Vanguard Reports Second Quarter Results

Vanguard Reports Second Quarter Results

NASHVILLE, TN - Vanguard Health Systems, Inc.

("Vanguard") today announced results for the second quarter ended December 31, 2008. Total revenues for the quarter ended December 31, 2008 were $792.6 million, an increase of $106.6 million or 15.5% from the prior year quarter. Patient service revenues and health plan premium revenues increased $38.7 million and $67.9 million, respectively, from the prior year quarter. The increase in patient service revenues was primarily attributable to a 1.0% increase in hospital adjusted discharges and a 6.8% increase in patient revenue per adjusted hospital discharge during the current year quarter compared to the prior year quarter. The increase in health plan premium revenues was primarily attributable to a 59.6% increase in average membership in Phoenix Health Plan (PHP), our managed Medicaid health plan in Phoenix, Arizona, during the current year quarter compared to the prior year quarter. On October 1, 2008, PHP entered into a new three-year contract with the state agency that administers Arizona's Medicaid program. Under this contract, PHP provides prepaid health coverage to six new counties in addition to the three counties PHP served under its previous contract. Adjusted EBITDA was $78.5 million for the quarter ended December 31, 2008, an increase of $10.3 million or 15.1% from the prior year quarter. A reconciliation of Adjusted EBITDA to net income as determined in accordance with generally accepted accounting principles for the quarters ended December 31, 2007 and 2008 is included in the attached supplemental financial information. Total revenues for the six months ended December 31, 2008 were $1,511.6 million, an increase of $163.1 million or 12.1% from the prior year period. Patient service revenues and health plan premium revenues increased $80.2 million and $82.9 million, respectively, from the prior year period. Patient service revenues for the current year period were positively impacted by a 1.9% increase in hospital adjusted discharges and a 6.2% increase in patient revenue per adjusted hospital discharge compared to the prior year period. Health plan premium revenues increased 38.4% during the current year period primarily due to PHP's new contract that went into effect on October 1, 2008, as previously discussed. Adjusted EBITDA was $141.7 million for the six months ended December 31, 2008, an increase of $16.7 million or 13.4% from the prior year period. A reconciliation of Adjusted EBITDA to net income (loss) as determined in accordance with generally accepted accounting principles for the six-month periods ended December 31, 2007 and 2008 is included in the attached supplemental financial information. Cash flows from operating activities were $150.7 million for the six months ended December 31, 2008, an increase of $81.9 million from the prior year period. The increase was primarily attributable to the improved operating results during the current year period, improved net cash collections on accounts receivable and the impact of PHP's significant enrollee growth on the timing of capitation payments received and claims payments made for new members. Net days in accounts receivable improved by 6 days from 56 days as of December 31, 2007 to 50 days as of December 31, 2008. 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.

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