SOURCE: Vanguard Health Systems, Inc.

Vanguard Health Systems, Inc.

November 09, 2009 17:39 ET

Vanguard Reports First Quarter Results

NASHVILLE, TN--(Marketwire - 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 link on the Investor Relations page 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.

                        VANGUARD HEALTH SYSTEMS, INC.
            Condensed Consolidated Income Statements (Unaudited)
                              (In millions)


                                           Three months ended
                                              September 30,
                             ---------------------------------------------
                                      2008
                                 (as adjusted)                2009
                             ---------------------------------------------

Patient service revenues     $    598.3       83.2%  $    619.1       75.2%
Premium revenues                  120.7       16.8        204.3       24.8
                             ----------    -------   ----------    -------
Total revenues                    719.0      100.0        823.4      100.0

Costs and Expenses:
  Salaries and benefits
   (includes stock
   compensation of $1.4 and
   $1.9, respectively)            292.6       40.7        314.4       38.2
  Health plan claims expense       87.0       12.1        161.0       19.6
  Supplies                        111.8       15.5        111.0       13.5
  Provision for doubtful
   accounts                        54.6        7.6         37.2        4.5
  Purchased services               41.4        5.8         47.6        5.8
  Non-income taxes                  8.1        1.1         14.2        1.7
  Rents and leases                 11.2        1.6         11.1        1.4
  Other operating expenses         50.5        7.0         60.1        7.3
  Depreciation and
   amortization                    32.3        4.5         34.0        4.1
  Interest, net                    28.7        4.0         27.2        3.3
  Other                            (0.2)       0.0          1.1        0.1
                             ----------    -------   ----------    -------
    Total costs and expenses      718.0       99.9        818.9       99.5
                             ----------    -------   ----------    -------
Income from continuing
 operations before income
 taxes                              1.0        0.1          4.5        0.5
Income tax expense                  0.2        0.0          1.9        0.2
                             ----------    -------   ----------    -------
Income from continuing
 operations                         0.8        0.1          2.6        0.3
Income (loss) from
 discontinued operations,
 net of taxes                       1.0        0.1         (0.2)       0.0
                             ----------    -------   ----------    -------
Net income                          1.8        0.2          2.4        0.3
Less:  Net income
 attributable to
 non-controlling interests         (0.9)      (0.1)        (0.9)      (0.1)
                             ----------    -------   ----------    -------
Net income attributable to
 Vanguard Health Systems,
 Inc. stockholders           $      0.9        0.1%  $      1.5        0.2%
                             ==========              ==========

Amounts attributable to
 Vanguard Health Systems,
 Inc. stockholders:
  Income (loss) from
   continuing operations,
   net of taxes              $     (0.1)       0.0%  $      1.7        0.2%
  Income (loss) from
   discontinued operations,
   net of taxes                     1.0        0.1         (0.2)       0.0
                             ----------    -------   ----------    -------
Net income attributable to
 Vanguard Health Systems,
 Inc. stockholders           $      0.9        0.1%  $      1.5        0.2%
                             ==========              ==========



                        VANGUARD HEALTH SYSTEMS, INC.
               Supplemental Financial Information (Unaudited)
        Reconciliation of Adjusted EBITDA to Net Income attributable
               to Vanguard Health Systems, Inc. stockholders
                              (In millions)


                                                     Three months ended
                                                        September 30,
                                                 -------------------------
                                                     2008          2009
                                                 -----------   -----------

Net income attributable to Vanguard
 Health Systems, Inc. stockholders               $       0.9   $       1.5
Interest, net                                           28.7          27.2
Income tax expense                                       0.2           1.9
Depreciation and amortization                           32.3          34.0
Non-controlling interests                                0.9           0.9
Equity method income                                       -          (0.2)
Stock compensation                                       1.4           1.9
Loss (gain) on sale of assets                           (2.1)            -
Monitoring fees and expenses                             1.3           1.3
Realized holding loss on investments                     0.6             -
Loss (income) from discontinued operations,
 net of taxes                                           (1.0)          0.2
                                                 -----------   -----------
    Adjusted EBITDA (a)                          $      63.2   $      68.7
                                                 ===========   ===========


(a) Adjusted EBITDA is defined as income before interest expense (net of
    interest income), income taxes, depreciation and amortization,
    non-controlling interests, equity method income, stock compensation,
    gain or loss on sale of assets, monitoring fees and expenses, realized
    holding losses on investments, impairment losses and discontinued
    operations (net of taxes). Adjusted EBITDA is not intended as a
    substitute for net income, operating cash flows or other cash flow
    statement data determined in accordance with accounting principles
    generally accepted in the United States. Due to varying methods of
    calculation, Adjusted EBITDA as presented may not be comparable to
    similarly titled measures of other companies.



                        VANGUARD HEALTH SYSTEMS, INC.
                   Condensed Consolidated Balance Sheets
                               (In millions)


                                                   June 30,    (Unaudited)
                                                     2009     September 30,
                                                (as adjusted)     2009
                                                 -----------  -----------
                          ASSETS

Current assets:
  Cash and cash equivalents                      $     308.2  $     389.3
  Restricted cash                                        1.9          2.0
  Accounts receivable, net of allowance for
   doubtful accounts of $121.5 and $76.5 at June
   30, 2009 and September 30, 2009, respectively       275.3        277.4
  Inventories                                           48.3         48.7
  Deferred income taxes                                 29.6         14.7
  Prepaid expenses and other current assets             68.4         56.5
                                                 -----------  -----------
      Total current assets                             731.7        788.6
Property, plant and equipment, net                   1,174.1      1,164.4
Goodwill                                               692.1        692.1
Intangible assets, net                                  54.6         53.5
Investments in and advances to affiliates                5.4          5.3
Investments in auction rate securities                  21.6         21.6
Other assets                                            51.6         65.0
                                                 -----------  -----------
      Total assets                               $   2,731.1  $   2,790.5

                LIABILITIES AND EQUITY
Current liabilities:
  Accounts payable                               $     127.9  $     167.8
  Accrued salaries and benefits                        133.9        115.0
  Accrued health plan claims                           117.6        130.1
  Accrued interest                                      13.2         26.1
  Other accrued expenses and current liabilities        79.5         80.1
  Current maturities of long-term debt                   8.0          8.0
                                                 -----------  -----------
      Total current liabilities                        480.1        527.1
Professional and general liability and workers
 compensation reserves                                  76.7         80.0
Other liabilities                                       34.9         35.7
Long-term debt, less current maturities              1,543.6      1,547.4
Commitments and contingencies
Equity:
  Vanguard Health Systems, Inc. stockholders'
   equity:
    Common stock                                           -            -
    Additional paid-in capital                         651.3        653.2
    Accumulated other comprehensive loss                (6.8)        (5.7)
    Retained deficit                                   (56.7)       (55.2)
                                                 -----------  -----------
      Total Vanguard Health Systems, Inc.
       stockholders' equity                            587.8        592.3
Non-controlling interests                                8.0          8.0
                                                 -----------  -----------
      Total equity                                     595.8        600.3
                                                 -----------  -----------
      Total liabilities and equity               $   2,731.1  $   2,790.5
                                                 ===========  ===========



                        VANGUARD HEALTH SYSTEMS, INC.
          Condensed Consolidated Statements of Cash Flows (Unaudited)
                               (In millions)


                                                     Three months ended
                                                        September 30,
                                                   -----------------------
                                                      2008
                                                 (as adjusted)     2009
                                                   ----------   ----------

Operating activities:
Net income                                         $      1.8   $      2.4
Adjustments to reconcile net income to net cash
 provided by operating activities:
  Loss (income) from discontinued operations,
   net of taxes                                          (1.0)         0.2
  Depreciation and amortization                          32.3         34.0
  Provision for doubtful accounts                        54.6         37.2
  Deferred income taxes                                  (0.8)         1.5
  Amortization of loan costs                              1.3          1.4
  Accretion of principal on senior discount notes         5.1          5.7
  Loss (gain) on sale of assets                          (2.1)           -
  Stock compensation                                      1.4          1.9
  Non-cash realized holding loss on investments           0.6            -
  Changes in operating assets and liabilities:
    Accounts receivable                                 (48.5)       (39.3)
    Inventories                                          (2.1)        (0.4)
    Prepaid expenses and other current assets            (6.1)        10.4
    Accounts payable                                      1.2         39.9
    Accrued expenses and other liabilities               28.1         27.0
                                                   ----------   ----------
Net cash provided by operating activities -
 continuing operations                                   65.8        121.9
Net cash provided by (used in) operating
 activities - discontinued operations                     1.0         (0.2)
                                                   ----------   ----------
Net cash provided by operating activities                66.8        121.7
Investing activities:
Capital expenditures                                    (17.6)       (33.8)
Acquisitions                                                -         (1.5)
Proceeds from asset dispositions                          3.9          0.1
Other                                                     0.5          0.1
Net cash used in investing activities                   (13.2)       (35.1)
Financing activities:
Payments of long-term debt                               (1.9)        (1.9)
Financing portion of hedge interest payments                -         (2.7)
Distributions paid to non-controlling interests          (0.8)        (0.9)
                                                   ----------   ----------
Net cash used in financing activities                    (2.7)        (5.5)
                                                   ----------   ----------
Net increase in cash and cash equivalents                50.9         81.1
Cash and cash equivalents, beginning of period          141.6        308.2
                                                   ----------   ----------
Cash and cash equivalents, end of period           $    192.5   $    389.3
                                                   ==========   ==========
Net cash paid for interest                         $      9.8   $      7.7
                                                   ==========   ==========
Net cash paid for income taxes                     $      0.6   $        -
                                                   ==========   ==========



                        VANGUARD HEALTH SYSTEMS, INC.
                       Segment Information (Unaudited)
                               (In millions)


                             Three Months Ended September 30, 2008
                     -----------------------------------------------------
                      Acute
                       Care     % of    Health    % of    Elimi-   Consoli-
                     Services Revenues  Plans   Revenues  nations   dated
                     --------  ------  --------  ------  --------  -------
Patient service
 revenues(1)         $  607.8  100.0 % $      -    0.0 % $   (9.5) $ 598.3
Premium revenues            -    0.0 %    120.7  100.0 %        -    120.7
                     --------  ------  --------  ------  --------  -------
  Total revenues        607.8  100.0 %    120.7  100.0 %     (9.5)   719.0

Salaries and
 benefits (excludes
 stock compensation)    284.0   46.7 %      7.2    6.0 %        -    291.2
Health plan claims
 expense(1)                 -    0.0 %     96.5   80.0 %     (9.5)    87.0
Supplies                111.7   18.4 %      0.1    0.0 %        -    111.8
Provision for
 doubtful accounts       54.6    9.0 %        -    0.0 %        -     54.6
Other operating
 expenses               103.3   17.0 %      7.9    6.5 %        -    111.2
                     --------  ------  --------  ------  --------  -------
  Total operating
   expenses             553.6   91.1 %    111.7   92.5 %     (9.5)   655.8
                     --------  ------  --------  ------  --------  -------
  Segment EBITDA(2)      54.2    8.9 %      9.0    7.5 %        -     63.2

Less:
 Interest, net           29.5    4.9 %     (0.8)  (0.6)%        -     28.7
 Depreciation and
  amortization           31.3    5.1 %      1.0    0.8 %        -     32.3
 Stock compensation       1.4    0.2 %        -    0.0 %        -      1.4
 Gain on disposal of
  assets                 (2.1)  (0.3)%        -    0.0 %        -     (2.1)
 Realized holding loss
  on investments          0.6    0.1 %        -    0.0 %        -      0.6
 Monitoring fees and
  expenses                1.3    0.2 %        -    0.0 %        -      1.3
                     --------  ------  --------  ------  --------  -------
  Income (loss)
   from continuing
   operations before
   income taxes      $   (7.8)  (1.3)% $    8.8    7.3 % $      -  $   1.0
                     ========  ======  ========  ======  ========  =======


(1) Vanguard eliminates in consolidation those patient service revenues
    earned by its hospitals and related healthcare facilities attributable
    to services provided to enrollees in its health plans and also
    eliminates the corresponding medical claims expenses incurred by its
    health plans for those services.

(2) Segment EBITDA is defined as income (loss) from continuing operations
    before income taxes less interest expense (net of interest income),
    depreciation and amortization, equity method income, stock
    compensation, gain or loss on disposal of assets, monitoring fees and
    expenses, realized holding loss on investments and impairment losses.
    Management uses Segment EBITDA to measure performance for Vanguard's
    segments and to develop strategic objectives and operating plans for
    those segments. Segment EBITDA eliminates the uneven effect of non-cash
    depreciation of tangible assets and amortization of intangible assets,
    much of which results from acquisitions accounted for under the
    purchase method of accounting. Segment EBITDA also eliminates the
    effects of changes in interest rates that management believes relate
    to general trends in global capital markets, but are not necessarily
    indicative of the operating performance of Vanguard's segments.
    Management believes that Segment EBITDA provides useful information
    about the financial performance of Vanguard's segments to investors,
    lenders, financial analysts and rating agencies. Additionally,
    management believes that investors and lenders view Segment EBITDA as
    an important factor in making investment decisions and assessing the
    value of Vanguard. Segment EBITDA is not a substitute for net income,
    operating cash flows or other cash flow statement data determined in
    accordance with accounting principles generally accepted in the United
    States. Segment EBITDA, as presented, may not be comparable to
    similarly titled measures of other companies.




                        VANGUARD HEALTH SYSTEMS, INC.
                Segment Information (Unaudited) - Continued
                               (In millions)


                             Three Months Ended September 30, 2009
                     -----------------------------------------------------
                      Acute
                       Care     % of    Health    % of    Elimi-   Consoli-
                     Services Revenues  Plans   Revenues  nations   dated
                     --------  ------  --------  ------  --------  -------
Patient service
 revenues(1)         $  629.7  100.0 % $      -    0.0 %    (10.6) $ 619.1
Premium revenues            -    0.0 %    204.3  100.0 %        -    204.3
                     --------  ------  --------  ------  --------  -------
  Total revenues        629.7  100.0 %    204.3  100.0 %    (10.6)   823.4

Salaries and
 benefits (excludes
 stock compensation)    304.0   48.3 %      8.5    4.2 %        -    312.5
Health plan claims
 expense(1)                 -    0.0 %    171.6   84.0 %    (10.6)   161.0
Supplies                111.0   17.6 %        -    0.0 %        -    111.0
Provision for
 doubtful
 accounts                37.2    5.9 %        -    0.0 %        -     37.2
Other operating
 expenses               123.2   19.6 %      9.8    4.8 %        -    133.0
                     --------  ------  --------  ------  --------  -------
  Total operating
   expenses             575.4   91.4 %    189.9   93.0 %    (10.6)   754.7
                     --------  ------  --------  ------  --------  -------
  Segment EBITDA(2)      54.3    8.6 %     14.4    7.0 %        -     68.7

Less:
 Interest, net           27.4    4.3 %     (0.2)  (0.1)%        -     27.2
 Depreciation and
  amortization           33.0    5.2 %      1.0    0.5 %        -     34.0
 Equity method
  income                 (0.2)   0.0 %        -    0.0 %        -     (0.2)
 Stock
  compensation            1.9    0.3 %        -    0.0 %        -      1.9
 Monitoring fees
  and expenses            1.3    0.2 %        -    0.0 %        -      1.3
                     --------  ------  --------  ------  --------  -------
  Income (loss)
   from continuing
   operations before
   income taxes      $   (9.1)  (1.4)% $   13.6    6.6 % $      -  $   4.5
                     ========  ======  ========  ======  ========  =======


(1) Vanguard eliminates in consolidation those patient service revenues
    earned by its hospitals and related healthcare facilities attributable
    to services provided to enrollees in its health plans and also
    eliminates the corresponding medical claims expenses incurred by its
    health plans for those services.

(2) Segment EBITDA is defined as income (loss) from continuing operations
    before income taxes less interest expense (net of interest income),
    depreciation and amortization, equity method income, stock
    compensation, gain or loss on disposal of assets, monitoring fees and
    expenses, realized holding loss on investments and impairment losses.
    Management uses Segment EBITDA to measure performance for Vanguard's
    segments and to develop strategic objectives and operating plans for
    those segments. Segment EBITDA eliminates the uneven effect of non-cash
    depreciation of tangible assets and amortization of intangible assets,
    much of which results from acquisitions accounted for under the
    purchase method of accounting. Segment EBITDA also eliminates the
    effects of changes in interest rates that management believes relate
    to general trends in global capital markets, but are not necessarily
    indicative of the operating performance of Vanguard's segments.
    Management believes that Segment EBITDA provides useful information
    about the financial performance of Vanguard's segments to investors,
    lenders, financial analysts and rating agencies. Additionally,
    management believes that investors and lenders view Segment EBITDA as
    an important factor in making investment decisions and assessing the
    value of Vanguard. Segment EBITDA is not a substitute for net income,
    operating cash flows or other cash flow statement data determined in
    accordance with accounting principles generally accepted in the United
    States. Segment EBITDA, as presented, may not be comparable to
    similarly titled measures of other companies.




                          VANGUARD HEALTH SYSTEMS, INC.
                          Selected Operating Statistics
                                  (Unaudited)


                                            Three months ended
                                               September 30,
                                          ----------------------
                                             2008        2009     % Change
                                          ----------  ----------   ------

Number of hospitals at end of period              15          15
Licensed beds at end of period                 4,131       4,135
Discharges                                    42,281      41,883     (0.9)%
Total adjusted discharges                     72,324      74,247      2.7%
Adjusted discharges-hospitals                 68,669      70,126      2.1%
Average length of stay                          4.21        4.11     (2.4)%
Patient days                                 178,114     171,966     (3.5)%
Total adjusted patient days                  304,674     304,847      0.1%
Adjusted patient days-hospitals              289,277     287,928     (0.5)%
Patient revenue per total adjusted
 discharge                                $    8,078  $    8,159      1.0%
Patient revenue per adjusted
 discharge-hospitals                      $    8,276  $    8,235     (0.5)%
Inpatient surgeries                            9,478       9,508      0.3%
Outpatient surgeries                          18,900      19,317      2.2%
Emergency room visits                        147,182     154,909      5.2%

Charity care and uninsured discounts as a
 percent of acute care services segment
 revenues (prior to these discounts)             4.0%       11.7%

Provision for doubtful accounts as a
 percent of acute care services segment
 revenues (prior to charity and uninsured
 discounts)                                      8.6%        5.2%

Net patient revenue payer mix:
  Medicare                                      25.7%       24.3%
  Medicaid                                       7.4%        7.7%
  Managed Medicare                              13.4%       14.6%
  Managed Medicaid                               9.5%       10.4%
  Managed care                                  34.3%       35.0%
  Commercial                                     1.1%        1.1%
  Self pay                                       8.6%        6.9%
                                          ----------  ----------
    Total                                      100.0%      100.0%
                                          ==========  ==========



                    VANGUARD HEALTH SYSTEMS, INC.
  Supplemental Operating Measures Adjusted for Comparative Analysis
       For the three months ended September 30, 2009 and 2008
       (dollars in millions, except for statistical measures)
                           (Unaudited)

                                                             %
                                                    of Segment Revenues
                                                    -------------------
                          Impact of                           Non-GAAP
                        Policy Changes                           as
                       ------------------              GAAP-  adjusted
                GAAP-  Uninsured Medicaid Non-GAAP     basis    (4)
                basis  Discounts Pending  Adjusted  -------------------
             Amounts(1)  (2)       (3)    Amounts(4) 2009   2008   2009
               ------- --------- -------- --------  -----  -----  -----
Acute care
 services
 segment:
 Total
  revenues(5)  $ 629.7 $  36.4  $ (6.8) $ 659.3     100.0% 100.0% 100.0%
 Salaries
  and
  benefits (8) $ 305.9 $     -  $    -  $ 305.9      48.6%  47.0%  46.4%
 Supplies      $ 111.0 $     -  $    -  $ 111.0      17.6%  18.3%  16.8%
 Provision for
  doubtful
  accounts     $  37.2 $  36.4  $ (9.7) $  63.9       5.9%   9.0%   9.7%
 Other
  operating
  expenses     $ 123.2 $     -  $    -  $ 123.2      19.6%  17.0%  18.7%
 Total
  operating
  expenses (8) $ 577.3 $  36.4  $ (9.7) $ 604.0      91.7%  91.3%  91.6%

                                                             %
                                                    of Segment Revenues
                                                    Prior to Charity and
                                                    Uninsured Discounts
                                                    -------------------
                          Impact of                           Non-GAAP
                         Policy Changes                           as
                       -----------------               GAAP-  adjusted
               GAAP-   Uninsured Medicaid Non-GAAP     basis     (4)
               basis   Discounts Pending  Adjusted  -------------------
             Amounts(1)  (2)       (3)    Amounts(4) 2009   2008   2009
               ------- -------  --------  --------  -----  -----  -----
Acute care
 services
 segment:
 Uncompen-
  sated
  care(6)      $ 120.6 $ (24.6) $ (9.7)  $  86.3    16.9%  12.6%  12.7%
 Total
  revenues,
  prior to
  charity(7)   $ 652.1 $  36.4  $ (6.8)  $ 681.7



                       Impact of Policy
                          Changes                             Current
           Statistical ----------------   Statisical  Prior     Year
              Measure, Uninsured Medicaid Measure,    Year     Change,
                as     Discounts Pending    as     Statisical   as
              reported counts(2)  (3)     adjusted   Measure  adjusted
              -------  --------- ------   ---------- -------  -------

Vanguard
 consolidated:
 Patient
  revenue per
  total
  adjusted
  discharge   $ 8,159 $   490  $    (91)     $ 8,558 $ 8,078     5.9 %
 Self-pay
  discharges    2,258       -      (847)       1,411   1,415    (0.3)%
 Medicaid
  discharges    3,592       -       847        4,439   4,451    (0.3)%


(1) Amounts reflected in or components of amounts reflected in the segment
    operating results tables included in this release. These amounts are
    based upon revenues or expenses determined in accordance with
    accounting principles generally accepted in the United States.

(2) Includes the impact of the uninsured discount policy implemented for
    Vanguard's Illinois hospitals effective April 1, 2009 and for its
    Phoenix and San Antonio hospitals effective July 1, 2009. Under this
    policy, Vanguard applies an uninsured discount (calculated as a
    standard percentage of gross revenues) at the time of patient billing
    and includes this discount as a reduction to revenues. This uninsured
    discount program applies to patients receiving hospital services who
    have no insurance coverage and do not otherwise meet Vanguard's
    charity care guidelines. Vanguard recorded a total of $61.0 million of
    uninsured discounts related to its acute care services segment during
    the three months ended September 30, 2009, $36.4 million of which
    related to non-Medicaid pending accounts that reduced revenues as a
    result of implementing this policy.

(3) Includes the impact during the three months ended September 30, 2009 of
    Vanguard's accounting policy change for accounts pending Medicaid
    qualification. Prior to the implementation of its new uninsured
    discount policy, Vanguard classified accounts pending Medicaid
    qualification as Medicaid revenues (and Medicaid discharges) and
    recorded a contractual discount for these accounts based upon the
    average Medicaid reimbursement rate for each specific state until
    qualification was confirmed. Vanguard implemented a new Medicaid
    pending policy for those hospitals where the uninsured discount policy
    has been implemented whereby Medicaid pending accounts are classified
    as self-pay revenues (and self-pay discharges) with an uninsured
    discount applied. $24.6 million of the $61.0 million of total
    uninsured discounts during the current year quarter relate to Medicaid
    pending accounts. The balance of these accounts is subject to
    Vanguard's allowance for doubtful accounts policy. For those accounts
    that subsequently qualify for Medicaid coverage, the uninsured
    discount is reversed and the account is reclassified to Medicaid
    revenues (and Medicaid discharges) with the appropriate contractual
    discount applied.

(4) Revenues, certain expenses and those expenses as a percentage of
    revenues for the acute care services segment for the current year
    quarter have been adjusted to allow for comparative measurement on a
    basis consistent with the prior year quarter (before implementation of
    the uninsured discount policy or the change to the Medicaid pending
    policy). Management believes these non-GAAP measures will provide
    investors, analysts and general users of this financial information an
    effective means to compare the operating results of Vanguard's acute
    care services segment for the current year quarter to those of the
    prior year quarter. However, these non-GAAP operating measures are not
    meant to replace GAAP-basis revenues, expenses or expenses as a
    percentage of revenues as operating performance indicators for the
    acute care services segment.

(5) Total revenues for the acute care services segment represent revenues
    prior to the elimination in consolidation of revenues earned by
    Vanguard's hospitals for services provided to enrollees in Vanguard's
    owned health plans.

(6) Uncompensated care is defined as the sum of uninsured discounts,
    charity deductions and the provision for doubtful accounts.

(7) Represents total revenues for the acute care services segment plus
    charity deductions.

(8) Includes stock compensation.

Contact Information

  • Contact:
    Vanguard Health Systems, Inc.
    Gary Willis
    Senior Vice President and Chief Accounting Officer
    (615) 665-6098