環球健康 (UHS) 2006 Q1 法說會逐字稿

At this time, I would like to welcome everyone to the first quarter 2006 earnings release conference call. [OPERATOR INSTRUCTIONS] Thank you, Mr. Filton, you begin your conference.

Thank you, good morning, I'm Steve Filton. Alan Miller our CEO is also joining us this morning. Welcome to this review of Universal Health Services results for the first quarter ended March 31, 2006. As discussed in our press release last night, the Company recorded income from continuing operations per diluted share $0.87 for the quarter. After adjusting for various hurricane-related insurance recoveries and expenses at our acute facilities in New Orleans resulting from damages sustained from Hurricane Katrina, our adjusted income from continuing operations per diluted share for the quarter ended March 31, 2006 was $0.73. The $0.73 includes $0.015 of stock option expense. During this conference call, Alan and I will be using words such as believes, expects, anticipates, estimates and similar words that represent forecast projections and forward-looking statements. For anyone not familiar with the risks and uncertainties inherent in these forward-looking statements, I recommend a careful reading of the section on risk factors on pages 24 to 30 and the section on forward-looking statements and risk factors on pages 39 and 40 of our Form 10-K for the year-ended December 31, 2005.

We'd like to highlight just a couple of developments and business trends before opening the call up to questions. We implemented a formal companywide uninsured discount policy on January 1, which has had the effect of lowering both bad debts and net revenues by approximately $15 million in the first quarter, without any significant impact on net income. The first quarter of 2005 included approximately $61 million of revenues from our acute facilities in New Orleans which remain closed as a result of damages sustained during Hurricane Katrina. Exclusive of the impact of the uninsured discount and the loss of the New Orleans facilities, revenues would have increased by 10% over last year's first quarter.

Revenue growth in the acute care division came mainly from admissions growth and an increase in revenue per day at our same store facilities. Excluding the hospitals in New Orleans, admissions to our hospitals owned for more than a year increased 1.2% for the quarter. Admissions growth was particularly strong in the Las Vegas market and weak in the McAllen market. Excluding the impact of the uninsured discount, revenues for adjusted patient day rose 3.9% in the quarter. Please remember that both admissions and revenues in the McAllen market were relatively robust in the first quarter of 2005 as that market enjoyed an unusually strong seasonal boost last year.

We define operating margins as operating income or net revenue less salaries, wages, and benefits, other operating expenses, supplies expense and provision for doubtful accounts divided by net revenues. Operating margins of our acute care hospitals owned in both the first quarter of 2006 and 2005 were 14.7% in the quarter, just ended, compared to 17.7% in the prior year's quarter. As a result of increased bad debts less charity expense and the weaker volumes in Texas and other selected markets.

On a combined basis, the total of bad debt charity care and the uninsured discount as a percentage of revenue increased substantially in this year's first quarter as compared to the same prior-year period. Since the third quarter of 2005, however, we have begun to see stabilization in the number of uninsured patients coming to our hospitals. On a same-facility basis, at our behavioral hospitals, admissions increased 5.9% during the first quarter of 2006, over the comparable prior-year quarter. Net revenue per adjusted patient day increased 6.1%, aided by another scheduled increase in Medicare rates effective with the January 1, second year phase-in of the PPS system.

Operating margins for our behavioral hospitals owned for more than a year were 25.3% in the quarter ended March 31, 2006, compared with 24.6% in the quarter ended March 31, 2005, reflecting the strong admissions and pricing. Quarterly results from the recently acquired Keystone facilities conform to our expectations and were accretive to earnings for the period. Cash flow from operations for the first quarter of 2006 was approximately 110 million as compared to 135 million during the first quarter of 2005. Reducing our cash flow from operating activities during the quarter was approximately $5 million of payments made in connection with building remediation costs and other expenses incurred in connection with Hurricane Katrina. At year-end our ratio of debt net of cash to total capitalization was 32%, and the ratio of debt to EBITDA was 1.43. Alan will now discuss some of our recent activities and outlook.

Thanks, Steve. Good morning. As Steve indicated, Chalmette and Methodist facilities remain enclosed. During the first quarter we filed a formal insurance claim and we did receive another 28 million in insurance proceeds which has been recorded in the current financial statements. Our insurance claim far exceeds the proceeds we have received to date, and we continue to believe we are entitled to collect substantially more in proceeds, although the amounts and timing are difficult to predict. As we expected, the first quarter results in the McAllen-Edinburg market were behind last year's first quarter, which as Steve pointed out was an extremely robust seasonal period in the market.

The 120 bed Edinburg children's hospital has opened, and the 134 bed replacement facility and expansion of the South Texas behavioral health center will open this summer. UHS spent approximately 83 million on capital expenditures in the first quarter. The 104-bed replacement for our Fort Duncan facility in Eagle Pass, Texas has opened, a major renovation on our Manatee facility in Florida is well underway, and while it is proving to be somewhat disruptive to the current operations, it will be completed late sometime this year. In Las Vegas, late last year Spring Valley opened a new 34-bed rehabilitation floor, and Summerland opened a new open-heart OR and cath lab. In addition our fifth hospital in Las Vegas is scheduled to open with 170 beds in 12 to 15 months in the northwestern part of the city.

We have also multiple projects in process to add capacity to our busiest behavioral facilities. Those facilities have operated at an extremely efficient 85% available occupancy rate in 2005. Heart Grove Hospital in Chicago recently began construction on 134-bed replacement facility. Behavioral facility additions are also underway in Delaware, Florida, Pennsylvania and expansions are planned for Keystone, acquisition facilities in Oklahoma, Tennessee, and Virginia. We will be pleased to respond to questions at this point.

Your first question comes from Glen Santangelo.

Just a quick question on the acute care side, I'm guessing that the admissions probably were maybe a little bit weaker than you had expected, but compared to all your peers this quarter, your admission trends don't look so bad. Now everybody else kind of pointed to lack of flu and upper respiratory, maybe if you can give us a sense if that impacted you this quarter. What everybody else saw was that the lack of flu actually had a positive impact on their acuity mix and most others reported a little bit higher revenue per adjusted admission number than essentially what you did. If you could maybe just kind of talk about those differences and give us some additional info, that would be helpful.

Glen, in last year's first quarter, we, I think, talked about the fact that we really didn't feel that we had much of a flu season last year in most of our markets. As a consequence, I think that the lack of flu season this year really didn't make much of an impact. So we didn't see the sort of decline in pulmonary and respiratory admissions that some of our peers have talked about. But at the same time, I don't think we saw that increase in acuity and, therefore, the increase in revenue per day that came along with less respiratory and more medical admissions this year. So I think that helps explain on both ends the lack of a flu season in both years for us.

Sure, that's great. How should we think about revenue per adjusted admission as the year progresses?

Well, the other thing to think about is that in the first quarter of last year we had a difficult comparison, I think our revenue per day in the first quarter of last year was up over 7% and finished the year around 5. I think that 5 is pretty much sort of consistent with our guidance and our modeling, I think that's sort of where we expect to get to for the year.

Okay, thanks much.

You're welcome.

Your next question comes from Bill Bonello.

Just a couple of questions. First, on the behavioral health side, do you have any update on the competitive environment for acquisitions there? Are multiples still pretty high? Then I have a follow-up on the acute care.

Bill, I think the answer is that obviously multiples on the -- in the behavioral business have certainly increased over the past few years but I think in our minds there remain opportunities. There are less -- there are more opportunities, more hospitals potentially for sale, and at the end of the day, there are less potential buyers on the behavioral side. So I think that the multiples on the behavioral side remain. There are opportunities for prudently priced acquisitions. We obviously made several in 2005. And we continue to look for more in 2006. So we still think there's opportunities on the behavioral side.

Okay. That's helpful. Then just on the acute care side, on the McAllen front should we expect that admissions would start to grow in Q2 or are you thinking that they'll just continue to be down throughout the year?

I think the answer is, as both Alan and I alluded to in our opening comments, clearly McAllen had its strongest quarter in the first quarter of last year. It made something like 85% of its EBITDA in the first quarter of last year for 2005. So I don't know that we expect to go in the next quarter all of a sudden to a positive admission growth rate, but I think we clearly expect to improve from where we are now and expect that the next three-quarters comparisons both on admissions and earnings will be significantly easier than they were in the first quarter.

Okay. And then just finally on that McAllen behavioral health facility, is the target opening a little bit later than what you'd previously expected?

We thought we might be able to open in the spring. Part of the issue, frankly, is staffing up the beds. Because as Alan indicated, it's not just a replacement facility but an expansion. So I think both a little bit of delay in construction, and some issues with getting the appropriate staffing have us now opening in the early summer, just a little bit of a delay than what we might have thought of originally.

Okay. Great, thanks a lot.

Your next question comes from Adam Feinstein.

Thank you. Good morning, Alan, good morning, Steve. Several questions here. Maybe just first is on quick housekeeping question, Steve, do you have a charity care figure for us today?

I do, and if another question, Adam, go ahead ask it and I'll look for it while we're talking.

Maybe just you talk a little bit more, I appreciate the market comments on McAllen in Vegas, I wanted to go into some more detail on each. I just want to see if you can quantify how much the volumes were down in the McAllen market, and just also wanted to see just in terms of any qualification in terms of how much the margins were down. Just another question on the McAllen market would just be since the DRG reform came out a few weeks ago, have you got any feedbacks -- any feedback from doctors in that market who maybe are coming back to you saying that they're interested in leaving the specialty hospital?

No, I don't know that we've had that sort of specific feedback. I don't know that the physician-owned hospital in the market has precisely calculated the impact of the proposed DRG changes. We have not sort of gotten that sort of feedback in the market. There obviously is a lot going on in the market. We hear from physicians all the time who have different perspectives on the status of the market. But not specifically on that DRG recalibration issue.

Adam?

Yes.

That's not a specialty hospital. It's a full-service hospital. Well, they're missing a few services but it's not a specialty hospital. They started out as a surgery center, but it's a full-service -- almost full-service hospital.

Okay.

As far as your questions about admissions, I mean, I think Adam the reality is Vegas admissions were probably up 5 or 6% in the quarter and McAllen admissions were down a like amount. If you essentially sort of do a Calloway calculation and throw out the high and low here, the rest of the portfolio is probably up about the average 1% that we reported. So generally, as I indicated in my comments, strong admissions in Vegas offset by the weaker admissions in McAllen, and pretty strong generally throughout the rest of the portfolio. Then lastly, just getting to your charity number, you really, I think need these two numbers. There's $95 million in charity in the first quarter, and 23 million of uninsured discount.

23 million. Okay. And then just one more question here. Maybe just -- I wanted to get some more feedback, you guys filed this 8-K the other day talking about the deal with UHT in the New Orleans market. Just want to make sure I understood what was taking place there. Thank you.

Well, as we've talked about before, the Chalmette facility in east New Orleans was pretty much destroyed by Hurricane Katrina. UHS had several options under the lease with UHT, we could have restored the facility, which we're certainly not prepared to do at this moment. We could have written a check to UHT for the fair value of the facility before the damage, which was about $25 million. Or we could have offered substitute properties for the destroyed property. And that's what we ultimately chose to do. And what we were able to do was to offer some property additions that had been made on campuses where we already leased the facility from UHT. So at Wellington we had built a bed tower, et cetera, and that had never been leased to UHT. We sort of cleaned things up at Wellington and Inland Valley and Bridge Way by substituting some property additions for the lease property at Chalmette, pretty much an even uptrade and replacing like lease expense for like lease expense.

Thank you very much.

Your next question comes from Darren Lehrich.

Thanks, good morning. I have a few things here. Just with regard to Fort Duncan, were there any unusual start up costs or transition costs that you felt in the quarter?

I'm sure there were some, Darren, it is a relatively small facility, however, so I don't think it would have been material to the quarterly results.

Sure, okay. Then with regard to insurance recoveries, where are you, Alan, you mentioned in your prepared remarks that you think you could get a lot more than you've recovered. Where are you with total recoveries received versus your expectation for total recoverable amounts at this stage of the game?

We received 103 million so far. We are waiting to hear back from the principal carrier as to what they intend to do, what they intend to do with the rest of the claim. And then I think they have 90 days or so to get back to us.

They've told us they're going to take another 30 to 45 days to review the claim that we submitted at the beginning of March.

So we'll see what they come up with, and I mean, you can speculate, it's either some sort of a settlement or perhaps we go to court or they pay us the whole amount.

Sure, okay. And then with regard to the Medicaid supplemental pace I think you said previously that you may get some determinations about this time of the year, I just wanted to follow-up on that question.

Yes, I think, Darren, the supplemental payments that we disclosed in our year-end press release, the sort of timing of that now is that Texas is about to respond with their comments to CMS in the next few days. CMS, as we understand it, will then have 90 days from then to either have additional comments or essentially rule on the program, accept it, or reject it, or modify it, or whatever. So I think that we're probably now looking at late July or early August before we hear. I think our sense is that if the program's benefits are approved, they'll still be retroactive to June 1 but, again, they could be anywhere within that range that we have previously given of 5 to $21 million, and/or it's conceivable that CMS could reject the program entirely. So it's probably still another quarter before we have a better sense of what's going on with those.

Okay. Just a couple more things for me. First, Steve, if you could just comment on the facility counts in behavioral, just they were up, I think from year-end and I'm not sure if you just reclassified some things or if there were actual acquisitions in the quarter. And then just in terms of your revenue cycle management, I think you were in an RFP process earlier in the year for I guess putting into place some centralized collections. Has that been completed and what do you expect that to do to bad debts this year, if anything at all? Thanks.

As far as the behavioral beds go, I mean, I don't have the analysis in front of me but we certainly did not do any acquisitions in the first quarter. We obviously have been doing some expansions and building and my guess is that it's just opening of expanded beds that have affected the bed count.

Okay.

As far as the question about bad debts, et cetera, we are moving with a couple of changes in our internal workings of our business office to a more national or centralized collection effort with outside collection agencies. We're also moving to vendors to provide us better credit reporting up front and allow us to sort of determine a patients ability to pay sooner and more precisely in the whole admissions process. Having said that, Darren, I think these things are important, but at the end of the day we don't think that most of the bad debt or increase in uninsureds is really controllable on our end. We certainly think we can kind of have some impact around the edges, but we think that this rise in uninsureds is a macro issue that will require macro solutions as opposed to anything that we as a company and the individual efforts that we're making will have a real significant impact on.

Okay. Just lastly, you are confirming your previous guidance for the year, I don't think I missed that, but I don't know if you said that -- to marks or not?

We did not explicitly say that, but yes, we're certainly not changing our previously issued guidance.

Thanks a lot.

Your next question comes from A.J. Rice.

Hello everybody, a couple questions if I could ask. First of all, do you have the numbers for self-pay admission trends year-to-year change there? And then the bad debt also broken out by acute and psych percentages?

Well, the bad debt I know for acute adjusting for the $15 million change in the uninsured, is just about 11%, A.J.

Okay.

I'll calculate the behaviorals while we're talking. As far as the uninsured admissions, I don't have that specific data with me, but we track both uninsured admissions and uninsured revenues because we try and sort of track acuity changes in our uninsured population. As I indicated in my comments, we clearly saw those both revenues and admissions kind of level off from the third to the fourth quarter. And remain relatively level into the first quarter. So we're encouraged at least by the last couple of quarters that bad debts or -- levels of uninsured while not improving are at least stabilizing. And the bad debt percentage for the quarter in behaviorals was 2.1%.

2.1. On the supply expense, you had a significant improvement year-to-year there as a percent of revenues. What's the dynamic behind that, if you've looked at it?

I think it's probably a couple of things. I mean, we saw some sequential supply improvement last year which I think is a function of a number of things, some efforts or initiatives that we have to reduce our supply expense as well as, I think, just a general kind of industry phenomena of at least a slowdown in the rise in orthopedic costs, the sort of anniversarying effect of the drug-eluting extent pressures, and also I think in a couple of markets we saw in the first quarter a bit of a reduction in some of the high cost cardiology procedures and whatnot. Saw a little bit of the reduction in revenue, and a commensurate reduction in supply expense that went along with that.

Okay. Just a last question on, I guess now you're at debt to total cap about 32%, I know Alan listed a number of expansion programs on the drawing board. I'm not sure how much -- I guess you have a target for CapEx, which would incorporate most of that. Any updated thoughts about buybacks versus prospects for acquisitions this year, just comments on use of your cash flow given that your debt levels are pretty well contained?

I think, A.J., I think we've said this before, I think if you look to the past couple years and the way that we've utilized our cash in the past couple years, it's probably as good a reflection of what our future plans are as any in the sense that we continue to look for acute care acquisitions but there are not many out there. Those that are out there we think are pretty richly priced. I think most of our acute care growth is largely coming from organic and CapEx and development efforts in that regard. As I indicated in an earlier response to Bill Bonello, we do think that there's potentially more psych acquisitions out there, we'll look for those. We've bought back a substantial number of shares over the last few years, and we'll continue to look at share buyback as an attractive investment alternative for us.

Okay. All right, thanks a lot.

Your next question comes from Oksanna Butler.

Thank you, good morning. On the bad debt front, it's encouraging to hear you're seeing a leveling off over the last few quarters. I was just wondering if you could give us a sense by market. Are there big differences that you're seeing among the different markets that are offsetting or is that the trend really across the board?

Oksanna, I think as with almost any trend that we describe you'll have some variations from the mean around the portfolio, and we certainly have that with uninsureds. Obviously, with the McAllen market has been a challenge in the last year. I think because of the competition. So we've tended not necessarily to see a growth in the uninsureds in the market but we probably have gotten a greater share in the last year or so because of the presence of the physician hospital. We see it a little bit in the Manatee market, where as Alan mentioned they were doing construction. And I think sometimes the better-paying patients, if they can, will go somewhere else. But I think generally the trends that we described to stabilizing uninsureds is something we see throughout most of the portfolio.

And Las Vegas in particular, I know that had been an issue previously.

Yes, and again, I think that's certainly a market where we've seen some stabilization. It has grown significantly over the past few years, but in the last few quarters we've seen that number stabilize in Las Vegas.

Thanks. On the labor front, you are seeing some pressure there and I know in the last quarter you mentioned it was really an acceleration of what you had expected in terms of wage rate increases. Just wondering where you are at this point, if you still expect acceleration or what we can expect through the rest of the year?

Oksanna, you remembered exactly as we described in the fourth quarter, we did disclose some pressure on wage rates in the western regions in California and Las Vegas. We thought at the time that that was largely just as you suggest, an acceleration of increases that we were expecting to give and that we were comfortable with the way we had modeled salaries and wages for 2006. And, in fact, in the first quarter salary and wages came in almost smack onto our modeled or guided numbers. So it's certainly an area where we continue to feel pressure. There's still shortages in nurses in many markets, et cetera. But I think that what we have anticipated is largely what we're seeing. So it's not like we're seeing any surprises in the early part of the year.

Do you expect a bit of an improvement now going forward or pretty much staying at these levels?

I think from a wage rate perspective, probably not. So I think the determining metric, as it's been for the last couple of years will be if we see a little bit of volume growth from here then I think we ought to get some leverage on that line. If we don't, it will be more of a challenge.

Okay. Thank you very much.

Thank you.

Your next question comes from Jason Gurda.

Good morning. I have a question on the payments for undocumented workers under the Medicare Modernization Act. I understood you had started to receive payments, and I was hoping you could quantify how much you expected them to be this year?

The first payment that we received, Jason, was for $900,000 for the -- for a quarter. And that's probably as good a guess as we have. Now, I think the State has reserved the right to come in not just for us, but for all providers to audit those numbers. So we sort of view them with some amount of caution and contingency but it's probably that -- that order of magnitude is somewhat helpful, there's probably somewhere in the neighborhood of 3 to $4 million annually in additional payments for undocumented aliens.

Okay. And then just bigger picture thinking, over the course of the year, the next year and a half, where do you think is the -- your biggest opportunity to improve margins on the acute care side?

Well, again, sort of harkening back to what I said to Oksanna, and I think it's always been true, first of all I think that where we can grow volumes even modestly will be those places where we have the most opportunity for leverage. I think that, as I think I mentioned to A.J., I think we continue to think supply expense is an area where there is some room for us to reduce supply costs and drug costs. And those are probably the major areas. I don't know that we see a lot of opportunity on the salary front so I think in supplies and in other operating costs obviously which tend to be more fixed in nature, if we have a modest rise in volumes, then we ought to get some leverage there.

Are there maybe some specific markets where you guys are doing some things that you're expecting to pay off, maybe expansion projects or something like that on the acute care side?

I mean that's a little bit of a different question, I think. Obviously we just observed a new happened in Fort Duncan, certainly that project was designed in mind of keeping more business in that community. There's a lot of more tertiary business that has historically left that community for San Antonio that we expect will stay home in that market. We've talked in the last few conference calls about opening the pediatric facility in the Edinburg/McAllen market, we would expect a boost in business there, same sort of dynamic, keeping some of the business in market that's been leaving for markets like San Antonio and Corpus Christi, and Houston. We're obviously not -- this is really more of a 2007 issue, but building the new hospital in Las Vegas, we think we will certainly benefit from that. Alan mentioned a significant renovation project in Manatee in Florida, which is disruptive quite honestly right now. It's a major project. But I think once it is finished later this year, we'll have a much more competitive physical facility than we had before.

We'll have three or four new hospitals, they usually continue to grow. It's hard to calculate when, Spring Valley's coming on very nicely in Las Vegas. Lakewood Ranch is in Florida. We're building Centennial Hills. Fort Duncan is a replacement, but a much nicer facility and larger. So we have a lot to grow in those facilities.

Okay. Thank you very much.

Your next question comes from Chris McFadden.

Thank you very much for the details on the call today. One of the things that I'd love to get your thoughts on is, as you are thinking really about kind of the changing reimbursement environment and the managed care environment, we've seen now a couple of the managed care firms certainly talk about rising cost trend. As you have thought about the cycle for managed care historically for your business, when might those types of cost trend discussion begin to impact your managed care contracting negotiations, really asking for some reflection on historical trend versus a prediction on the current environment. And I suppose what strategies might you employ to sort of offset any contracting pressure with the managed care organizations you deal with in your local markets? Thanks.

Hi, Chris. I think that we've acknowledged for some time that we probably hit a peak of a managed care -- this managed care pricing cycle back in 2003 or so, and that we've seen, while solid managed care reimbursement rates since then, they've been slowly decelerating. I'm not sure that the expectation is that trend doesn't continue, albeit at a relatively incremental pace. Look, I think that everybody in the healthcare industry is going to be under pressure to deliver healthcare services at lower cost, both the payors and all the providers. And we continue to believe that the acute care hospital is sort of uniquely positioned to do that, because of its size, because of the breadth of its services, et cetera.

I think one of the interesting things that's occurred in the last few years is that this proliferation of kind of niche providers and ambulatory surgery centers and imaging centers, et cetera have not necessarily contributed to a reduction in costs. In fact, I know you follow the managed care companies, so you'll know that I think one of the things that they frankly have complained about in certainly recent months has been an explosion in imaging costs. I think a lot of that is occurring at these kind of niche imaging centers, many of them are physician-owned, et cetera. I'm not sure that we won't see somewhat of a return of that business to the acute care hospital where I think those services might be able to be delivered more efficiently.

But the bottom line answer to your question is we are looking sort of at every turn to deliver our services in the most -- in sort of the highest quality, lowest cost environment because we believe that as employers are pressured and they in turn reduce their premiums and payments to their managed care payors, there will be pressure on our rates and those hospitals that have the most dominant market positions, which has been a big part of our strategy for some time, as well as the highest quality, lowest cost services will be the ones that prosper the most.

If you would, remind us sort of what type of expectation for managed care pricing you've anticipated in the '06 guidance that you've provided? And then secondly, you made great points on efficiency, clearly technology broadly defined, is part of enabling that. And maybe just touch on some of the investments that UHS is making to be able to have the capability to manage higher volumes and different types of procedures if, in fact, as you allude to these ambulatory procedures and tests migrate back into the acute care setting. Thank you.

The first question, Chris, is that we have embedded in our guidance for 2006 managed care price increases of 6 to 6.5%, many of which are already locked in based on committed contracts. And so we're fairly comfortable with that for our 2006 guidance. You make an interesting point about technology. Technology's sort of a double-edged sword in our business. We find it in many cases to be a driver of efficiency, but we also certainly find it to be a driver of cost. The drug eluting stents in the last year or two are an example of that. The growth in the technology in something is relatively sort of simple as IV pumps. IV pumps have become much, much safer the last couple of years, and there's been a lot of safety enhancements to IV pumps, but they've gotten a lot more expensive. But again at the end of the day we think that acute care hospitals, because of their size, et cetera are able to spread the technology risk and also leverage that technology use more effectively than some of these smaller providers. And that, again, is part of our sort of inherent strategy as we move into the future.

Thank you for the color.

Your next question comes from Gary Taylor. Gary, your line is open.

Sorry. I had it on mute. A quick question, Steve. On your uninsured discounts, the release said 15 but I think you said 23? So is that -- is the 15 a year-over-year change or? I'm just trying to--.

Yes, that's the answer. The issue I think is that we had in the first quarter of 2005 a small amount, 5 or $6 million of uninsured discount that was sort of local hospital policies, et cetera. But the 15 million is the incremental change from implementing this company-wide discount policy.

Okay. Do you happen to have your charity care and discounts for the 4Q so we can look at it sequentially?

Yes. Charity care in the fourth quarter 2005 was 85 million and the uninsured discount was 6 million.

Okay. And I didn't see a cash from ops number in the release. Did I miss that or do you happen to have it?

You did miss it, but I mean, you didn't miss it but I gave it in my remarks, it's 110 million in the first quarter, and I indicated that that was reduced by about 5 million of payments made in connection with ongoing hurricane expenses or mediation costs, et cetera.

And the stock option expense in the quarter, do you have the pre-tax and after-tax amounts, dollar amounts?

The pre-tax and after tax dollar amounts in stock option expense, I'll try and find those while we answer.

Are those all in your labor line or would some of that be in?

It's all in the salary line.

And just the last question is tax rate has been bouncing around a little bit over the last few quarters. I just wondered if you had kind of an updated thought on what you thought the full year '06 would look like?

Yes, I think the only real bounce that I can recall was in the fourth quarter we had this Gulf opportunity tax credit. I think that the tax rate that you see in the first quarter this 36.7 or so is right around what we ought to be kind of running. We did have a little bit of an increase I guess in the first quarter as we increased our state effective tax rate. But also back to your stock option expense, we had 1.6 million in pre-tax stock option expense and 1 million after tax in the quarter.

Perfect. Thank you very much.

Your next questions come from Shareen Nadisa.

A couple of balance sheet questions. One is your debt seems to have gone down a little bit, by about 35 million, what was that, was it a decline in the revolver?

Yes.

Okay. And the other question is about your convertible, this issue is putable and the callable in June of this year. Now, in light of the fact that you have an existing share buyback program, and I believe that gives you the flexibility to use that to buy back part of the convertible, as well as your strong balance sheet and free cash flow positions, what are your thoughts about this convertible? Do you think of this as a permanent part of the capital structure or could you just talk about that issue a little bit?

Sure. I think it's fair to say that in one way or the other the convertible will go away as of this June 23, and that is if the convert price right now is about 48.50. If our stock rice at the time is above 48.50, I believe the convert will in fact convert and we'll issue 6.5 million shares approximately. If our share price is below 48.50, we'll most likely call those converts and we'll pay 320 million or so to the convertible bond holders. That determination has not been made definitively, but that would be my guess. Obviously if we wind up issuing the shares as Alan indicated before, we're extremely underlevered at this point so I think we would certainly look to probably buy back a comparable amount of shares if that's the case.

Great. Thank you.

You're welcome.

[OPERATOR INSTRUCTIONS] Your next question comes from Margot Murtaugh.

I wondered what kind of multiples you're seeing for hospital acquisitions in the marketplace? And also wondered what kind of multiples you would see on psych acquisitions?

I'm sorry, I assume your first question Margot?

What kind of multiples are you seeing in the marketplace for hospitals?

For acute hospitals, right?

For acute care, yes.

We've not done an acute care acquisition for a couple of years, I think part of the reason for that is we were starting to see multiples in the 9, 10, 11 times range. And again, in our minds, those were too rich. And we've preferred frankly to, I think, kind of redirect our investment capital to capital expenditure spending as a result of that. On the behavioral side, I think the more recent acquisitions we've done have been in multiples in the 6.5 to 7, 7.5 range. Although certainly there are transactions being done out there in the psych arena for in excess of that, at the 10, 11 times as well.

Okay. And let's see, I was wondering, your EBITDA margin in acute care ex McAllen, can you give us a sense of what that is?

Well, I think we've said before and I think our information we disclose in the 10-K is such that you can figure out that our McAllen margins are probably in the mid single digits. I don't have the calculation here but you can do that calculation if you take out McAllen's revenues in mid single digit margins how that would impact our overall acute margins.

Great. Thanks, Steve.

You're welcome.

Your next question comes from Jean Vindice with SAC Capital.

This is Jean Vindice with SAC Capital. I have a question on the convertibles. It seems to me that if they are above the strike, at the call date, is there really a reason for you to call them? The holders won't convert them because they don't want to give up their option value. But you could alternatively leave them outstanding and go buyback stock against them. And you actually get a positive cash flow from these because they're accreting at 5%. So you're deducting at a higher -- the tax that you're deducting from these is a higher rate than the actual cash interest you pay out on them.

Well, I think the issue from our perspective, Jean, is that we can get better terms than the current convert terms that are out there. So again, I think from our perspective, it's in our interest for the bonds either to convert for for us to call them.

But if they're in the money, when you say either to convert or call them, if they're in the money, the only way you can get them to convert out is to call them?

Right.

So you would have to call them either way if the holders didn't put them to you. You don't need better terms because if they're in the money, you don't have to refinance, this is basically free money to you. Because if they're in the money, you've already -- the number of shares that you have to issue is already determined, but you're getting cash back on these every year in a tax deduction.

Okay. I understand your point.

So would you consider, if they're actually in the money, just leaving them and buying back stock against them to offset the dilution?

That's certainly an option.

Okay. Thank you.

[OPERATOR INSTRUCTIONS' You have no further questions at this time, sir.

Okay. They thank everybody for their time and we'll speak to everybody next quarter.

This concludes today of conference call, you may now all disconnect.