環球健康 (UHS) 2003 Q1 法說會逐字稿

Good morning. My name is ((Shayla)) and I will be your conference facilitator today. At this time I would like to welcome everyone to the Universal Health first quarter earnings release 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 period.

If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you.

Mr. Filton, you may begin your conference.

Thank you. I'm Steve Filton. Alan Miller, our CEO, is also with us this morning. Welcome to this review of Universal Health Services results for the first quarter ended March 31, 2003.

For the quarter, the Company earned 84 cents per share diluted. These earnings represent an 18 percent increase from the earnings per share in last year's first quarter.

During this conference call, we will be using words such as "believes," "expects," "anticipates," and similar words that constitute forecast projections and forward-looking statements. While we certainly believe all such statements to be true, listeners should be familiar with the risks and uncertainties of these forward-looking statements as discussed on page 24 of our recently distributed 2002 annual report to shareholders.

We would like to highlight just a couple of developments in business trends before opening the call up to questions.

Revenues for the quarter were 894 million, an increase of 11 percent from the revenues in last year's first quarter.

EBITDA, or earnings before interest tax depreciation and amortization, was 128 million - 16 percent higher than last year's first quarter. Net income of 52.8 million was 16 percent higher than last year. The diluted earnings per share of 84 cents was 18 percent higher than in the prior year.

In the quarter ended March 31, 2003, net revenue per adjusted admission in our acute care hospitals rose 5.6 percent. And net revenue per adjusted patient day rose 8.4 percent reflecting the higher prices being paid by private sector payers, improved case management on patients of government payers and the exclusion of the lower revenue flu patients.

Operating margins or EBITDAR of our acute care hospitals owned in both the first quarter of 2003 and 2002 were 18.3 percent in the quarter just ended compared to 17.7 percent in the prior year quarter as a result of solid top line growth and a slower rate of increase in other operating expenses.

We believe that managed care pricing remains strong in part as a result of the strong bargaining positions that many of our hospitals enjoy due to good market share positions and an environment of increased demand for hospital services.

Price increases in the behavioral health division followed their historic pattern of being more modest than in the acute care divisions. Net revenue per adjusted admission to our behavioral health hospitals rose 3.4 percent in the quarter ended March 31, 2003 while net revenue per adjusted patient day increased 1.7 percent.

Operating margins for our behavioral health hospitals owned for more than a year were 21.4 percent in the quarter ended March 31, 2003 compared to 20.5 percent in the first quarter of 2002.

Our bad debt expense as a percentage of net revenues continues to remain stable and our day sales outstanding improved to 51 days in the quarter down from 54 in last year's first quarter.

Admissions growth in the first quarter was healthy, although moderated from levels realized in recent periods due to a weak flu season and bad weather in certain parts of the country. In both our acute and behavioral health hospitals owned in both the first quarter of 2003 and the first quarter of 2002, admissions increased approximately two percent.

Exclusive of the change in strategic direction related to the scope of services at one of our Puerto Rico hospitals, acute care admissions actually increased approximately three percent. Alan.

Good morning, everyone.

The Company continues to operate in several markets marked by fast utilization growth and capacity constraints. The occupancy rate of our available acute care beds was approximately 73 percent in the quarter.

Our behavioral health hospitals have achieved rapid admission growth for many years and operated at a very efficient 80 percent available occupancy rate in the first quarter. Demand for behavioral health services in our markets has expanded sharply and we continue to see solid opportunities for additional growth.

We continue to look selectively for acquisitions where we think our skills and knowledge can improve the quality of care and financial viability of the hospital. During the quarter, for instance, the company acquired a 108 bed behavioral health system at Anchorage, Alaska.

And our French company purchased hospitals in France. We are currently reviewing additional acquisition opportunities in acute, behavioral and French and are hopeful that we will be able to conclude a few of these transactions by year end. However, we currently do not expect to complete any new acquisitions in the second quarter of 2003.

We spent about 40 million on capital expenditures in the first quarter compared to 41 million in the first quarter of last year. A major renovation and modernization of our Auburn Regional Medical Center just south of Seattle has opened this quarter. The company expects to complete construction of its new 176-bed hospital in Las Vegas, and a 90-bed addition to its Northwest Texas Hospital in Amarillo later in 2003. The new 120-bed Lakewood Ranch hospital in Manity County, Florida, should open in the spring of 2004. We currently expect capital expenditures for this year to be about $225 million.

We are pleased with the performance recorded in the first quarter of 2003, and are still looking to earn between $3 and 10 cents and $3 and 20 cents per share for the full year of 2003. We're grateful for the dedication of the physicians who recommend our hospitals to their patients, and our over 30,000 employees who constantly strive to improve the quality and safety of the care available to our patients.

Steve and I will be pleased to respond to any questions.

At this time, I would like to remind everyone in order to ask a question, please press star, then the number 1, on your telephone keypad. We'll pause for just a moment to compile the Q&A roster.

Your first question comes from Darren Lehrich of SunTrust.

Thanks. Good morning. Just two markets I'm hoping you can comment on here. First, can you give us an update on GW? What's the approximate revenue run rate there now, and where are the margins trending? And second, can you just help us better understand the margin situation in Las Vegas? What will it take, in your estimation, to get the margins up to the company average in Vegus and how are you approaching that issue? And then I just wanted to also ask about cap-ex. Were there any delays that you saw in the quarter, and I guess with cap-ex plans of about 225, you know, how does the cap-ex roll out for the balance of the year? Thanks.

Okay. Let me start with the last question. You can see that last year, we also spent a little more slowly in the first quarter than we did over the balance of the year. Last year's first quarter we spent 40, and spent 200 million for the year. So construction picks up as the year goes on and the weather improves, generally. We expect that our rate of cap-ex will increase as the year progresses, again, in part, because of the weather and, in part, because of the Lakewood Ranch project in Florida, will really start to hit the bricks and mortar phase a little bit later this year. We certainly don't expect to overshoot our target of 225 but we're still going to hold to that target. It's possible we could spend less than that.

As far as your question about the couple of markets that you asked, you know, I don't think we generally disclose specific margins by market or revenues, but as we've said for the last few quarters, our volume growth at GW is -- has been strong, and our margins are improving there, and I think continue to improve to approach closer to the company's average acute care margins. In Vegas, also, again, margins look strong in the Vegas market. Margins in Vegas have always been pressured by the very high managed care rates -- or managed care penetration in that market, as well as well as high sort of West Coast wage rates that we experience in that market, but, you know, generally we continue to view Las Vegas as a very -- we're very bullish on that market, and we -- we would expect the solid performance to continue there.

Thanks.

Your next question comes from John Hindelong of Credit Suisse First Boston.

Thanks, good morning. On your admissions, same-store admissions up 2%, it was obviously solid performance under the circumstances, Steve and Alan, but a little below previous trend lines. Steve, I think in your comments, you indicated weakness due to the flu, everybody knows that, bad weather, et cetera. But I wonder if you think there are other factors involved here, such as the economy or redesign of managed care programs that -- factors that might be with us for the rest of the year as the flu becomes less of an issue. So could you just comment on what you see going forward for that?

John, I think that our notion is that the -- the biggest impact in the quarter was, in fact, the weaker flu season. We also experienced bad weather in some markets, although frankly I think that was more impactful on our behavioral volumes and maybe even our behavioral outpatient volumes. Those procedures tend to be more discretionary and more subject to deferral.

As far as changes in benefit design, very hard to measure the impact that those would have. You know, we're not necessarily seeing any dramatic changes in benefit design in our markets that would kind of, at a very high level of visibility, trigger the fact that they're impacting softer admissions in any markets.

The economy, I think, is certainly an issue in some markets, although, you know, a lot of our markets continue to grow very quickly, markets like South Texas and Las Vegas continue to grow. They're grown for years at a faster rate than the rest of the country. GW, while the market doesn't necessary continue to grow, we continue to take share in that market. Some of the markets that have not historically been growing as fast, you know, are impacted a little bit by the economy but we continue to believe that the weak flu season was probably the primary contributor. Al?

John, as you know, our admissions have outpaced the industry for a long time, and I think that given what we've heard from some of the other companies, at 2%, we're -- we're certainly outpacing them as well. And I think the one thing you -- we want to focus on is that we are in 25 -- we have 25 acute-care hospitals in markets that are selected for fast growth, and when you're comparing that to companies with over a hundred hospitals or more, I think there's a -- there's a differential, and I think that's why our admissions have always been stronger.

But I guess the conclusion from both of your comments, though, was that to the extent this quarter was a little slow than UHS has had in the past, it's for issues that seem to be transient in nature and it would be reasonable to assume you'd be back at faster growth for the rest of the year? Is that kind after conclusion that's reasonable?

I think that when you said at the end of the year, John, that, you know, the admission growth rates that we experienced in 2002 and particularly at the end of 2002, were probably not sustainable, but we certainly -- we've talked about, for a couple of years, admissions growth rates in the 2 to 4% range which, until, we remain fairly comfortable with.

Great. Thanks very much.

Your next question comes from Adam Feinestein of Lehman Brothers.

Just -- maybe just a couple of -- of quick questions, and just a follow-up to the -- the prior question. Did you see any increase in self-pay in the quarter, in terms of your mix, in terms of the co-payments from the patient? Do you have any feedback there? And I have a quick follow-up question.

Adam, it's hard to measure that precisely in short periods, but I would say that there is some anecdotal evidence of increased self-pay or, you know, private-pay utilization. I think that we've been able to keep our bad debt expense at a relatively stable level as a percentage of revenue, due to -- given the fact that there's a little bit of an increase in self-pay utilization, we've just tried to be a little bit more aggressive about up-front collections and other techniques and methods to sort of offset that. But, yeah, I think you see a little bit of that as a result of the weakening economy, particularly in certain markets.

Okay. Good. And then just a follow-up question. I want to get an update on Texas dish. I wanted to see what your outlook was there. And then I know there was an OIG study that could out a few months back. I wanted to see if -- if you had any, I guess, color in terms of Texas dish payments for fiscal 2004.

We haven't heard anything more recent about going forward. You know, of course we're getting paid now -- excuse me -- Texas and South Carolina are 33 million, so -- but we've not heard anything with regard to when this contract is up. The OIG study, I believe, in Texas indicated that certain hospitals had -- may have been overpaid. They mentioned the hospitals. We were not mentioned. And that's the latest we have on that, Adam.

Okay. Great Alan. And then just a quick final item here. Just the other revenue line item was up a -- a lot in the quarter. Was that a function of the new French hospitals or did something get re- -- re- -- I guess moved to -- to the other revenue line item? Any -- any -- anything there?

Adam, it's a function of the French hospitals. There's a few different factors impacting it. There is some same-store growth, obviously, in France. Probably a little bit higher than the same-store revenue growth that we had here domestically. But to explain beyond that sort of the excess beyond that, there are a few factors. One is the exchange rate is impacting that, number one. Number two, we had the two new hospitals in France. And finally, the third thing is a little bit of a change in accounting. French GAAP calls -- or allows the hospitals to account for high-dollar supply costs as simply pass-throughs and they don't record either the revenue or the supply expense in these high-dollar items. To conform with U.S. GAAP starting in January, we began to record those items gross. That is, we recorded the revenue and the supply expense. No impact on the bottom line, but it increased both revenues and the supply expense and you see that impact in the other revenue that you asked about, Adam, and also on our supply expense line.

Great. Okay. Yeah, because -- yeah. Okay. Great. Thank you.

You're welcome.

Your next question comes from AJ Rice of Merrill Lynch.

Hi, everybody. Maybe just a couple questions. Just following up on the expense side, so the 70 basis point swing in margin on the supply, you'd attribute basically to what you were just talking about, and then I guess also on the other operating expense line, you had a 110 basis point year-to-year improvement. Any color behind that? I guess malpractice is in there. I would -- I'm thinking that's probably counter to that trend, but what are the dynamics that are helping you get that swing?

AJ, you're correct that the -- as I said to Adam, the supply expense increases is mostly a result of the French change in accounting.

As far as other operating expenses, the single most significant component of that line is the money that we spend to operate our out-sourced pharmacies in our acute care hospitals, and I think -- you know, if you recall, we disclosed that last summer, we signed a new contract with a new outsourcing vendor, and our pharmacy -- in our acute care pharmacies, and that capped the increase in our pharmacy rates through the end of 2003, and I think that's a big portion of the improvement you're seeing on that other operating expense line.

AJ, the malpractice, just to reiterate for you and everyone else, our malpractice costs went up from 25 million in 2001 to 47 million in 2002. That was the -- the big adjustment for FICO, in addition to the reserve, and now we've just went up 10%, we're expensing 10% more in 2003, so our malpractice is moderately up, and we think it's under control.

So you're not really even getting any margin pressure on that line item this year, this quarter. I guess the pharmacy thing will continue through the rest of the year. You'll be getting the year-to-year benefit, basically, is what you're saying.

On the -- maybe one other just conceptual question. I know you -- you mentioned you didn't think you closed any deals in the quarter but there are other deals out there to be had. I guess there is certainly some discussion about tenant properties on the market, other system-type assets for sale. Is it -- is the company open to buying more blocks of assets as opposed to the one-off assets, and can you just comment about whether you'd look at those any way differently than you would look at doing a one-off?

We -- we actually, as you are indicating, we prefer buying hospitals that we look at selectively in a market or two or something like that. We really don't appreciate as much as some others would the large purchases of a number of hospitals because we have a selective portfolio that we've honed over the years and we don't want to dilute it with, you know, a grab bag. So there are some that we would -- we would bid on, but it's not likely that we'd go for big packages.

Okay. All right. Thanks a lot.

Your next question comes from Charles Lynch of CIBC World Markets.

Thank you. I have two questions. First, you had fairly strong free cash flow, yet borrowed money during the quarter. Can you talk about the breakdown of cash uses between things like the acquisitions you made and any share repurchases or other activities?

And second, can you comment on unit wage trends as well as agency usage? Thank you.

Charles, as far as the cash flow questions, the increased debt during the quarter, I think, is directly attributable to the approximately $45 million we spent on the three acquisitions that we've disclosed, the behavioral hospital in Alaska and then the two hospitals in France. And approximately $23 million of share repurchases during the quarter. And then, of course, the $40 million of cap-ex that we talked about before.

As far as wage -- unit wage rates, I think you can see that our overall salary and benefit expense is a -- is relatively flat as a percentage of revenue, and in fact, I think if the little bit of increase that we saw in the quarter mainly came from the benefits side of the equation, rather than the salaries side, so, you know, we -- we're seeing a moderation of salary expense that began, you know, at some point in 2002 and we saw that continue in -- in the first quarter of 2003.

And any comments on agency usage trends?

They continue to be -- to be lower. I think we reached the peak of spending about -- a little over $50 per patient day on agency usage back in the summer of 2001, and towards the end of 2002 we had dropped down to about $30 a day, and continued at approximately that level for the first quarter of '03.

Great. Thanks a lot.

You're welcome.

Your next question comes from Kurt Snackenberg of Pegasus Health.

Good morning. Alan?

Yeah, Kurt, hi.

Hi, good morning. As you know, I've been a strong supporter of the company. I have a suggestion for an acquisition. It sells at 11 times '03 earnings, has great properties and fast growth markets, you know it very well, management you know very well. It would be extremely accretive, helped by the low interest rates we have now. Of course I'm referring to re-purchasing your own shares. I think all of us would like to wake up some morning owning 15% more of the company as a result of shares that were purchased at 11 times earnings and paid for with low-cost debt. The shares are seldom this cheap, and whenever they were, interest rates were not this low. So why isn't this a great opportunity to repurchase a significant amount of shares? And I'm referring to 10 or 15 or 20 percent, not the couple of million you've been doing.

Well, I appreciate your sent sentiments. We certainly think that this company has great value and perhaps not totally appreciated in this situation, and I will bring your sentiments to the board of directors directly.

Okay. Selling at 11 times with interest rates this low is just -- it's very accretive.

Yeah, yeah.

And you're -- you're getting what you know.

Well, we've bought shares over the years and we still have an authorization to buy shares, and I understand fully what you're saying.

Okay. Well, I'm alluding to something significantly larger.

Yeah, I understand.

Okay. Thank you.

Your next question comes from Michael Weisberg of ING Asset Management.

Hi. How are you, Alan. A couple things, if I could. Number one, is -- how much of your managed care contracts are locked in for '03? Do you have any you're still negotiating?

Our managed care contracts renew pretty much ratably throughout the year, so, you know, I think it's fair to say that, you know, we've renewed about a quarter to a third of them and have that much left to go.

For -- so you still have that much left for '03?

Oh, well, I mean those contracts that are renewing in '03. Obviously --

Are for '04.

Right.

Okay. So basically you have about a quarter to a third of your '04 contracts done?

I think, that, yes.

Okay. And just to go back, are you still looking at 6 to 8% pricing for -- in managed care for '03?

We're very comfortable with those estimates that we gave at the end of the year.

Okay. And thus far with the quarter a third done, what kind of pricing do you see in managed care in '04?

I think that we see, you know, no -- no tremendous pressure on managed care pricing on the contracts that we've renewed for '04 so far.

Okay. Are they running -- are they running slightly below -- a point or so below '03 or not.

I think they're fairly running fairly consistent with '03.

They are?

Yeah.

Okay. Great. And one other thing, if I could. Could you just go into what you're doing differently in one of the Puerto Rico hospitals and the effect that had? Are you just being more selective on admissions because of inability to get pricing?

No. What we've done in one of our smaller Puerto Rico hospitals is we've converted it from a hospital that essentially served mostly medical patients, mainly MediCare patients, nursing home-type patients, and I think as we've discussed before, the MediCare reimbursement, particularly for those sorts of patients, is far lower in Puerto Rico than it is in the states, and we just found that we could not make a go of it with that sort of business dynamic, so we've converted that hospital in the first quarter to a hospital that specializes in pediatric care and outpatient surgical services, and the reimbursement for those services which tends to be, obviously, for non-MediCare populations is better than the population that we had had previously. So now we just started that conversion, just started to take pediatric patients, in the quarter, so our admissions dropped significantly but we haven't seen the full impact of that from a bottom-line perspective. The-- the initial results, however, from just -- just from a volume perspective and acceptance of the service, et cetera, have been encouraging.

So I think you indicated that even though it's a small hospital, that that could have impacted overall admits by 1 percentage point?

Yeah. The drop in admissions at that hospital in Puerto Rico was the single biggest drop in admissions we had at any hospital.

Right.

-- in the company, and if you'd exclude that, our same-store admissions would have been up 3%.

Great. And what's the impact on that change -- of that change in profitability, both for the quarter and for the year?

Well, the hospital before was really only marginally cash-flow profitable. While we don't think that this change brings it to the same-store margins as the rest of the division, we think it certainly is an improvement over sort of the break-even scenario that we were in before.

It started April 1st.

Yeah. That's great. Thanks a lot.

You're welcome.

Your next question comes from Stacy Rich of Morgan Stanley.

Hi. It's actually Gary Lieberman from Morgan Stanley.

Hello, Gary.

Quick question for you. Looks like the acquisition of the two hospitals in France added probably around $20 million of revenue to you in the quarter. Can you give us some sort of sense of how impactful that is on an EBITDA basis?

Gary, I think I alluded to the fact before that 20-some-odd million dollar increase in other revenue, while mainly related to France really came from a few factors. The two new hospitals, an increase in the exchange rate, an increase in accounting for supply expense, grossing that up so that we're recording revenues and supplies that previously were being netted down, and some same-store growth. So there's not $20 million of impact from the acquisitions.

Okay. For -- how much -- if you could then just tell me how much the acquisitions added to EBITDA.

I would say the -- I don't know how much the acquisitions added to EBITDA. They probably account for about a third of the growth in revenues in those other revenues.

Okay. And then could you talk about -- a little bit more on the flu volumes. You know, how -- it would appear that it's not that -- that profitable to you, considering, you know, your margins actually went up and your -- you know, your EBITDA was largely in line with what at least we were expecting. You know, are they profitable? Do they not really matter that you don't get them and help just show up on the -- in the volume numbers but they don't really impact you on a financial basis?

I think we tend to view those patients as relatively low revenue and low margin patients, so that from a profitability perspective, they were not terribly missed in the quarter. You know, the other issue, Gary, is to some degree, it's easier to deal from an operating perspective with lower volumes in terms of scheduling registry, et cetera, so in a little bit quieter quarter, what you saw I think in the first quarter was a little bit more efficiency because you didn't have the spikes in volumes that you may experience in another time period when volumes are a little bit more volatile.

Okay. Thanks a lot.

You're welcome.

Also have good demand. You replace them with better --

Your next question comes from Gary Taylor with Banc of America.

Good morning.

Good morning.

Actually, you know, I just want to understand -- I want to go back to that other revenue line just to make sure I can model it correctly. Can you specifically walk through the dollar amounts for the exchange rate, specifically what the two new hospitals add in terms of revenue run rate, and then what the accounting change was?

Gary, I'm not sure I have the precise -- each of those precise figures in front of me. I think what I've said is that the new hospitals account for about a third of the growth on the other revenue line.

Sequentially or year over year?

Year over year. And then I think that we have a little bit -- the same-store growth in France is a little bit higher than -- the rate is a little bit higher than it has been in the -- in the acutes in the states. Maybe -- well, low double digits growth rates. And then I think the rest of the -- the increase in that other revenue is -- is split between an increase in the exchange rate and the supply expense accounting change.

And on the acquired -- so the two acquired hospitals have an annual revenue run rate of about 35 million? Is that right?

That sounds about right.

In total, France now the run rate annually must be around a hundred. Is that correct?

Gary, I'm not exactly sure. I don't have that precise number.

Okay. So should we be modeling this other revenue bucket to run in this range, it sounds like -- the accounting change is obviously permanent. The two acquisitions are. So it's just -- it will depend on the fluctuation from the exchange rate, but otherwise we ought to be modeling this line --

That's correct. I don't think any of these changes are nonrecurring but you're right, obviously the exchange rate is dependent on how that moves.

Okay. And then one other question. Outpatient volumes, you guys don't disclose stats. If you just do the typical adjusted admissions or adjusted patient days, you -- you obviously get a slightly higher number, which suggests that outpatient grew a little better, but that conclusion is only good if the gross charge increases are the same for inpatient and outpatient, so is there any way to provide a little color on total outpatient surgical volumes and total outpatient visits?

I don't have all the numbers from, let's say, France and Puerto Rico, Gary, but my sense from the states and the numbers that I've seen is that ER visits grew slightly in the quarter, and overall outpatient visits and outpatient surgeries were either relatively flat or had slightly modest growth in the quarter, quarter to quarter.

So is there a different gross charge increase that's been implemented for inpatient versus outpatient, or would those be pretty consistent over the last year?

I mean, our charging practices vary by hospital, Gary, so I'm not sure I could answer that question on a consolidated basis.

Okay. And then one other question, if I just could. Looks like acute length of stay went down and behavioral went up, and if you could just comment on any -- any material reasons why that may have happened, and I'll hang up and listen. Thanks.

Yeah. The -- on the acute side, the -- the decline in length of stay is a good thing. And I think helped to contribute to the profitability increase in the quarter in several hospitals in our southeastern hospitals we saw just improved case management of the MediCare and MedicAid patients, and obviously that drives better revenue for admissions and revenue per day, and I think that, you know, that's, in part, a luck of the draw, to some degree, in terms of the acuity of the patients you get, as well as good management on the parts of the hospital management. The behaviorals, what we're sighing there is while we're getting some pressure from managed care companies to restrict admissions, we are seeing that the patients we get tend to be a little bit more acute, so that, I think, is what's driving up the length of stay on the behavioral side.

It's also per diem, so it's good.

Right. And as Alan points out, both trends are good because a lot of the psych payments are on a per diem basis, so that's positive and most of our acute payments are on a case rate basis, so the reduction is positive.

Your next question comes from Matthew Ribert of Morgan Bay.

Good morning. My question has actually been answered. Thanks.

Your next question comes from Cliff Hewitt of Legg Mason.

Two questions. First, in any of your markets, are you seeing any change in the competition or entries of physician-owned facilities, whether it be ambulatory surgery or specialty hospitals that is becoming a competitive issue for you?

I think that that's a dynamic that we certainly have faced for some time. Las Vegas, for instance, is a market, I think, that's been notorious for physician-owned surgery centers, radiology centers, et cetera. We see some of that in south Texas. As physicians are under pressure in terms of their own income, that's -- you know, the rate of that type of activity may be increasing a little bit. But we're accustomed to seeing that. Frankly, it's one of the reasons why, historically, our outpatient revenues in markets like south Texas and in Las Vegas have been lower as a percentage than some of the other companies, so that's not really anything new for us. We continue to see it, and maybe, like I said, the rate of it is starting to increase a little bit.

Cliff, let me mention something about specialty hospitals. I'm sure you're aware of what's been happening with regard to legislative hearings and --

Right.

-- there seems to be a very strong feeling now in Congress, particularly with representative Thomas, who is unusually powerful and influential in the healthcare area, he and Pete Stark in California have become in-sensed about the specialty hospitals with doctor ownership, and there may be some legislation in the offing that would not allow this to go forward,. What I've heard is that there is talk about some grandfathering but going forward that they would preclude this from going -- going on, and that would certainly be good for acute care hospitals.

And just a follow-up on that. If Congress, as it -- in its wisdom, takes a long time to deal with the issue, are -- is there anything you're doing competitively to counter these facilities right now?

Well, we have been working, as Steve pointed out, for a long time discouraging, to the extent that we can, people from going in here to -- where the doctors are involved with us. We try and dissuade them and make it uncomfortable for them, to the extent that we can.

And -- thank you. And then just one other question. Has anything changed in the interaction with the employers right now, where you're getting feedback from them on how they're intending to respond to their rising insurance premiums and are they -- have they -- are they communicating more directly with you or your local hospitals in terms of what -- what their response could be and what changes they might be contemplating?

Cliff, we don't -- we generally do not deal directly with employers. They are usually contracting either with commercial insurers or HMOs or PPOs. You know, we certainly are aware of the fact that employers are concerned about rising health costs. I mentioned before our own benefit expense is up, so as an employer, we are -- we're concerned, likewise concerned. But the answer to your question is: No, we're not really having direct interaction or conversation with employers about plan design changes, those sorts of things. Those conversations, I think, are largely taking place with the intermediary managed care companies and insurers.

Okay. Thank you very much.

You're welcome.

Your next question comes from Kemp Dolliver of SC Cowen securities.

Thanks and good morning. How much shares did you repurchase during the quarter? If I heard you correctly, you spent 23 million on share repurchase?

Yeah. So approximately 600,000 shares, Kemp.

Okay. And you spent a total of $45 million on the acquisitions in the quarter?

On the three acquisitions, yes.

Okay. Super. Thank you.

You're welcome.

Your next question comes from Peter Costa of Leerink Swann and Company.

Good morning. Can you tell me if there was any particular trend to your inpatient admissions during the quarter? And then also, what are you -- can you talk to the continued decline in year over year minority interests and what's going on there, particularly with the additions of the French hospitals and things like that?

Peter, can I ask you to qualify the first question about trends in inpatient admissions. I'm not exactly sure what you're asking.

Yeah. Was March better than February and January?

My recollection was that March was a little bit better than the first couple of months, but my sense was that, you know, the months were not hugely different. But I think there was a little bit of improvement in March. As far as your other question about minority interests, a couple of things impacted that line in the quarter. There was a question earlier about increased private pay utilization and I said we did see a little bit of that. We saw some of that in Las Vegas, had some increased bad debt expense in Las Vegas, so that impacted the minority interest line. And we also had a cash-up adjustment in France for their benefit expense, their pension expense, which was sort another one of these adjustments to conform to U.S. GAAP which impacted the minority interest line. Those are probably the two things that impacted the line in the quarter.

So the -- the French catchup, was that a one-quarter thing or is that all year and how much was that in the quarter?

That was one-time, and I think it was approximately a million dollars.

Not -- not a million dollar impact to the minority interest line but a million dollars overall?

Your next question comes from (inaudible) of Barclay Capital.

Thanks. Most of my questions have been asked. I just have this little one. Your revolving credit facility, can you tell me how much is outstanding against that.

There's only 65 million outstanding currently.

Great. Thanks very much.

Your next question comes from Deborah Lawson of Salomon Smith Barney.

Hi. I was just wondering if you could comment on -- I noticed that just on a consecutive quarter basis, so from the fourth quarter to the first quarter, your gross revenue per admission was up roughly 8%, and that's on an inpatient basis, and then on a -- on a net basis, it was up 3.4%. Can you just sort of explain the dynamic going on there, and -- and, you know, what we can look for going forward?

Deborah, can you just repeat those numbers that your referring to?

Sure. The gross revenue per add middle was up 7.9% from the fourth quarter, so roughly 8%, but on a net basis, it was up 3.4%, so, you know, I'm just trying to get a sense of, you know, what's going on with the gross line versus the net line, and -- and how that plays out. And then, you know, on a consecutive quarter basis, even 3.4% on a net basis is a pretty steep increase, and I'm just wondering what we can look for going forward. Instead of looking at it on a year-over-year basis.

As far as the gross increases are concerned, I think some of that, you see because a lot of our hospitals implement their gross price increases at the beginning of the year, so I think that if you went back historically, you would see there would be a jump in gross pricing at the beginning of the year.

Okay.

As far as the net -- and sort of its sustainability, Deborah -- I think that we've talked about the issues, you know, better case management in the first quarter compared to last year's first quarter when we had some difficult issues in that area, the lack of flu patients, et cetera, so you're right, it is a big jump. I think that we -- we anticipate that the net revenue growth for the year should be strong. I'm not sure we can sustain the level that you saw in the first quarter, in terms of a year-to-year comparison.

Okay. Okay. Okay. Great. Thank you.

Your next question comes from Ken Weakly of UBS Warburg.

Thanks. Just a couple questions. First, can you tell us what happened to your case mix index on a year-over-year basis?

Ken, I don't have the case mix index numbers in front of me, but my sense was -- from seeing just the hospital detail was that they were slightly improved in the quarter, which, again, helped the profitability, because case mix went up and length of stay went down.

Right.

You know, generally it was a good result in the acute care division for the quarter.

Sure. Do you know what your same-store admission growth would have been, if you were to X out flu from last year and this year or maybe -- I mean, how many cases do you normally see?

I don't know that -- that answer, Ken.

Okay. So let me think. I guess to follow up on Deborah's question about the contractual allowances, maybe I didn't follow it, but in going from gross to net, can you walk us through the math and how you -- what that discount is, how it changes? What variables go into, you know, your mind-set as you're doing that?

I'm not sure that I'm going to be responsive to your question, but, you know, the way that we calculate contractuals is generally there are not very many payers that are charge-based payers, so for Medicare patients and Medicaid patients who are generally paid on a case rate or HMO patients who are generally paid on some sort of per diem, we're calculating the net revenue based on the case or the DRG or the number of days, and the contractual is simply the difference between the gross charges that we've charged to that patient and the net either that's contractually or, you know, being paid by the government payer.

Right. Right. Okay. All right. Thanks.

At this time, I would like to remind everyone in order to ask a question, please press star, then the number 1, on your telephone keypad.

Your next question comes from Gary Taylor of Banc of America.

Hi. Sorry. Just one follow-up. Can you explain the currency impact? I would assume that with the weak U.S. dollar, that in-flats the revenues and all the expenses up and down the income statement but given some of the derivatives you have in place, is there any margin benefit to you from currency changes in the quarter?

I don't think we have any derivatives that are affecting the French translation, Gary, so what you described is true. The weak dollar is in-plating all of our revenues and expenses in France.

Okay. Thanks.

Your next question comes from Derrick Winger of Jeffries and Company.

Yes. Just two financial questions. In the first quarter, what was the gross interest expense, not the net? And capital expenditures and then the guidance for the year for capital expenditures. Capital expenditures in the quarter and the guidance for the year.

We really don't have any interest income, Eric, so I think essentially the interest expense you see is net interest expense. And your second question was about capital cap-ex guidance?

Right.

As we say -- we said in our remarks, and we said at the end of the year, we're still expecting to spend about 225 million in cap-ex in 2003. Obviously, the first quarter was at a slower rate than that, that annual rate. We do think the pace of spending will pick up as the year goes on. We're still going to stick with the 225. We certainly are not going to overshoot it. It's possible we won't spend that much.

And what was it in the first quarter?

Approximately 40 million.

Okay. Thank you.

You're welcome.

Your next question comes from Kemp Dolliver of SG Cowen securities.

Thanks. Just one question with regard to Puerto Rico. What was the timing of the changes in the services at the one facility, and what do you expect the ongoing impact of that to be during the year?

Well, for the quarter, I think it was sort of a -- you saw -- we got whip-sawed on both ends because we really stopped seeing Medicaid patients early in the year but didn't fully convert to a pediatric hospital until April 1st. We did have some pediatric patients prior to that, but ...

As I said before, in my comments, you know, our expectation is that -- and the early indications are that volumes are good, et cetera. We expect the margins at the facility to improve as a result of the change in the scope of services. It's difficult to predict, you know, precisely how much benefit we think we'll get from that.

Okay. But it -- I guess it's fair to say that Q1 impact of about 1% on consolidated admits should be the worst we'd see this year?

I'm not sure about that, because I think that -- well, it really depends on the volume of pediatric patients you'll see. What I would say is I mean I think we'll continue to see a negative impact on admissions because we clearly, even in the best scenario, will not have as many pediatric patients as we had Medicare patients but I think with we hope to see on the balance of the year is better margins, which we didn't see, necessarily, in the first quarter. So you'll continue to see decreased admissions but the hope is that they'll be better margins that follow that.

Okay. Thanks a lot.

You're welcome.

Your next question comes from Andrew Bhak of Goldman Sachs.

Good morning. Two questions. One, I was wondering foxed comment if you could comment on the outlook on the Medicare side for the Behavioral Health business, and then secondly, with respect to increases in the charge master, as a follow-up to the adjusted admissions question, is it not the case that the charge master prices are raised uniformly by hospital, so inpatient and outpatient on a hospital basis would not -- there wouldn't be a variation between those two segments? The variation would just be across hospitals? I might be miss taken on that. Just want to make sure I have my facts straight. Thanks.

As to your second question, Andrew, you're correct. You know, what you pay for an aspirin as an outpatient has to be competent what you have pay as an inpatient. There are obviously some procedures which tend to be more heavily weighted to out and inpatient, so it is possible that in and outpatient pricing can increase, however, at different rates. But you're precisely correct about the pricing for individual procedures not varying between in and outpatient.

As far as behavioral prospects for Medicare reimbursement, they're supposed to be final draft rules published by CMS, as I understand it the end of, at the end of April, on a final prospective payment rule for behavioral, and the best that we can tell is that the rule should be implemented right around this time next year, in the spring of 2004. And Alan tells me that he has heard that it may be implemented as early as January of 2004.

And as a follow-up, I mean, just your initial read, you're comfortable it's going to be a boon to profitability? Anything else?

No. I think we have consistently said, you know, it will be a significant benefit to our behavioral hospitals. That will be offset slightly or partially by a negative impact on our acute care hospitals that have behavioral units, but we think that the overall impact to the company will be substantially favorable.

Yeah. Thank you very much.

At this time, there are no further questions. Mr. Filton, do you have any closing remarks?

No. We'd like to thank everybody for their time, and we look forward to speaking with everybody next quarter.

This concludes today's conference call. You may now disconnect.