sure that our salaries are competitive. We have just recently added another category to our hospitals. We have had our hospitals ranked by size of revenue and complexity from A to E being the highest -- E being the highest category. We reflecting our most complex hospitals. We've added another category F to really represent these super large hospitals and complex hospitals such as the ones with big open heart programs and big transplant programs and so forth. The bonus compensation for these people for their performance, as you know, is based upon the same that we have for our senior officers and division Presidents. Which is that their bonuses are paid out in restricted stock in the company which vests over a two-year period. Again, I don't have the specifics of percentages of payout this year. Obviously, given the success that we've had in some of our markets, the payouts were very good but, again, they are in restricted stock that vests over a couple year period. So I hope, John, I got all those.

Just the turnover.

Turnover is very, very small. I don't have the number with me but it's among our hospital CEOs it's almost nonexistent now.

Jack, I think that number is about 10% now compared to about 30% maybe three to five -- five plus years ago. So it's come down dramatically and that 10%, as you expect, is a function of some internal transfer as well as retirements and that kind of thing. So it's really a very, very low number and we have a very, very stable work force in our senior management teams at our hospitals.

The other thing that I just embellish for a moment here is that compared to five years ago, we really developed a lot of depth in our organization to take over any slots that may come available.

Our CEO development program, we've added a number of CEO clots in major hospitals so we have a lot of young folks in the pipeline to populate these management positions in years to come. So we're feeling much better about that whole process now than we did, say, five years ago. Just a point of correction on the statistic that Mark quoted on contract labor as asked by a previous question. Let me just get those numbers straight. This year contract labor in the fourth quarter as a percent of salaries, wages and benefits was 7.1%, that number for the fourth quarter last year was 6.8%. My comment about the rate of contract labor slowing is this year in total the rate of growth was 7% but overall last year it was growing at a rate of 12%. So these numbers are little confusing. I think Mark picked up a bad stat but that's our best estimate at this point.

John, thank you.

Thank you.

SunTrust Robinson Humphrey Capital Markets, Darren Lehrich has a question.

Thanks. Just hoping to get a little bit more detail at the group level just in terms of volume growth, unit revenue growth and net revenue growth so those three statistics for both the east and the west. Also if I could get a better sense of how the capacity additions are going to come on line throughout 2003 perhaps by quarter, if possible, within both the east and the west. Thanks.

Jay, you want to start with the east?

Looking at the east, overall for the quarter, our admissions were up about 3.4%. We had a couple markets that really showed some very strong growth, Richard mentioned in his opening comments several of our South Florida markets Broward and Dade, particularly, Orlando was very strong for us, we have a couple of single facility markets in Georgia, in Rome and Augusta that were very strong. We had a new hospital open up in our north central Florida market. It's a satellite facility to our Ocala(ph) regional center. That had some good growth in our market that well. Our panhandle Florida market also showed significant increase over the prior year quarter. In terms of net revenue per adjusted admission for the quarter, that was up about 8.6% and then the rate growth volume gave us about a 12% top line growth for the quarter.

Sam, the west.

This is Sam. The admissions for the western group were up about 3.3% so slightly down from where Jay indicates for the Eastern Group. If you rolled Denver into that number it's 3.4% so Denver actually outperformed the group. When you look at our revenue, our revenue growth in total was 11.5% so that translates to about 9.5% on a net revenue per adjusted admission basis and we had really strong performance once again in most of our major markets in Texas. We continue to perform well in Denver, southern California and Utah so we had a pretty broad base of success across the group that yielded fairly consistent performance in these major markets.

Terms of your question about capital and timing, I don't know as we have a break down by quarter of where the dollars hit. Richard, you may want to make a comment about the pick-up in capital.

Vick, I was actually referring to -- in terms of beds throughout the year. If you don't have it by quarter just kind of a ballpark of how many beds we're talking about in each group.

I tell you, Roz and Elton work with Mark Kimbrough. They will get you a schedule on that today.

I'm probably going to do this. I'm guessing a little bit. I think over the next three to four years we're adding about 1200 beds as part of that capital spend. Another interesting -- we'll button that down for you. The other issue is that as we think the most important issue for us is how much of this capital comes on line versus how much is approved and what's happening now really for the first time in a number of years is that increased capital spend that we approved and went through the construction process 1, 2, 3 years ago, is starting to come on line in a disproportionately large rate.

So, for example, in 2002, in the Western group, say, $250m of capital came on line in 2002. That number jumps to $460m in 2003 and almost $600m in 2004. This is independent, of course, of Health Midwest. Those same numbers for the Eastern Group in 2002, about $427m came on line in 2002. It has a disproportionately large hit in 2003 of over $730m. And then rolls back slightly to $300m in 2004.

So the take away from that is capital spend, those decisions that we've been making over the last several years are starting to become a reality. They are becoming on line more significantly in the east in 2003 than in the west. And in a flip-flop of 2004 where the west picks up a lot of projects being completed. So we have a lot of exciting projects, capacity in the works that we're going to experience over the next couple of years.

Darren, we do have two stats here. If you look at beds that we're adding to existing hospitals, and this would be 2002 through 2005 it's 1356 that are underway. At this point, that could change. None of this counts. None of these conversations we're talking about includes Health Midwest and those facilities. We actually have four new hospitals. Just 1700 just from beds but clearly there are many others. Emergency room expansions, 33 of them and 48 facilities where we're expanding surgery, ICU, CCU and numerous imaging, open heart, oncology and cardiology expansions, as well.

Great, thanks for the detail.

Thanks, Darren.

Our next question comes from David Dempsey with Avendale(ph) Partners.

Good morning, guys. Great quarter, thank you for the information. Question for you on the settlement charge of $603m. I guess the big question is, is that it? Is that materially what we would expect to -- what you'd expect to cover the DOJ settlement? Is there anything else out there we should be concerned about?

David that does -- that concludes, again, once it's completed, final settle paid and approved that will conclude the DOJ investigation as such. Obviously you have bits and pieces of litigation from time to time, but in terms of the principal investigation this will conclude that.

Very good. Thank you.

Banc of America Securities is Gary Taylor has a question.

Sorry, I was playing with the phone here. Could you run through pair mix in the fourth quarter versus fourth quarter of '01 and I may have a follow-up.

I am going to give you mix and these are by admissions, breakdown admission not to revenue. Fourth quarter of '02, Medicare was 38.3% of admissions, a year ago 37.6%. So up a little. Medicaid admissions fourth quarter of '02, 11.4% compared to 10.9% a year ago. Our overall managed care discounted book to business admissions 41.2% a year ago 41.4%. Our commercial business, 5.1% compared to 6.1% a year ago. And our self-pay both years 4.0% so again the principle move, a little bit of a 100 basis point out of commercial and most of that shifting to Medicare. A little bit to Medicaid. Duff a follow-up to that?

Am I correct that on a revenue basis your peer mix has shifted toward or Medicare has actually come up over the last year or so? Or perhaps I've -- I guess the question is, the numbers that you publish in your Q's and K's are those by revenue or by admission as you just gave them to me?

Somebody --

Hey, Gary, this is Mark. Actually give you revenue for total payer mix, we also give you revenue for inpatient only. So you get both of those. And as far as the change in Medicare being an increase in Medicare as a percent of total, I don't think that's true. I think Medicare is a percent of total has been relatively constant at about 28%, 29%, as I recall.

Although, Mark, we are seeing in some of the Eastern Group markets, particularly down in Florida shifting out of managed Medicare into traditional Medicare. We've seen that over the last, probably, 15-18 months.

Which moves it out of your commercial bucket?

That is correct. Because if it's a managed Medicare, Medicare plus choice we've always shown it as managed discounted business. That clearly -- probably one of the reasons for that shift.

As Jack mentioned that's favorable. That's good news when that happens. Vick, for the nine-month period ended September 30 I have those numbers. On a revenue bay is Medicare for nine months was 31.8% of revenue inpatient only. For the same period of 2001 it was 39.4%. So it is actually down slightly on an inpatient basis only.

Of course that would reflect -- Medicare rate increases that we've been receiving the last few years are obviously not comparable to the rate increases we've gotten in the private pay business so that makes sense.

Great, thank you.

We'll now take a question from Kip Hewart(ph) from Legg Mason.

Some of my questions have been answered. Can you give me some of a sense on the shared services initiative, is that contributing, if so how much, to the EPS this year and what do you think the impact could be next year?

Milton Johnson do you want to address that?

Sure. A vast majority, 80% of our hospitals are already in the shared service environment and we've also got consolidation of some procurement centers, as well. You know, this is now just integrated into our operations and part of our mainstream operations and it gets more and more difficult to really carve out some of the benefits.

But we still make some efforts to do that, for the quarter we believe it was slightly accretive, probably less than a $.01, for the year I would say it was accretive, $.02 to $.03. I think those are conservative estimates for the benefits of shared services. There's a loft benefits that's hard to quantify in terms of understanding our revenue stream better, our payers better and it's hard to convert that into an earnings identified and stated as a benefit but we know it's there. It's just become part of our integrated operations in 2003. It will continue to do that.

And do you have a sense of '04? What kind of a ramp up or increasing impact it would have?

Well, looking forward, mine I think we'll continue to get benefits as we grow the business. Obviously there's some benefits from the standpoint of severance and retention costs going out of the system. That was approximately about $32m this year, next year it's probably going to be in the $5m or $6m range. So obviously, there's some costs going away just from eliminating some of the conversion costs to the new operations.

And then I had a question on your supply management area. Is this an area where you see significant opportunities to even to bring down the percentage as a total part of your revenue? If so, what are some of the initiatives you are taking in that area?

This is Richard speaking. Supply costs are -- the short answer is I don't think so, not in 2003. Supply costs are a growing challenge for us as we go forward, as you know, the technology components, the pharmaceutical components are increasing at a pretty dramatic clip and our efforts to control supply expenses through our supply chain, through our -- the activities at our hospital is really just trying to keep that number sort of in line with historical trends. As we went through our budget process for next year, the operations folks, along with the supply and material management folks really identified this as an item to watch, of course you know we have drug [inaudible] in the latter part of the year so there's a lot of moving parts with supply costs and that's something we -- I don't think we're going to see a lot of improvement in that number. As we think about next year, as a percent of net revenue we have generally in the zone where we completed this year at about 16 -- a little over 16%.

Okay.

So we're holding the line on that.

Then just one follow-up. You mentioned in your opening remarks technology improvements or changes you're going to make in terms of I guess medication administration and physician ordering. Could you just elaborate on that and also particularly -- how much of this are you drawing on outsource or -- or software that you're purchasing outside versus things you're developing inside.

Maybe I'll just set this up and let Dr. Houser comment on it. I mean there's a number of technological improvements we're making. Some of them aren't that mysterious. I mean PAC system where we think about digitalizing radiology reading in a market. I think really more to the point of your question is the rollout of our system design to improve our medication administration process. We really have two major systems that we're working on. One, and excuse the acronyms but it's called EMAR and it really takes the -- using bar coding technology and aligns the drug with the patient using bar coding and the other is physician order entry, which hopefully takes some of those problems out of the scripting of medications. Both of those are under development. We've piloted EMAR with eight facilities and we're rolling it out to 60 next year. Physician order entry we have -- the pilot is going on right now. They will probably follow deployment in the latter part of 2003, 2004. With that Frank I probably said everything you were going to say.

I think you covered it well, Richard.

Thank you.

Kip, thank you.

If you find that your question has been asked and answered, you may move yourself from the queue by simply pressing the pound key.

We'll now take a question from Adam Feinstein with Lehman Brothers.

Great, thank you. Good morning, everyone.

Good morning.

My question is about this malpractice and maybe it's a couple of things here. One, could you just comment on the size of your surplus and your insurance sub. Secondly, what types of claim history have you guys seen recently. With more discussion about summary reform taking place, are you seeing a lot more claims getting filed in front of that particularly in the Vegas area? Thank you.

Milton Johnson will address that.

Sure. We've got, I guess, backing up our reserves and malpractice arena about $1.6b of investments, most of that in fixed income, about probably $400m or so in equity. So very strong A rated insurance company.

With respect to claims experience, you know, we're really not seeing a significant increase in our claims in terms of frequency of claims. What we're seeing is the severity of the claims. The amount of claims that, say, are in excess of a $1m of increase and that's really been driving in the hospital malpractice area most of the increased cost is more of the catastrophic type of claims that juries and courts have been handing down and that increases the settlement costs of ones we don't litigate. That is really where the cost pressure has been in event years. Really not seeing any significant change at this point in time.

The size of the surplus I think you said it was $1.6b in assets but what's the liability side of that?

We've got about $1.2b in reserve so that's approximately $400m or so of surplus in the company, Adam.

Great, thank you.

CIBC World Markets, Charles W. Lynch, please go ahead.

A couple questions regarding your bad debt and expense activity. As I notice here for the past couple of years you generally have a sequential increase in bad debt expenses through the last three quarters of each year. And I'm sure curious about two things. One, as we go into 2003 will there be some sort of return to normal seasonal revenue trends and, therefore, maybe a kind of shifting in bad debt incurrence more heavily toward the third quarter than the fourth. Secondly, looking as your collections experience with cash collections up 3% or 4% ahead of net revenue less bad debt, is there any potential or expectation here that maybe your being a bit conservative there and we could see a little bit of improvement on the bad debt line in 2003 if that collection activity continues?

Who wants to take a lead here? Beverly Wallace or Milton?

I'll try to take the first part of the question. Our bad debt as a percent of gross is actually remaining flat year over year and sequentially. So we're keeping pace with that. Our insurance pending greater than 90 days for our patient account service center hospitals have actually gone down 2% points year over year. So what we're doing is accelerating the collection of our insurance population and what you see flowing to bad debt is our self-pay population. And we expect that to continue as we migrate the rest of the hospitals into the PAS.

The fact that we're collecting cash higher than 100% on adjusted net revenue, I think is an indication that our revenue recognition policies are somewhat conservative but appropriately so. I don't think that's going to impact bad debts. Some of that pick-up has been from the PAS working discrepancy and some issues with managed care payers that brought in some cash, as well. So I don't expect that you are going to see that statistic impact our bad debts going forward.

Thank a lot.

Thanks.

We do have a question from A.J. Rice with Merrill Lynch Global Securities.

Thanks. Richard in your prepared remarks you made some comments about the outlook of managed care and starting to have some visibility in '04. I know in some of the public forums that you guys have been ought in the last year or so you guys have said HMOs have expressed an interest in signing multiyear contracts and up until recently sounded like you guys were probably reluctant to do that. Can you just sort of update us as to whether those types of contracts are available and what your posture is towards them. And the second thing is on managed care, to just stay with that theme, based upon what’s going on with Blue Cross of Tennessee and any other maybe major milestones in contracting that look out the next 12 months that you guys face?

Well I'll start this and we'll get Jay to chime in as well. Just maybe taking the questions in reverse order. A little bit about our overall managed care strategy. And sort of the issues here and Blue Cross of Tennessee and obviously these kinds of events happen from time to time. I mean obviously we like to reach agreement with our managed care payers but we believe that our pricing strategy as we articulated is very straightforward and we're very disciplined about contracts that we will sign and when we think we have to say no. Of course, that's the case with the Blue Cross of Tennessee. And we continue to feel that we need to have rate increases commensurate with the cost of providing care. We are flexible about how we can contract. But at the end of the day when we add all this stuff up we need to have a rate increase that is acceptable with the cost of providing the care. We have been down that road before. Pricing business on the margin and we know it doesn't make any sense and quite simply, we just can't afford to do that. We have a lot of demand for capacity, for capital spending and so we're pretty resolved about our strategy.

Managed care for next year is, as I said 80% done. We're looking at 25% for 2004 being done. Two-year point of multiyear agreements we are and will consider that and really have -- are comfortable doing that if the second year rate is appropriate and often what happens in these negotiations is they -- there's a leading higher number for the first year and a lower number for the second or subsequent years and we're not too excited about that but we are interested in – and will execute a multiyear agreement if it meets our pricing parameters. We've done some of that. We haven't done a lot of that. We are certainly discussing that with the payers and to the extent we can execute along those lines we will.

Jay, maybe some more specifics about the blue cross of Tennessee?

Yeah. I think as everybody knows we terminated that contract at the end of the year, December 31. And it actually sort of came to a halt rather abruptly I might say in the first week of December. We'd been negotiating with Blue Cross. We actually had four different proposals that we had presented to them over a different time periods, 12, 18, and even 30 months. And rather than responding to those, they just abruptly issued a press release that the negotiations were terminated. And I think, you know, you heard from Richard what the strategy is an the rationale, we're looking for price increases in this market as all of our markets to cover our cost increases.

Since the beginning of the year, most of our efforts has been devoted to responding to the many, many inquiries that we're getting from local employers both here in Nashville and down in Chattanooga about our plans that we are participating in and have contracts with. And we are aware that many of those large employers are opening their enrollment, continuing that and allowing their employees to opt into other plans that -- with which we are contracting. There's some very large government entities and Metro here and Nashville and the state of Tennessee have extended their open enrollment. Many large employers have done so as well. And although we're not obviously actively involved with that, we are hearing that a lot of people are opting into these other plans. The open enrollment is for most of those large employers will extend to the mid to late February kind of time period. I think we'll have a much better idea of how much volume is going to move sometime at the end of the first quarter. And then I think, you know, there will be the implications of people who haven't opted to do that. They are going to have to live with not having to come to HCA hospitals. I think next year during open enrollment we'll see continued migration into plans that we're in.

Jack?

A.J., I just wanted to add a couple of moments about this. This situation in Tennessee is no different from other situations that we faced over the last three to four years in which we have tackled some very tough negotiations and have either dropped plans or been excluded from plans over this pricing issue. This happens in different states and different plans including Blue Cross plans from time to time. I think the reason it's gotten so much attention and press is because we're headquartered here in Tennessee and specifically here in Nashville where there are a lot of Blue Cross participants. Either directly through Blue Cross of Tennessee or through Blue Cross in Michigan as with the Nissan plant and others which brings up some interesting issues.

But it's got an lot of attention. I think because, as I said, we're headquartered here. As I said to some people yesterday. Given the fact that we live here in Nashville it is the conversation at cocktail parties and at church and as I also said for us Episcopalian at cocktail parties at church, it has gotten a lot of publicity but it is no different and has no different context than other negotiations that we've been going through. The fortunate thing about us is that we're large enough as a company to be able to take a stand like we're taking here and continue with our strategy and have enough critical mass in the rest of the country that we can in fact stand up for what we believe is right in this situation.

Essentially, we were asking for a 9% increase for the first year for 2003. And quite frankly, Blue Cross and most of its situations with its employers are raising rates in the 30% or better range. In fact, I had an individual Blue Cross plan that I'd gotten when I was retired and they essentially on my rate from 2002 to 2003 went up well over 30%. So there is obviously a disconnect here. We believe our request for rates was reasonable given the increases that we are seeing, particularly in the high technology end of Kansas costs that we've got and that's the reason that we are doing what we're doing, but, again, the message here is that blue cross of Tennessee situation is no different from other situations. We have been through over the last three years in some other states.

A.J., thank you.

We'll take a question from Deborah J. Lawson with Solomon Smith Barney.

Hello.

Hi, Deb.

Hi. I guess I was just wondering along the managed care front as well. Some of the managed care companies have publicly stated over the last couple of months they are seeing an ability to better control volumes and pricing, et cetera, et cetera.

Have you all seen any incremental change in your contracting talks that would lead you to -- you know, can you comment on any changes in the tenor or, you know, otherwise of your managed care contract talks? I know you gave us your 80% of the book has been renegotiated for '03 and then you're making a fair amount of progress on '04. Any kind of changes in your negotiations that you can sort of fill us in on? Thanks.

Beverly Wallace, you want to take the first shot?

Hi, Deb. This is Beverly. I will tell you every year the managed care team says, boy it's going to be tougher this year than last year, but what we're seeing is that we're able to maintain the pricing on our negotiations that we've been able to maintain in '02. And although they are getting a little tougher around the outpatient piece that Bill eluded to with the diagnostic testing. We are staying focused on that and holding to our charge to cover our costs that we see increasing in our environment.

Thank you, Deb.

We'll move on to Andrew Bhak with Goldman Sachs.

Good morning. You've indicated that you're holding pretty steady with respect to your stance on pricing with managed care pairs. I'm curious in your major markets what the stance and degree of discipline that's being held by not-for-profit competitors.

Secondly you addressed many of the item in the operating cost structure and trend there. I'm wondering if you could address what you anticipate in terms of salary, wages and benefits cost trends, not only in terms of the 5% to 6% wage increase but productivity gains, et cetera, over the next four quarters.

Then finally, based on that, I'd like to ask a follow-up question to infer about the long-term earnings guidance for the company. Thanks.

All right. Jay or Sam, anybody want to talk about discipline of the not-for-profits markets?

In the Eastern Group markets, for the most part, we are seeing I guess a strengthening of the resolve of many of the not-for-profit competitors in holding out for adequate rate increases. Most notably I guess eventually down in our Tampa market, which is our largest market in terms of revenue, Bay Care which is a joint operating agreement type of system down there, and has actually the largest market share in the Tampa market, was for months and months and months non-contracted with Blue Cross. And so that -- I think that gives you an example. That's pretty unprecedented. A year ago they kind of came and went and we're seeing in other markets the same kind of resolve so I think all the providers, hospital providers out there and they are obviously all facing the same cost pressures and we're all getting the same amount from Medicare. So they are going to have to look to getting better rates out of the insurance companies.

Richard, you want to address the productivity and labor?

Yeah, Andrew. When you think about our company and we talk about productivity, I like to think of it in two buckets. One is the productivity at the hospital level and then the productivity for the overall company including the corporate functions and we generally see between 1.5% to 2% productivity improvement at the hospitals you know, really that's what you would expect with the kind of volume increases that we are achieving.

We tend to dilute that number overall for the company somewhat because we're staffing up for a lot of these services and developments. So we do see some dilution but overall for next year for the total company, we're seeing -- we're anticipating productivity in the 1.5% range. So slightly higher than that for the hospital. Diluted down a little bit for the corporate office but overall about 1.5%.

I mentioned the labor issue. We have programmed in the rate issue of between 5% and 6% for next year. And we're pretty comfortable with that number. If the economic times turn substantially worse, that number might be a little bit generous.

And, Andrew, with respect to your -- just an update an our growth target and goals we made no changes to that. We've been steady for a few years now and continue to be with a target growth of mid to high teens in earnings for the long-term.

Thank you very much.

Thank you.

Moving on, we have a question from Ellen Wilson from Sanford Bernstein.

Yes, one more. One more question on the managed care HMO contracting front. I was wondering on the Blue Cross Blue Shield of Tennessee contract if the discussions fell apart for purely rate driven reasons or were there potentially other provisions that you disagreed with? What type of provisions basically would be deal breakers such as would you do tearing most [inaudible] -- payer status, that sort of thing. I feel from covering the HMOs I feel increasingly the battle from their perspective is being fought on that front to include these sort of other provisions. I was wondering where you stand on that?

This is Jay. Actually, the Blue Cross of Tennessee contract did disintegrate over rates. We have pretty much arrived at consensus and agreement on the non-rate provisions and so everything kind of fell apart on the pricing side.

As far as deal breakers, do you all do or would you be able to doing peering or through most favored nation/payer status? Are you seeing HMOs ask for that?

We haven't seen that in a while, at least in our group, in the Eastern Group. And we're not real keen on most favor id nation clause.

On the tiering side we only see that sporadically and we have not signed any agreements that have tiering built into it to date.

Okay. One really quick follow-up on that. What is your average HMO contract length that you're signing now versus a year or two ago? And how are the provisions on those contracts in terms of being able to open up the discussions sort of mid contractor midyear regarding pricing discussions?

We still have about 84% of our managed care portfolio in one-year agreements. As Richard and the group guys mentioned, if the rates are respectful for year two, we might consider a two-year agreement. We've not talked about anything beyond that. And we anticipate that we'll see some of those this year in our negotiation process.

And about -- are they typically structured such as you could open up -- even though you agree to say, you know, a 7.5% increase could one of the parties open up the discussion midyear to revisit that?

Not typically. If we have an agreement with a payer that something is not working for both parties in that agreement. We will come to the table if we can meet resolution on those issues. We will. If not we'll let it go for the full term and then renegotiate at the point in time that we typically would.

Okay. Thanks.

All right, Ellen, thank you.

[Inaudible], Karen Volk has a question.

I was wondering if you could give me some guidance on the debt reduction in Q4. It looks like the debt came down over $400m. Some of that I'm sure is due to scheduled term loan repayments. But, I’m wondering if you could fill me in on the rest of it.

David Anderson do you want to flip on your microphone there?

The biggest piece of the reduction in debt was $500m floating rate note issue that came due and was repaid and we also paid down $655m in our bank revolving credit so those are the two major pieces. The remainder of the debt pay down was in smaller maturities.

Okay, thank you.

Thank you. Maybe just a couple more questions to closeout. Michael?

Yes, please, just one moment. We'll take a question from John Patrick Walsh from Wachovia Securities.

Good morning. I wanted to get your thoughts on -- thoughts on the physician malpractice issue. Obviously you had the news yesterday with the physicians going on strike in New Jersey. That's the third or fourth state we've seen that unfold. We're wondering your thoughts on that and how it could impact your results over the next 12 to 18 months.

Either East or West --

Let me maybe introduce it and maybe they can comment on more specifics and maybe Milt can comment on his standpoint of our insurance company. Just to put it in perspective this obviously isn't a problem in every HCA market and it really is a problem in only three markets, Las Vegas, West Virginia and some parts of west Florida and I think as Jay will mention in a moment here it hasn't yet affected us in a material way in any of these markets exempt for a small amount in West Virginia and certainly not material to the company -- material to that market but not material to the company. And we have been looking at various alternatives to address this problem. We view this as sort of a transitional situation for us. We -- our best guess is that this will work out over some period of time but in the interim we're taking different kinds of steps in different kinds of markets to address the issues. And in some cases, we provide some sort of financial support to create a mutual -- help create a mutual or establish a mutual in the case in Las Vegas. In other markets we might work with an existing insurance company and perhaps subsidize some of those costs to make it easier for those organizations to reign in the market. In other cases such as west Florida or even piloting we're even piloting the notion of offering our own -- start to finish malpractice product. And in fact we announced that we were doing that in parts of the Tampa market last month. It's really too early tell how it's going. But it is a rather modest effort and contained to a very specific market. Milt, anything to add to that?

No, Richard, the outlook I think from an industry standpoint is 2003 will continue to be a tough year and probably into 2004. It's going to take tort reform -- tort reform to change the trend, I believe, and it's going to take drastic measures like walk-outs by physicians for that tort reform to probably occur. I think you'll probably see more of this in 2003 but eventually I thinks that these mutuals come in place that will help mitigate the issues and tort reform I think is really needed in a lot of these key markets to turn this trend around.

In terms of the volume hit, the only place we really seen it so far is in our West Virginia markets and as Richard said, it is not significant for the company but obviously very significant for those local facilities. I think we're probably hardest hit in Parkersburg at our St. Joe’s facility there. We are seeing orthopods, cardiologists, obstetricians, general surgeons, retiring early or leaving the state and, you know, it's a little bit harder -- not a little bit, it's a lot harder to recruit new physicians in against that backdrop of malpractice. As you know, in West Virginia there are efforts underway right now in the legislature to try to implement some kind of tort reform. I believe one of the components is to put a cap on the pain and suffering component so we're hoping that, that environment will improve and that we'll be able to get back to a more kind of a normal operating level.

Purely from a government relations perspective, this is Vick, the President coming out, providing leadership on this effort is a big plus. That doesn't get it done but there are increasing conversations, pressure, the various associations, whether it's the hospital groups, doctor groups, other healthcare groups I think you'll see increasingly come together in various coalition and why you don't maybe business wise don't want to see doctors walk out that clearly has a huge impact on members of Congress. That gets their attention very quickly. I think there's an opportunity for some movement here.

Let me just point, too, the programs that Richard described that we put in place in a few markets are temporary programs, defensive in nature. Our goal is to get out of the physician malpractice business over time and then not to grow that business just to make that point clear, as well.

All right. Thank you. Michael maybe one last question if there's somebody in the queue.

Sure that last question comes from Sheryl R. Skolnick with Fulcrum Global Partners.

Good morning. I'll make it quick. In the fall you, I believe, please correct me if I'm wrong, you indicated that one of the focuses of the company going forward in addition to getting strong pricing for managed care would be also to depend a little bit more on unit volume growth. The first question is, is my recollection correct, and, second did we see evidence of it in the quarter because I'm looking at your occupancy having gone up 220 basis points year over year on a total company basis, and equivalent occupancy going up a little more than that. That coupled with the increase in capital spending coming on line, it seems to me like you might actually be able to look to unit volume to drive your growth a little bit more in '03. So if you could comment on that I would appreciate that.

Richard --

In terms of volume, when we think about our top line growth, historically that revenue growth has been driven more by pricing and less by volume. And as we said in November, we have and are projecting that mix to shift. We do think that our top line growth going forward will be more comprised of volume than historically it has been.

In fact, as we put our budgets together for next year, that we did indicate that trend. So we do see unit volume increasing. I think your recollection is correct. We see volume across most of our major markets in the quarter as being strong. We certainly had some volume hit so to speak. We didn't see the flu season we thought we might see in the fourth quarter which is typical in the fourth quarter so there was some softening in certain markets. As a strategy going forward we clearly see unit volume increase as a part of our strategy. We are preparing for it in terms of our capital investment. We think we're well positioned in most of our major markets and over time we see that migrating north to be more consistently in the 3% range than in the 2.5% range that we experienced historically. So I'd leave it at that.

All right. I think with that we'll conclude the call. We want to thank everyone for being part of the call and Mark and I will be here today and look forward to talking to all of you. Thanks again for joining us.

Once again thank everyone for joining us today. That does include -- conclude today's presentation.