Vanguard Reports First Quarter Results

NASHVILLE, Tenn. - November 9, 2009 -- Vanguard Health Systems, Inc. ("Vanguard") today announced results for the first quarter ended September 30, 2009. 

Total revenues for the quarter ended September 30, 2009, were $823.4 million, an increase of $104.4 million or 14.5% from the prior year quarter. Patient service revenues and health plan premium revenues increased $20.8 million and $83.6 million, respectively, from the prior year quarter. The increase in patient service revenues primarily resulted from a 2.7% increase in total adjusted discharges and a 1.0% increase in patient revenue per total adjusted discharge. The small increase in patient revenue per total adjusted discharge relative to previous periods was primarily due to the implementation of an uninsured discount policy in our Phoenix and San Antonio hospitals effective July 1, 2009, similar to the program implemented in our Illinois hospitals on April 1, 2009, and a change to the Medicaid pending policy at these same hospitals. Under our previous Medicaid pending policy, we classified accounts pending Medicaid qualification as Medicaid revenues and recorded a Medicaid revenue deduction for these accounts. Under the new Medicaid pending policy, we classify these accounts as self-pay revenues and apply uninsured discounts to them. Absent these policy changes, patient revenue per total adjusted discharge would have increased 5.9% during the current year quarter compared to the prior year quarter. The increase in health plan premium revenues was primarily attributable to a 76.9% increase in average membership in Phoenix Health Plan ("PHP") during the current year quarter as a result of PHP's new contract with Arizona Health Care Cost Containment System effective October 1, 2008, as previously disclosed. 

During the quarter ended September 30, 2009, Vanguard reported income from continuing operations of $2.6 million compared to $0.8 million during the prior year quarter. Most of the individual expense to total revenues ratios for the current year quarter in comparison to the prior year quarter were impacted by the significant increase in health plan premium revenues and the impact of the uninsured discount and Medicaid pending policy changes previously discussed. A table describing the impact of adjustments to certain expense to total revenues ratios for the acute care services segment and to certain statistical measures related to the uninsured discount and Medicaid pending policy changes is included in this press release in the attached Supplemental Operating Measures Adjusted for Comparative Analysis. Health plan claims expense as a percentage of health plan premium revenues increased to 78.8% during the current year quarter compared to 72.1% during the prior year quarter due to changes to capitation rates, enrollee medical costs and enrollee demographic mix under PHP's new contract. Supplies as a percentage of total revenues for the acute care services segment decreased during the current year quarter as a result of continued supply chain process improvements including greater group purchasing organization compliance, pharmacy formulary refinements and reduced physician variation for high cost medical supplies. Other operating expenses as a percentage of total revenues for the acute care services segment increased during the current year quarter due primarily to an $8.0 million increase in insurance expense resulting from adverse professional and general liability claims development relating to prior years. 

During the quarter ended September 30, 2009, net income attributable to Vanguard Health Systems, Inc. stockholders was $1.5 million, an increase of $0.6 million compared to the prior year quarter.

Adjusted EBITDA was $68.7 million for the quarter ended September 30, 2009, an increase of $5.5 million or 8.7% from the prior year quarter. A reconciliation of Adjusted EBITDA to net income attributable to Vanguard Health Systems, Inc. stockholders as determined in accordance with accounting principles generally accepted in the United States for the quarters ended September 30, 2008 and 2009 is included in the attached supplemental financial information. 

The consolidated operating results for the quarter ended September 30, 2009 reflect a 0.9% decrease in discharges and a 2.7% increase in total adjusted discharges compared to the prior year quarter. Emergency room visits, inpatient surgeries and outpatient surgeries increased 5.2%, 0.3% and 2.2%, respectively, during the current year quarter compared to the prior year quarter. 

Net cash provided by operating activities was $121.7 million for the quarter ended September 30, 2009 compared to $66.8 million for the prior year quarter. The improvement in operating cash flows was primarily attributable to the impact of significant enrollee growth at PHP on capitation payments received and claims payments made for new members and timing differences related to the payment of accounts payable. We continue to benefit from efficiencies we have achieved in our business office operations. Net days revenue in accounts receivable was 45 days at September 30, 2009, unchanged from June 30, 2009, and was 51 days at September 30, 2008. Cash used in investing activities increased from $13.2 million during the prior year quarter to $35.1 million during the current year quarter, primarily due to a $16.2 million increase in capital expenditures.

Vanguard will host a conference call for investors at 11:00 am EST on November 10, 2009. All interested investors are invited to access a live audio broadcast of the call, via webcast. The live webcast can be accessed on the home page of Vanguard's Web site at www.vanguardhealth.com by clicking on "First Quarter Webcast" or at http://www.visualwebcaster.com/event.asp?id=63056. If you are unable to participate during the live webcast, the call will be available on a replay basis on Vanguard?s Web site www.vanguardhealth.com. To access the replay, click on the Latest News page on the Investor Relations section of www.vanguardhealth.com. The replay will be available via this link for one year. 

Vanguard owns and operates 15 acute care hospitals and complementary facilities and services in Chicago, Illinois; Phoenix, Arizona; San Antonio, Texas; and Massachusetts. Vanguard's strategy is to develop locally branded, comprehensive healthcare delivery networks in urban markets. Vanguard will pursue acquisitions where there are opportunities to partner with leading delivery systems in new urban markets. Upon acquiring a facility or network of facilities, Vanguard implements strategic and operational improvement initiatives including expanding services, strengthening relationships with physicians and managed care organizations, recruiting new physicians and upgrading information systems and other capital equipment. These strategies improve quality and network coverage in a cost effective and accessible manner for the communities we serve. 

This press release contains forward-looking statements within the meaning of the federal securities laws, which are intended to be covered by the safe harbors created thereby. These forward-looking statements include all statements that are not historical statements of fact and those statements regarding Vanguard's intent, belief or expectations. Do not rely on any forward-looking statements as such statements are subject to numerous factors, risks and uncertainties that could cause Vanguard's actual outcomes, results, performance or achievements to be materially different from those projected. These factors, risks and uncertainties include, among others, Vanguard's high degree of leverage and interest rate risk; Vanguard's ability to incur substantially more debt; operating and financial restrictions in Vanguard's debt agreements; Vanguard's ability to successfully implement its business strategies; Vanguard's ability to successfully integrate any future acquisitions; conflicts of interest that may arise as a result of Vanguard's control by a small number of stockholders; the highly competitive nature of the healthcare business; governmental regulation of the industry including Medicare and Medicaid reimbursement levels; changes in Federal, state or local regulation affecting the healthcare industry; the possible enactment of Federal or state healthcare reform; pressures to contain costs by managed care organizations and other insurers and Vanguard's ability to negotiate acceptable terms with these third party payers; the ability to attract and retain qualified management and personnel, including physicians and nurses; claims and legal actions relating to professional liabilities or other matters; the impacts of a prolonged economic recession and tightened credit and capital markets on Vanguard's results of operations, financial position and cash flows including its ability to successfully service its debt, remain in compliance with debt covenants under its senior secured credit agreement, draw upon or replace its revolving loan facility that expires in September 2010 and repay or refinance outstanding borrowings under its term loan facility that matures in September 2011; Vanguard's exposure to the increased amounts of and collection risks associated with uninsured accounts and the co-pay and deductible portions of insured accounts; Vanguard's ability to maintain or increase patient membership and control costs of its managed healthcare plans; the availability and terms of capital to fund the expansion of Vanguard's business; the geographic concentration of Vanguard's operations; the technological and pharmaceutical improvements that increase the cost of providing healthcare services or reduce the demand for such services; the timeliness of reimbursement payments received under government programs; the potential adverse impact of known and unknown government investigations; and those factors, risks and uncertainties detailed in Vanguard's filings from time to time with the Securities and Exchange Commission, including, among others, Vanguard's Annual Reports on Form 10-K and its Quarterly Reports on Form 10-Q.

Although Vanguard believes that the assumptions underlying the forward-looking statements contained in this press release are reasonable, any of these assumptions could prove to be inaccurate, and, therefore, there can be no assurance that the forward-looking statements included in this press release will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, you should not regard the inclusion of such information as a representation by Vanguard that its objectives and plans anticipated by the forward-looking statements will occur or be achieved, or if any of them do, what impact they will have on Vanguard's results of operations and financial condition. Vanguard undertakes no obligation to publicly release any revisions to any forward-looking statements contained herein to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events.

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