SOURCE: Vanguard Health Systems, Inc.

Vanguard Health Systems, Inc.

February 11, 2009 16:45 ET

Vanguard Reports Second Quarter Results

NASHVILLE, TN--(Marketwire - February 11, 2009) - 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.

For the quarter ended December 31, 2008, Vanguard had income from continuing operations of $10.2 million compared to a loss from continuing operations of $0.6 million during the prior year quarter. Many comparisons of individual cost and expense items as a percentage of total revenues during the current year quarter were impacted by the significant growth in health plan premium revenues previously discussed and the increase in the amounts of salaries and benefits and patient service revenues eliminated in consolidation as a result of Vanguard's expansion of its self-insured employee medical benefit plan effective July 1, 2008. For the acute care services segment, salaries and benefits as a percentage of patient service revenues would have increased to 48.2% during the current year quarter compared to 47.4% during the prior year quarter absent the eliminations impact of the employee medical benefit plan change. This increase primarily resulted from Vanguard's continued investment in physician recruiting and clinical quality initiatives during the current year quarter. Supplies as a percentage of patient service revenues decreased to 18.4% during the current year quarter compared to 18.6% during the prior year quarter. Medical claims expense as a percentage of health plan premium revenues increased to 79.0% during the current year quarter compared to 74.3% during the prior year quarter as a result of changes to capitation rates, enrollee medical costs and enrollee demographic mix under PHP's new contract. The combined provision for doubtful accounts and charity care as a percentage of patient service revenues was 11.6% during the current year quarter compared to 12.2% during the prior year quarter. Net self-pay revenues as a percentage of net patient revenues decreased to 7.7% during the current year quarter compared to 8.2% during the prior year quarter. Net income for the current year quarter increased to $10.1 million compared to $0.5 million for the prior year quarter.

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.

The consolidated operating results for the quarter ended December 31, 2008 reflect a 0.2% decrease in discharges and a 1.0% increase in hospital adjusted discharges compared to the prior year quarter. Inpatient surgeries and outpatient surgeries increased 2.2% and 5.2%, respectively, during the current year quarter compared to the prior year quarter. Emergency room visits decreased 1.9% during the current year quarter compared to the prior year quarter.

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.

For the six months ended December 31, 2008, Vanguard had income from continuing operations of $10.1 million compared to a loss from continuing operations of $7.1 million during the prior year period. For the acute care services segment, salaries and benefits as a percentage of patient service revenues would have increased to 48.1% during the current year period compared to 47.6% during the prior year period absent the eliminations impact of the employee medical benefit plan change. Supplies as a percentage of patient service revenues decreased to 18.5% during the current year period compared to 18.6% during the prior year period. Medical claims expense as a percentage of health plan premium revenues increased to 76.2% during the current year period compared to 73.1% during the prior year period as a result of changes to capitation rates, enrollee medical costs and enrollee demographic mix under PHP's new contract that went into effect on October 1, 2008. The combined provision for doubtful accounts and charity care as a percentage of patient service revenues was 12.5% for both the current year and prior year periods. Net income for the current year period was $11.0 million compared to a $6.4 million net loss for the prior year period.

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.

The consolidated operating results for the six months ended December 31, 2008 reflect a 0.7% increase in discharges and a 1.9% increase in hospital adjusted discharges compared to the prior year period. Inpatient surgeries and outpatient surgeries increased 2.5% and 4.7%, respectively, while emergency room visits decreased 0.1% during the current year period compared to the prior year period.

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.

"We believe our strong second quarter operating results and cash flows are a direct reflection of the commitment and passion shared by our nurses, physicians and management leadership teams to make the delivery of quality healthcare services to our patients our top priority," commented Charles N. Martin, Jr., Chairman and Chief Executive Officer. "Like others in our industry, we are concerned about the weakened conditions of the credit markets and the general economy and realize that operating and financial challenges may build during the next few quarters. However, we remain confident in our long-term vision and long-term growth opportunities."

Vanguard will host a conference call for investors at 11:00 am EST on February 12, 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 Second Quarter Webcast or at http://visualwebcaster.com/event.asp?id=55095. 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 Second Quarter Webcast on Vanguard's home page or later on the Latest News link on the Investor Relations page of www.vanguardhealth.com.

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 Statements of Operations (Unaudited)
                              (In millions)



                                          Three months ended December 31,
                                        ----------------------------------
                                              2007              2008
                                        ----------------  ----------------

Patient service revenues                $ 575.7     83.9% $ 614.4     77.5%
Premium revenues                          110.3     16.1    178.2     22.5
                                        -------  -------  -------  -------
Total revenues                            686.0    100.0    792.6    100.0

Costs and Expenses:
  Salaries and benefits (includes stock
   compensation of $0.5 and $0.8,
   respectively)                          280.0     40.8    302.7     38.2
  Supplies                                107.1     15.6    112.8     14.2
  Medical claims expense                   82.0     11.9    140.7     17.8
  Provision for doubtful accounts          49.2      7.2     48.3      6.1
  Purchased services                       37.3      5.4     40.3      5.1
  Rents and leases                          9.9      1.5     10.3      1.3
  Other operating expenses                 52.8      7.7     59.8      7.5
  Depreciation and amortization            32.7      4.8     32.1      4.1
  Interest, net                            32.3      4.7     28.6      3.6
  Other                                     3.4      0.5      1.7      0.2
                                        -------  -------  -------  -------
           Total costs and expenses       686.7    100.1    777.3     98.1
                                        -------  -------  -------  -------
Income (loss) from continuing
 operations before income taxes            (0.7)    (0.1)    15.3      1.9
Income tax benefit (expense)                0.1      0.0     (5.1)    (0.6)
                                        -------  -------  -------  -------
Income (loss) from continuing
 operations                                (0.6)    (0.1)    10.2      1.3
Income (loss) from discontinued
 operations, net of taxes                   1.1      0.2     (0.1)       -
                                        -------  -------  -------  -------
Net income                              $   0.5      0.1% $  10.1      1.3%
                                        =======           =======



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



                                       Six months ended December 31,
                                ------------------------------------------
                                        2007                  2008
                                -------------------   --------------------

Patient service revenues        $ 1,132.5      84.0 % $ 1,212.7       80.2%
Premium revenues                    216.0      16.0       298.9       19.8
                                ---------  --------   ---------  ---------
Total revenues                    1,348.5     100.0     1,511.6      100.0

Costs and Expenses:
    Salaries and benefits
     (includes stock compensation
     of $1.0 and $2.2,
     respectively)                  553.7      41.1       595.3       39.4
    Supplies                        210.3      15.6       224.6       14.8
    Medical claims expense          158.0      11.7       227.7       15.1
    Provision for doubtful
     accounts                       103.1       7.6       102.9        6.8
    Purchased services               72.1       5.3        81.7        5.4
    Rents and leases                 20.0       1.5        21.5        1.4
    Other operating expenses        107.3       8.0       118.4        7.9
    Depreciation and
     amortization                    65.2       4.8        64.4        4.3
    Interest, net                    64.0       4.8        57.3        3.8
    Other                             5.4       0.4         2.4        0.1
                                ---------  --------   ---------  ---------
           Total costs and
            expenses              1,359.1     100.8     1,496.2       99.0
                                ---------  --------   ---------  ---------
Income (loss) from continuing
 operations before income taxes     (10.6)     (0.8)       15.4        1.0
Income tax benefit (expense)          3.5       0.3        (5.3)      (0.4)
                                ---------  --------   ---------  ---------
Income (loss) from continuing
 operations                          (7.1)     (0.5)       10.1        0.6
Income from discontinued
 operations, net of taxes             0.7       0.1         0.9        0.1
                                ---------  --------   ---------  ---------
Net income (loss)               $    (6.4)     (0.4)% $    11.0        0.7%
                                =========             =========



                      VANGUARD HEALTH SYSTEMS, INC.
              Supplemental Financial Information (Unaudited)
          Reconciliation of Adjusted EBITDA to Net Income (Loss)
                              (In millions)


                                         Three months       Six months
                                            ended             ended
                                          December 31,      December 31,
                                        ---------------   ----------------

                                          2007     2008     2007    2008
                                        -------  -------  -------  -------
Net income (loss)                       $   0.5  $  10.1  $  (6.4) $  11.0
Interest, net                              32.3     28.6     64.0     57.3
Income tax expense (benefit)               (0.1)     5.1     (3.5)     5.3
Depreciation and amortization              32.7     32.1     65.2     64.4
Minority interests                          0.8      0.7      1.7      1.6
Loss (gain) on disposal of assets           0.1        -      0.2     (2.1)
Equity method loss (income)                 0.7     (0.3)    (0.2)    (0.3)
Stock compensation                          0.5      0.8      1.0      2.2
Monitoring fees and expenses                1.8      1.3      3.7      2.6
Realized holding loss on investments          -        -        -      0.6
Discontinued operations, net of taxes      (1.1)     0.1     (0.7)    (0.9)
                                        -------  -------  -------  -------
     Adjusted EBITDA (a)                $  68.2  $  78.5  $ 125.0  $ 141.7
                                        =======  =======  =======  =======



(a) Adjusted EBITDA is defined as income before interest expense (net of
    interest income), income taxes, depreciation and amortization, minority
    interests, gain or loss on the disposal of assets, equity method income
    or loss, stock compensation, monitoring fees and expenses, realized
    holding loss on investments and discontinued operations, net of taxes.
    Adjusted EBITDA is not intended as a substitute for net income (loss),
    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)



                                                               (Unaudited)
                                                    June 30,   December 31,
                     ASSETS                           2008        2008
                                                  -----------  -----------
Current assets:
    Cash and cash equivalents                     $     141.6  $     234.6
    Restricted cash                                       2.1          2.0
    Marketable securities                                26.3            -
    Accounts receivable, net of allowance for
     uncollectible accounts of approximately
     $117.7 and $119.3 at June 30, 2008 and
     December 31, 2008, respectively                    300.4        301.5
    Inventories                                          49.2         50.5
    Prepaid expenses and other current assets            80.3         82.3
                                                  -----------  -----------
        Total current assets                            599.9        670.9

Property, plant and equipment, net                    1,174.0      1,157.9
Goodwill                                                689.2        691.7
Intangible assets, net                                   61.4         60.6
Investments in and advances to affiliates                 6.0          5.4
Investments in auction rate securities                      -         24.2
Other assets                                             51.8         47.4
                                                  -----------  -----------
        Total assets                              $   2,582.3  $   2,658.1
                                                  ===========  ===========
      LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
    Accounts payable                              $     162.8  $     159.5
    Accrued salaries and benefits                        97.4        113.8
    Accrued health claims                                51.1         78.1
    Accrued interest                                     13.2         13.2
    Other accrued expenses and current
     liabilities                                         49.6         67.2
    Current maturities of long-term debt                  8.0          8.0
                                                  -----------  -----------
        Total current liabilities                       382.1        439.8
Minority interests in equity of consolidated
 entities                                                 9.1          7.9
Other liabilities                                        97.0        105.2
Long-term debt, less current maturities               1,529.5      1,536.3
Commitments and contingencies

Stockholders’ equity:
Common Stock                                                -            -
Additional paid-in capital                              647.1        649.4
Accumulated other comprehensive income (loss)             2.8         (6.2)
Retained deficit                                        (85.3)       (74.3)
                                                  -----------  -----------
        Total liabilities and stockholders’
         equity                                   $   2,582.3  $   2,658.1
                                                  ===========  ===========





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


                                                      Six months ended
                                                        December 31,
                                                  ------------------------
                                                      2007         2008
                                                  -----------  -----------
Operating activities:
Net income (loss)                                 $      (6.4) $      11.0
Adjustments to reconcile net income (loss) to net
 cash from operating activities:
    Income from discontinued operations                  (0.7)        (0.9)
    Depreciation and amortization                        65.2         64.4
    Provision for doubtful accounts                     103.1        102.9
    Deferred income taxes                                (5.7)         1.6
    Amortization of loan costs                            2.4          2.6
    Accretion of principal on senior discount
     notes                                                9.5         10.6
    Loss (gain) on disposal of assets                     0.2         (2.1)
    Stock compensation                                    1.0          2.2
    Realized holding loss on investments                    -          0.6
    Changes in operating assets and liabilities,
     net of effects of acquisitions and
     dispositions:
        Accounts receivable                            (132.2)      (103.6)
        Inventories                                      (2.1)        (1.3)
        Prepaid expenses and other current assets        (2.0)         1.3
        Accounts payable                                  6.0         (3.3)
        Accrued expenses and other liabilities           28.8         63.8
                                                  -----------  -----------
Net cash provided by operating activities -
 continuing operations                                   67.1        149.8
Net cash provided by operating activities -
 discontinued operations                                  1.7          0.9
                                                  -----------  -----------
Net cash provided by operating activities                68.8        150.7
Investing activities:
Capital expenditures                                    (51.0)       (54.7)
Acquisitions                                                -         (3.6)
Purchases of short-term investments                     (60.0)           -
Sales of short-term investments                          60.0            -
Other                                                     2.3          4.5
                                                  -----------  -----------
Net cash used in investing activities -
 continuing operations                                  (48.7)       (53.8)
Net cash provided by investing activities -
 discontinued operations                                  2.8            -
                                                  -----------  -----------
Net cash used in investing activities                   (45.9)       (53.8)
Financing activities:
Payments of long-term debt                               (3.9)        (3.9)
Proceeds from stock option exercises                      0.2            -
Payments to retire stock and stock options               (0.2)           -
                                                  -----------  -----------
Net cash used in financing activities                    (3.9)        (3.9)
                                                  -----------  -----------
Net increase in cash and cash equivalents                19.0         93.0
Cash and cash equivalents, beginning of period          120.1        141.6
                                                  -----------  -----------
Cash and cash equivalents, end of period          $     139.1  $     234.6
                                                  ===========  ===========
Net cash paid for interest                        $      52.9  $      45.1
                                                  ===========  ===========
Net cash paid for income taxes                    $       0.6  $       1.0
                                                  ===========  ===========



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


                            Three Months Ended December 31, 2007
                   -------------------------------------------------------
                    Acute
                     Care     % of     Health   % of    Elimina- Consoli-
                   Services  Revenues  Plans   Revenues  tions    dated
                   --------  -------   ------  -------   -------  --------
Patient service
 revenues(1)       $  582.5    100.0 % $    -      0.0 % $  (6.8) $  575.7
Premium revenues          -      0.0 %  110.3    100.0 %       -     110.3
                   --------  -------   ------  -------   -------  --------

  Total revenues      582.5    100.0 %  110.3    100.0 %    (6.8)    686.0

Salaries and benefits
 (excludes stock
 compensation)        275.7     47.3 %    3.8      3.4 %       -     279.5
Supplies              106.9     18.4 %    0.2      0.2 %       -     107.1
Medical claims
 expense                  -      0.0 %   88.8     80.5 %    (6.8)     82.0
Provision for
 doubtful accounts     49.2      8.4 %      -      0.0 %       -      49.2
Other operating
 expenses              92.5     15.9 %    7.5      6.8 %       -     100.0
                   --------  -------   ------  -------   -------  --------
  Total operating
   expenses           524.3     90.0 %  100.3     90.9 %    (6.8)    617.8
                   --------  -------   ------  -------   -------  --------
  Segment EBITDA(2)    58.2     10.0 %   10.0      9.1 %       -      68.2

Less:
  Interest, net        35.4      6.1 %   (3.1)    (2.8)%       -      32.3
  Depreciation and
   amortization        31.5      5.4 %    1.2      1.1 %       -      32.7
  Minority interest     0.8      0.1 %      -      0.0 %       -       0.8
  Equity method
   loss                 0.7      0.1 %      -      0.0 %       -       0.7
  Stock
   compensation         0.5      0.1 %      -      0.0 %       -       0.5
  Loss on disposal
   of assets            0.1      0.1 %      -      0.0 %       -       0.1
  Monitoring fees
   and expenses         1.8      0.3 %      -      0.0 %       -       1.8
                   --------  -------   ------  -------   -------  --------
    Income (loss)
     from
     continuing
     operations
     before
     income taxes  $  (12.6)    (2.2)% $ 11.9     10.8 % $     -  $   (0.7)
                   ========  =======   ======  =======   =======  ========


(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 before interest expense (net of
    interest income), income taxes, depreciation and amortization, minority
    interests, equity method income or loss, stock compensation, gain or
    loss on disposal of assets, monitoring fees and expenses, realized
    holding loss on investments and discontinued operations. 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 December 31, 2008
                     -----------------------------------------------------
                      Acute
                       Care    % of    Health  % of     Elimina-  Consoli-
                     Services Revenues Plans  Revenues   tions     dated
                     -------  ------   ------ -------   --------  --------
Patient service
 revenues(1)         $ 622.2   100.0 % $    -     0.0 %   $ (7.8) $  614.4
Premium revenues           -     0.0 %  178.2   100.0 %        -     178.2
                     -------  ------   ------ -------   --------  --------
    Total revenues     622.2   100.0 %  178.2   100.0 %     (7.8)    792.6

Salaries and
 benefits (excludes
 stock compensation)   294.6    47.4 %    7.3     4.1 %        -     301.9
Supplies               112.7    18.1 %    0.1     0.0 %        -     112.8
Medical claims
 expense                   -     0.0 %  148.5    83.3 %     (7.8)    140.7
Provision for
 doubtful accounts      48.3     7.8 %      -     0.0 %        -      48.3
Other operating
 expenses              101.0    16.2 %    9.4     5.3 %        -     110.4
                     -------  ------   ------ -------   --------  --------
    Total operating
     expenses          556.6    89.5 %  165.3    92.7 %     (7.8)    714.1
                     -------  ------   ------ -------   --------  --------
    Segment EBITDA(2)   65.6    10.5 %   12.9     7.3 %        -      78.5

Less:
  Interest, net         28.9     4.7 %   (0.3)   (0.2)%        -      28.6
  Depreciation and
   amortization         31.1     5.0 %    1.0     0.6 %        -      32.1
  Minority interest      0.7     0.1 %      -     0.0 %        -       0.7
  Equity method
   income               (0.3)   (0.1)%      -     0.0 %        -      (0.3)
  Stock compensation     0.8     0.1 %      -     0.0 %        -       0.8
  Monitoring fees
   and expenses          1.3     0.2 %      -     0.0 %        -       1.3
                     -------  ------   ------ -------   --------  --------
    Income (loss)
     from continuing
     operations
     before income
     taxes           $   3.1     0.5 % $ 12.2     6.9 % $      -  $   15.3
                     =======  ======   ====== =======   ========  ========


(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 before interest expense (net of
    interest income), income taxes, depreciation and amortization,
    minority interests, equity method income or loss, stock compensation,
    gain or loss on disposal of assets, monitoring fees and expenses,
    realized holding loss on investments and discontinued operations.
    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)

                             Six Months Ended December 31, 2007
                  --------------------------------------------------------
                   Acute
                    Care     % of     Health   % of     Elimina-  Consoli-
                  Services  Revenues  Plans   Revenues   tions     dated
                  --------  ------    ------  ------    --------  --------
Patient service
 revenues(1)      $1,147.7   100.0 %  $    -     0.0 %   $ (15.2) $1,132.5
Premium revenues         -     0.0 %   216.0   100.0 %         -     216.0
                  --------  ------    ------  ------    --------  --------
    Total revenues 1,147.7   100.0 %   216.0   100.0 %     (15.2)  1,348.5

Salaries and
 benefits
 (excludes stock
 compensation)       545.0    47.5 %     7.7     3.6 %         -     552.7
Supplies             210.0    18.3 %     0.3     0.1 %         -     210.3
Medical claims
 expense                 -     0.0 %   173.2    80.2 %     (15.2)    158.0
Provision for
 doubtful
 accounts            103.1     9.0 %       -     0.0 %         -     103.1
Other operating
 expenses            184.5    16.1 %    14.9     6.9 %         -     199.4
                  --------  ------    ------  ------    --------  --------
    Total
     operating
     expenses      1,042.6    90.9 %   196.1    90.8 %     (15.2)  1,223.5
                  --------  ------    ------  ------    --------  --------
    Segment
     EBITDA(2)       105.1     9.1 %    19.9     9.2 %         -     125.0

Less:
  Interest, net       67.2     5.8 %    (3.2)   (1.5)%         -      64.0
  Depreciation
   and
   amortization       63.0     5.5 %     2.2     1.0 %         -      65.2
  Minority
   interest            1.7     0.1 %       -     0.0 %         -       1.7
  Equity method
   income             (0.2)   (0.1)%       -     0.0 %         -      (0.2)
  Stock
   compensation        1.0     0.1 %       -     0.0 %         -       1.0
  Loss on
   disposal of
   assets              0.2     0.1 %       -     0.0 %         -       0.2
  Monitoring fees
   and expenses        3.7     0.3 %       -     0.0 %         -       3.7
                  --------  ------    ------  ------    --------  --------

    Income (loss)
     From
     continuing
     operations
     before
     income taxes $  (31.5)   (2.7)%  $ 20.9     9.7 %  $      -  $  (10.6)
                  ========  ======    ======  ======    ========  ========


(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 before interest expense (net of
    interest income), income taxes, depreciation and amortization, minority
    interests, equity method income or loss, stock compensation, gain or
    loss on disposal of assets, monitoring fees and expenses, realized
    holding loss on investments and discontinued operations. 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)

                              Six Months Ended December 31, 2008
                     -----------------------------------------------------
                      Acute
                       Care     % of    Health  % of    Elimina-  Consolid-
                     Services  Revenues Plans  Revenues  nations   dated
                     --------  ------   ------ ------   --------  --------
Patient service
 revenues(1)         $1,230.0   100.0 % $    -    0.0 % $ (17.3)  $1,212.7
Premium revenues            -     0.0 %  298.9  100.0 %        -     298.9
                     --------  ------   ------ ------   --------  --------
    Total revenues    1,230.0   100.0 %  298.9  100.0 %    (17.3)  1,511.6

Salaries and
 benefits
 (excludes stock
 compensation)          578.6    47.0 %   14.5    4.8 %        -     593.1
Supplies                224.4    18.3 %    0.2    0.1 %        -     224.6
Medical claims
 expense                    -     0.0 %  245.0   82.0 %    (17.3)    227.7
Provision for
 doubtful accounts      102.9     8.4 %      -    0.0 %        -     102.9
Other operating
 expenses               204.3    16.6 %   17.3    5.8 %        -     221.6
                     --------  ------   ------ ------   --------  --------
    Total operating
     expenses         1,110.2    90.3 %  277.0   92.7 %    (17.3)  1,369.9
                     --------  ------   ------ ------   --------  --------
    Segment EBITDA(2)   119.8     9.7 %   21.9    7.3 %        -     141.7

Less:
  Interest, net          58.4     4.8 %   (1.1)  (0.4)%        -      57.3
  Depreciation and
   amortization          62.4     5.1 %    2.0    0.7 %        -      64.4
  Minority interest       1.6     0.1 %      -    0.0 %        -       1.6
  Equity method
   income                (0.3)   (0.1)%      -    0.0 %        -      (0.3)
  Stock compensation      2.2     0.2 %      -    0.0 %        -       2.2
  Gain on disposal
   of assets             (2.1)   (0.2)%      -    0.0 %        -      (2.1)
  Monitoring fees
   and expenses           2.6     0.1 %      -    0.0 %        -       2.6
  Realized holding
   loss on
   investments            0.6     0.1 %      -    0.0 %        -       0.6
                     --------  ------   ------ ------   --------  --------
    Income (loss)
     from
     continuing
     operations
     before income
     taxes           $   (5.6)   (0.4)% $ 21.0    7.0 % $      -  $   15.4
                     ========  ======   ====== ======   ========  ========


(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 before interest expense (net of
    interest income), income taxes, depreciation and amortization, minority
    interests, equity method income or loss, stock compensation, gain or
    loss on disposal of assets, monitoring fees and expenses, realized
    holding loss on investments and discontinued operations. 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
                                              December 31,
                                          --------------------
                                            2007       2008     % Change
                                          ---------  ---------  ---------
Number of hospitals at end of period             15         15
Licensed beds at end of period                4,143      4,135
Discharges                                   41,668     41,604       (0.2)%
Adjusted discharges-hospitals                66,688     67,377        1.0 %
Average length of stay                         4.32       4.23       (2.1)%
Patient days                                179,803    175,944       (2.1)%
Adjusted patient days-hospitals             287,766    284,937       (1.0)%
Patient revenue per adjusted
 discharge-hospitals                      $   8,074  $   8,626        6.8 %
Inpatient surgeries                           9,181      9,384        2.2 %
Outpatient surgeries                         18,085     19,026        5.2 %
Emergency room visits                       145,478    142,671       (1.9)%

Charity care as a percent of patient
 service revenues                               3.7%       3.7%

Provision for doubtful accounts as a
 percent of patient service revenues            8.5%       7.9%

Net patient revenue payer mix:
  Medicare                                     26.6%      25.9%
  Medicaid                                      8.0%       7.1%
  Managed Medicare                             13.9%      14.2%
  Managed Medicaid                              7.1%       8.9%
  Managed care                                 35.1%      35.3%
  Commercial                                    1.1%       0.9%
  Self pay                                      8.2%       7.7%
                                          ---------  ---------
    Total                                     100.0%     100.0%
                                          =========  =========




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

                                            Six months ended
                                              December 31,
                                          --------------------
                                            2007       2008     % Change
                                          ---------  ---------  ---------
Number of hospitals at end of period             15         15
Licensed beds at end of period                4,143      4,135
Discharges                                   83,333     83,885        0.7 %
Adjusted discharges-hospitals               133,451    136,044        1.9 %
Average length of stay                         4.30       4.22       (1.9)%
Patient days                                358,345    354,063       (1.2)%
Adjusted patient days-hospitals             573,859    574,216        0.1 %
Patient revenue per adjusted
 discharge-hospitals                      $   7,954  $   8,449        6.2 %
Inpatient surgeries                          18,401     18,862        2.5 %
Outpatient surgeries                         36,214     37,926        4.7 %
Emergency room visits                       290,221    289,853       (0.1)%

Charity care as a percent of patient
 service revenues                               3.4%       4.0%

Provision for doubtful accounts as a
 percent of patient service revenues            9.1%       8.5%

Net patient revenue payer mix:
  Medicare                                     25.9%      25.8%
  Medicaid                                      8.3%       7.3%
  Managed Medicare                             13.6%      13.8%
  Managed Medicaid                              7.5%       9.2%
  Managed care                                 34.5%      34.8%
  Commercial                                    1.2%       1.0%
  Self pay                                      9.0%       8.1%
                                          ---------  ---------
    Total                                     100.0%     100.0%
                                          =========  =========

Contact Information

  • Contact:
    Vanguard Health Systems, Inc.
    Aaron Broad
    Director Investor Relations
    (615) 665-6131