SOURCE: Vanguard Health Systems, Inc.

Vanguard Health Systems, Inc.

May 09, 2011 17:45 ET

Vanguard Reports Third Quarter Results

NASHVILLE, TN--(Marketwire - May 9, 2011) - Vanguard Health Systems, Inc. (Vanguard) today announced results for the third quarter ended March 31, 2011.

Total revenues for the quarter ended March 31, 2011 were $1,519.6 million, an increase of $661.5 million or 77.1% from the prior year quarter. Patient service revenues increased $659.0 million from the prior year quarter. These revenue increases were primarily due to the fiscal year 2011 acquisitions, including the acquisition of The Detroit Medical Center effective January 1, 2011. Same hospital patient service revenues increased $44.4 million or 6.9% during the current year quarter compared to the prior year quarter. Health plan premium revenues increased $2.5 million or 1.2% from the prior year quarter. The increase in same hospital patient service revenues was primarily attributable to a 4.0% increase in same hospital adjusted discharges and a 2.8% increase in same hospital patient revenue per adjusted discharge during the current year quarter compared to the prior year quarter.

Vanguard reported income from continuing operations of $6.8 million for the quarter ended March 31, 2011 compared to a loss from continuing operations of $31.9 million during the prior year quarter. During the current year quarter, net income attributable to Vanguard Health Systems, Inc. stockholders was $2.8 million compared to a loss of $32.8 million during the prior year quarter. The prior year quarter amount included $73.2 million of debt extinguishment costs resulting from our comprehensive debt refinancing in January 2010. Several individual cost and expense line items were significantly impacted by the fiscal year 2011 acquisitions. Salaries and benefits as a percentage of total revenues increased to 42.8% during the current year quarter compared to 38.1% during the prior year quarter. On a same hospital basis, salaries and benefits as a percentage of total revenues was slightly lower during the current year quarter compared to the prior year quarter. Purchased services as a percentage of total revenues increased to 8.2% during the current year quarter from 5.2% during the prior year quarter, of which 210 basis points of the increase related to the fiscal year 2011 acquisitions. The provision for doubtful accounts as a percentage of acute care services segment revenues (prior to charity and uninsured discounts) increased to 7.8% during the current year quarter compared to 5.5% during the prior year quarter. On a same hospital basis, the provision for doubtful accounts as a percentage of acute care services segment revenues (prior to charity and uninsured discounts) was 6.9% during the current year quarter. On a same hospital basis, total uncompensated care as a percentage of acute care services segment revenues (prior to charity and uninsured revenue deductions) was 17.6% during the current year quarter compared to 15.0% during the prior year quarter. Same hospital self-pay patient days were up only slightly compared to the prior year quarter, but increased pricing and higher levels of patient deductibles and co-insurance continue to make collecting patient receivables more difficult. Impairment and restructuring charges were $5.1 million during the current year quarter, which represent severance and benefit costs associated with a re-alignment of certain of our corporate functions to a regional market basis. Acquisition related expenses were $6.9 million during the current year quarter, which represent $4.8 million of real estate transfer taxes associated with the DMC acquisition effective January 1, 2011 and other expenses incurred to complete our fiscal year 2011 acquisitions.

Adjusted EBITDA for the quarter ended March 31, 2011 was $128.6 million, a 42.1% increase compared to the prior year quarter. A reconciliation of Adjusted EBITDA to net income (loss) attributable to Vanguard Health Systems, Inc. stockholders as determined in accordance with generally accepted accounting principles for the quarters ended March 31, 2010 and 2011 is included in the attached supplemental financial information.

The consolidated operating results for the quarter ended March 31, 2011 reflect a 58.4% increase in discharges and a 62.9% increase in adjusted discharges compared to the prior year quarter. On a same hospital basis, discharges increased 1.6% and adjusted discharges increased 4.0% during the current year quarter compared to the prior year quarter. During the current year quarter, same hospital emergency room visits increased 13.1%, while same hospital inpatient surgeries and outpatient surgeries decreased 1.7% and 4.1%, respectively, compared to the prior year quarter. We continue to be impacted by weak consumer demand for elective surgeries and also have experienced continuing declines in same hospital deliveries during the current year quarter compared to the prior year quarter.

Total revenues for the nine months ended March 31, 2011 were $3,394.1 million, an increase of $875.6 million or 34.8% from the prior year period. Patient service revenues increased $857.3 million from the prior year period. Total revenues and patient service revenues were positively impacted by the previously mentioned fiscal year 2011 acquisitions. Health plan premium revenues increased $18.3 million or 2.9% from the prior year period. Our Phoenix Health Plan had higher enrollment during the current year period compared to the prior year period. Same hospital patient service revenues increased $101.4 million or 5.4% during the current year period compared to the prior year period primarily due to a 3.0% increase in same hospital adjusted discharges and a 2.3% increase in same hospital patient revenue per adjusted discharge.

Vanguard reported income from continuing operations of $7.0 million for the nine months ended March 31, 2011 compared to a $48.0 million loss from continuing operations during the prior year period. During the nine months ended March 31, 2011, net loss attributable to Vanguard Health Systems, Inc. stockholders was $1.0 million compared to $52.0 million during the prior year period.

Adjusted EBITDA for the nine months ended March 31, 2011 was $292.7 million, a 20.1% increase compared to the prior year period. A reconciliation of Adjusted EBITDA to net income (loss) attributable to Vanguard Health Systems, Inc. stockholders as determined in accordance with generally accepted accounting principles for the nine months ended March 31, 2010 and 2011 is included in the attached supplemental financial information.

The consolidated operating results for the nine months ended March 31, 2011 reflect a 25.8% increase in discharges and a 28.9% increase in adjusted discharges compared to the prior year period. On a same hospital basis, discharges increased 0.5% and adjusted discharges increased 3.0% during the current year period compared to the prior year period. During the current year period, same hospital emergency room visits increased 6.5%, while same hospital inpatient surgeries and outpatient surgeries decreased 4.6% and 5.2%, respectively, compared to the prior year period.

Cash flows from operating activities were $210.0 million for the nine months ended March 31, 2011, a decrease of $8.7 million from the prior year period. This decrease was primarily due to a $57.1 million increase in net cash paid for interest and income taxes during the current year period compared to the prior year period. Cash interest payments were higher as a result of Vanguard's comprehensive refinancing completed in January 2010 and the additional senior notes issued in July 2010.

Vanguard will host a conference call for investors at 11:00 am EDT on May 10, 2011. 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 "Third Quarter Webcast" or at http://visualwebcaster.com/event.asp?id=78448. 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 26 acute care and specialty hospitals and complementary facilities and services in Chicago, Illinois; Phoenix, Arizona; San Antonio, Texas; Detroit, Michigan 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 or to increase its presence in existing 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 Vanguard serves.

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. Forward-looking statements are those statements that are based upon management's current plans and expectations as opposed to historical and current facts and are often identified in this release by use of words including but not limited to "may," "believe," "will," "project," "expect," "estimate," "anticipate," and "plan." These statements are based upon estimates and assumptions made by Vanguard's management that, although believed to be reasonable, are subject to numerous factors, risks and uncertainties that could cause actual outcomes and results 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 generate cash necessary to service Vanguard's debt; weakened economic conditions and volatile capital markets; post-payment claims reviews by governmental agencies; Vanguard's ability to successfully implement Vanguard's business strategies; Vanguard's ability to successfully integrate the acquisition of substantially all of the assets of The Detroit Medical Center, Westlake Hospital and West Suburban Medical Center and 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 industry; governmental regulation of the industry, including Medicare and Medicaid reimbursement levels; pressures to contain costs by managed care organizations and other insurers and Vanguard's ability to negotiate acceptable terms with these third party payers; Vanguard's ability to attract and retain qualified management and healthcare professionals, including physicians and nurses; potential federal or state reform of healthcare, implementation of existing reform legislation and potential modifications to such legislation; future governmental investigations; Vanguard's ability to adequately enhance its facilities with technologically advanced equipment; the availability of capital to fund Vanguard's corporate growth strategy; potential lawsuits or other claims asserted against Vanguard; Vanguard's ability to maintain or increase patient membership and control costs of its managed healthcare plans; changes in general economic conditions; 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; dependence on Vanguard's senior management team and local management personnel; volatility of professional and general liability insurance for Vanguard and the physicians who practice at its hospitals and increases in the quantity and severity of professional liability claims; Vanguard's ability to maintain and increase patient volumes and control the costs of providing services, including salaries and benefits, supplies and bad debts; increased costs from further government regulation of healthcare and Vanguard's failure to comply, or allegations of Vanguard's failure to comply, with applicable laws and regulations; the geographic concentration of Vanguard's operations; technological and pharmaceutical improvements that increase the cost of providing, or reduce the demand for, healthcare services and shift demand for inpatient services to outpatient settings; a failure of Vanguard's information systems would adversely impact its ability to manage its operations; costs and compliance risks associated with Section 404 of the Sarbanes-Oxley Act of 2002; material non-cash charges to earnings from impairment of goodwill associated with declines in the fair market values of Vanguard's reporting units; volatility of materials and labor costs for potential construction projects that may be necessary for future growth; 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)


                                              Quarter ended March 31,
                                        ----------------------------------
                                              2010              2011
                                        --------------   -----------------

Patient service revenues                $ 646.7   75.4%  $ 1,305.7    85.9%
Premium revenues                          211.4   24.6       213.9    14.1
                                        -------  -----   ---------  ------
  Total revenues                          858.1  100.0     1,519.6   100.0
Costs and expenses:
  Salaries and benefits (includes stock
   compensation of $0.6 and $0.7,
   respectively)                          327.0   38.1       650.9    42.8
  Health plan claims expense              168.1   19.6       169.1    11.1
  Supplies                                114.0   13.3       207.8    13.7
  Provision for doubtful accounts          40.8    4.7       111.1     7.3
  Purchased services                       44.5    5.2       124.4     8.2
  Non-income taxes                         13.9    1.6        30.9     2.0
  Rents and leases                         10.9    1.3        15.2     1.0
  Other operating expenses                 49.0    5.7        82.3     5.4
  Depreciation and amortization            34.3    4.0        55.8     3.7
  Interest, net                            29.9    3.5        48.0     3.2
  Acquisition related expenses                -      -         6.9     0.4
  Debt extinguishment costs                73.2    8.5           -       -
  Impairment and restructuring charges        -      -         5.1     0.3
  Other                                     0.9    0.1         0.9     0.1
                                        -------  -----   ---------  ------
    Total costs and expenses              906.5  105.6     1,508.4    99.3
Income (loss) from continuing
 Operations before income taxes           (48.4)  (5.6)       11.2     0.7
Income tax benefit (expense)               16.5    1.9        (4.4)   (0.3)
                                        -------  -----   ---------  ------
Income (loss) from continuing
 operations                               (31.9)  (3.7)        6.8     0.4
Loss from discontinued operations, net
 of taxes                                  (0.5)  (0.1)       (3.2)   (0.2)
                                        -------  -----   ---------  ------
Net income (loss)                         (32.4)  (3.8)        3.6     0.2
Less: Net loss attributable to
 non-controlling interests                 (0.4)     -        (0.8)      -
                                        -------  -----   ---------  ------
Net income (loss) attributable to
 Vanguard Health Systems, Inc.
 stockholders                           $ (32.8)  (3.8)% $     2.8     0.2%
                                        =======  =====   =========  ======






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


                                          Nine months ended March 31,
                                      ------------------------------------
                                            2010               2011
                                      ----------------   -----------------

Patient service revenues              $ 1,890.5   75.1%  $ 2,747.8    81.0%
Premium revenues                          628.0   24.9       646.3    19.0
                                      ---------  -----   ---------  ------

  Total revenues                        2,518.5  100.0     3,394.1   100.0
Costs and expenses:
  Salaries and benefits (includes
   stock compensation of $3.5 and
   $3.6, respectively)                    962.6   38.2     1,381.2    40.7
  Health plan claims expense              499.9   19.8       508.0    15.0
  Supplies                                339.4   13.5       462.3    13.6
  Provision for doubtful accounts         113.0    4.5       214.1     6.3
  Purchased services                      135.0    5.4       237.9     7.0
  Non-income taxes                         38.8    1.6        64.1     1.9
  Rents and leases                         32.8    1.3        37.9     1.1
  Other operating expenses                156.8    6.2       199.5     5.9
  Depreciation and amortization           101.9    4.0       131.6     3.9
  Interest, net                            84.7    3.4       117.9     3.5
  Acquisition related expenses                -      -        11.9     0.3
  Debt extinguishment costs                73.2    2.9           -       -
  Impairment and restructuring
   charges                                 43.1    1.7         6.0     0.2
  Other                                     3.5    0.1         3.0     0.1
                                      ---------  -----   ---------  ------

    Total costs and expenses            2,584.7  102.6     3,375.4    99.5
                                      ---------  -----   ---------  ------
Income (loss) from continuing
 Operations before income taxes           (66.2)  (2.6)       18.7     0.5
Income tax benefit (expense)               18.2    0.7       (11.7)   (0.3)
                                      ---------  -----   ---------  ------
Income (loss) from continuing
 operations                               (48.0)  (1.9)        7.0     0.2
Loss from discontinued operations,
 net of taxes                              (1.9)  (0.1)       (5.4)   (0.1)
                                      ---------  -----   ---------  ------
Net income (loss)                         (49.9)  (2.0)        1.6     0.1
Less: Net income attributable to
 non-controlling interests                 (2.1)  (0.1)       (2.6)   (0.1)
                                      ---------  -----   ---------  ------
Net loss attributable to Vanguard
 Health Systems, Inc. stockholders    $   (52.0)  (2.1)% $    (1.0)      -%
                                      =========  =====   =========  ======





                      Vanguard Health Systems, Inc.
              Supplemental Financial Information (Unaudited)
          Reconciliation of Adjusted EBITDA to Net Income (Loss)
        Attributable to Vanguard Health Systems, Inc. Stockholders
                              (In millions)

                                        Quarter ended   Nine months ended
                                          March 31,         March 31,
                                      ----------------  ------------------
                                        2010     2011     2010      2011
                                      -------  -------  --------  --------
Net income (loss) attributable to
 Vanguard Health Systems, Inc.
 stockholders                         $ (32.8) $   2.8  $  (52.0) $   (1.0)
Interest, net                            29.9     48.0      84.7     117.9
Income tax expense (benefit)            (16.5)     4.4     (18.2)     11.7
Depreciation and amortization            34.3     55.8     101.9     131.6
Non-controlling interests                 0.4      0.8       2.1       2.6
Loss on disposal of assets                  -      0.8       0.4       0.9
Equity method income                     (0.3)       -      (0.8)     (0.6)
Stock compensation                        0.6      0.7       3.5       3.6
Monitoring fees and expenses              1.2      1.2       3.9       3.7
Realized losses on investments              -        -         -       0.1
Acquisition related expenses                -      6.9         -      11.9
Debt extinguishment costs                73.2        -      73.2         -
Impairment and restructuring charges        -      5.1      43.1       6.0
Pension credits                             -     (1.1)        -      (1.1)
Discontinued operations, net of taxes     0.5      3.2       1.9       5.4
                                      -------  -------  --------  --------
    Adjusted EBITDA (1)               $  90.5  $ 128.6  $  243.7  $  292.7
                                      =======  =======  ========  ========


(1) Adjusted EBITDA is defined as income (loss) before interest expense
    (net of interest income), income taxes, depreciation and amortization,
    non-controlling interests, gain or loss on disposal of assets, equity
    method income, stock compensation, monitoring fees and expenses,
    realized gains or losses on investments, acquisition related expenses,
    debt extinguishment costs, impairment and restructuring charges,
    pension expense (credits) and discontinued operations, net of taxes.
    Adjusted EBITDA is not intended as a substitute for net income
    (loss) attributable to Vanguard Health Systems, Inc. stockholders,
    operating cash flows or other cash flow 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,   March 31,
                     ASSETS                            2010        2011
                                                    ----------  ----------
Current assets:
 Cash and cash equivalents                          $    257.6  $    502.6
 Restricted cash                                           2.3         2.3
 Accounts receivable, net of allowance for doubtful
  accounts of approximately $75.6 and $165.0,
  respectively                                           270.4       517.0
 Inventories                                              49.6        83.8
 Deferred tax assets                                      21.9        18.3
 Prepaid expenses and other current assets               119.2       164.6
                                                    ----------  ----------
    Total current assets                                 721.0     1,288.6
Property, plant and equipment, net of accumulated
 depreciation                                          1,203.8     1,795.9
Goodwill                                                 649.1       786.9
Intangible assets, net of accumulated amortization        66.0        96.2
Deferred tax assets, noncurrent                           50.0        48.1
Investments in securities                                 19.8        81.6
Other assets                                              19.9        64.9
                                                    ----------  ----------
    Total assets                                    $  2,729.6  $  4,162.2
                                                    ==========  ==========

         LIABILITIES AND  EQUITY (DEFICIT)
Current liabilities:
 Accounts payable                                   $    194.8  $    313.8
 Accrued salaries and benefits                           144.9       243.4
 Accrued health plan claims and settlements              149.8       168.3
 Accrued interest                                         41.4        32.0
 Other accrued expenses and current liabilities           76.9       161.6
 Current maturities of long-term debt and capital
  leases                                                   8.2        13.0
                                                    ----------  ----------
    Total current liabilities                            616.0       932.1
Professional and general liability and workers
 compensation reserves                                    83.6       320.3
Pension benefit obligation, less current portion             -       202.8
Other liabilities                                         31.6       127.5
Long-term debt and capital leases, less current
 maturities                                            1,743.8     2,766.1
Commitments and contingencies
Equity (deficit):
  Vanguard Health Systems, Inc. stockholders'
   equity (deficit):
   Common stock                                              -           -
   Additional paid-in capital (distributions in
    excess of paid-in capital)                           354.9       (88.5)
   Accumulated other comprehensive income (loss)          (2.5)        0.9
   Retained deficit                                     (105.9)     (106.9)
                                                    ----------  ----------
    Total Vanguard Health Systems, Inc.
     stockholders' equity (deficit)                      246.5      (194.5)
  Non-controlling interests                                8.1         7.9
                                                    ----------  ----------
    Total equity (deficit)                               254.6      (186.6)
                                                    ----------  ----------
    Total liabilities and equity                    $  2,729.6  $  4,162.2
                                                    ==========  ==========





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

                                                        Nine months ended
                                                            March 31,
                                                        ------------------
Operating activities:                                     2010      2011
                                                        --------  --------
Net income (loss)                                       $  (49.9) $    1.6
Adjustments to reconcile net income (loss) to net cash
 provided by operating activities:
  Loss from discontinued operations                          1.9       5.4
  Depreciation and amortization                            101.9     131.6
  Provision for doubtful accounts                          113.0     214.1
  Amortization of loan costs and accretion of principal
   on notes                                                 10.2      14.9
  Loss on disposal of assets                                 0.4       0.9
  Debt extinguishment costs                                 73.2         -
  Stock compensation                                         3.5       3.6
  Deferred income taxes                                    (20.0)      6.5
  Acquisition related expenses                                 -      11.9
  Impairment loss                                           43.1       0.9
  Realized loss on investments                                 -       0.1
  Changes in operating assets and liabilities, net of
   the impact of acquisitions:
   Accounts receivable                                    (132.5)   (326.2)
   Inventories                                              (0.9)     (1.3)
   Prepaid expenses and other current assets               (12.8)     39.2
   Accounts payable and other current liabilities           89.5     112.2
                                                        --------  --------
Net cash provided by operating activities - continuing
 operations                                                220.6     215.4
Net cash used in operating activities - discontinued
 operations                                                 (1.9)     (5.4)
                                                        --------  --------
Net cash provided by operating activities                  218.7     210.0

Investing activities:
Acquisitions and related expenses                           (1.5)   (463.9)
Capital expenditures                                      (111.1)   (139.1)
Proceeds from asset dispositions                             1.5       1.6
Net proceeds from sales of investments in securities           -     110.9
Other                                                       (0.3)     (3.7)
                                                        --------  --------
Net cash used in investing activities                     (111.4)   (494.2)

Financing activities:
Payments of long-term debt and capital leases           (1,557.4)     (6.6)
Proceeds from debt borrowings                            1,751.3   1,011.2
Payments of refinancing costs and fees                     (90.1)    (25.7)
Dividends paid to equity holders                               -    (447.2)
Repurchases of stock                                      (300.6)        -
Distributions paid to non-controlling interests and
 other                                                      (8.4)     (2.5)
                                                        --------  --------
Net cash provided by (used in) financing activities       (205.2)    529.2
                                                        --------  --------
Net increase (decrease) in cash and cash equivalents       (97.9)    245.0
Cash and cash equivalents, beginning of year               308.2     257.6
                                                        --------  --------
Cash and cash equivalents, end of year                  $  210.3  $  502.6
                                                        ========  ========

Net cash paid for interest                              $   72.7  $  116.1
                                                        ========  ========
Net cash paid (received) for income taxes               $  (13.2) $    0.5
                                                        ========  ========






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

                                   Quarter ended March 31, 2010
                       ---------------------------------------------------
                        Acute
                         Care    % of    Health   % of    Elimina- Consol-
                      Services Revenues   Plans  Revenues  tions   idated
                       -------  ------   ------  -------  -------  -------
Patient service
 revenues(1)           $ 657.4   100.0%  $    -        -% $ (10.7) $ 646.7
Premium revenues             -       -    211.4    100.0        -    211.4
                       -------  ------   ------  -------  -------  -------
  Total revenues         657.4   100.0    211.4    100.0    (10.7)   858.1

Salaries and benefits
 (excludes stock
 compensation)           318.0    48.4      8.4      4.0        -    326.4
Health plan claims
 expense(1)                  -       -    178.8     84.6    (10.7)   168.1
Supplies                 114.0    17.3        -        -        -    114.0
Provision for doubtful
 accounts                 40.8     6.2        -        -        -     40.8
Other operating
 expenses                109.0    16.6      9.3      4.4        -    118.3
                       -------  ------   ------  -------  -------  -------
  Total operating
   expenses              581.8    88.5    196.5     93.0    (10.7)   767.6
                       -------  ------   ------  -------  -------  -------
  Segment EBITDA(2)       75.6    11.5     14.9      7.0        -     90.5
Less:
 Interest, net            30.1     4.6     (0.2)    (0.0)       -     29.9
 Depreciation and
  amortization            33.2     5.0      1.1      0.5        -     34.3
 Equity method income     (0.3)   (0.0)       -        -        -     (0.3)
 Stock compensation        0.6     0.1        -        -        -      0.6
 Monitoring fees and
  expenses                 1.2     0.2        -        -        -      1.2
 Debt extinguishment
  costs                   73.2    11.1        -        -        -     73.2
                       -------  ------   ------  -------  -------  -------
Income (loss) from
 continuing operations
 before income taxes   $ (62.4)   (9.5)% $ 14.0      6.6% $     -  $ (48.4)
                       =======  ======   ======  =======  =======  =======


(1) Vanguard eliminates in consolidation those patient service revenues
    earned by its healthcare facilities attributable to services provided
    to enrollees in its owned health plans and eliminates the corresponding
    medical claims expenses incurred by the 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, realized gains or
    losses on investments, monitoring fees and expenses, acquisition
    related expenses, debt extinguishment costs, impairment and
    restructuring charges and pension expense (credits). Management uses
    Segment EBITDA to measure performance for Vanguard's segments and
    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 which 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 assessing the value of Vanguard. Segment
    EBITDA is not 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. Segment
    EBITDA, as presented, may not be comparable to similar measures of
    other companies.





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


                                  Quarter ended March 31, 2011
                      ----------------------------------------------------
                        Acute
                         Care    % of    Health   % of   Elimina-  Consol-
                      Services Revenues  Plans  Revenues  tions    idated
                      --------  ------  ------- -------  -------  --------
Patient service
 revenues(1)          $1,317.1   100.0% $     -       -% $ (11.4) $1,305.7
Premium revenues             -       -    213.9   100.0        -     213.9
                      --------  ------  ------- -------  -------  --------
  Total revenues       1,317.1   100.0    213.9   100.0    (11.4)  1,519.6

Salaries and benefits
 (excludes stock
 compensation)           641.6    48.7      8.6     3.9        -     650.2
Health plan claims
 expense(1)                  -       -    180.5    84.4    (11.4)    169.1
Supplies                 207.8    15.8        -       -        -     207.8
Provision for
 doubtful accounts       111.1     8.4        -       -        -     111.1
Other operating
 expenses                242.6    18.4     10.2     4.8        -     252.8
                      --------  ------  ------- -------  -------  --------
  Total operating
   expenses            1,203.1    91.3    199.3    93.2    (11.4)  1,391.0
                      --------  ------  ------- -------  -------  --------
  Segment EBITDA(2)      114.0     8.7     14.6     6.8        -     128.6
Less:
 Interest, net            47.8     3.6      0.2     0.1        -      48.0
 Depreciation and
  amortization            54.7     4.2      1.1     0.5        -      55.8
 Stock compensation        0.7     0.1        -       -        -       0.7
 Loss on disposal of
  assets                   0.8     0.1        -       -        -       0.8
 Monitoring fees and
  expenses                 1.2     0.1        -       -        -       1.2
 Acquisition related
  expenses                 6.9     0.5        -       -        -       6.9
 Impairment and
  restructuring
  charges                  5.1     0.4        -       -        -       5.1
 Pension credits          (1.1)   (0.1)       -       -        -      (1.1)
                      --------  ------  ------- -------  -------  --------
Income (loss) from
 continuing operations
 before income taxes  $   (2.1)    0.1% $  13.3     6.2% $     -  $   11.2
                      ========  ======  ======= =======  =======  ========



(1) Vanguard eliminates in consolidation those patient service revenues
    earned by its healthcare facilities attributable to services provided
    to enrollees in its owned health plans and eliminates the corresponding
    medical claims expenses incurred by the 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, realized gains or
    losses on investments, monitoring fees and expenses, acquisition
    related expenses, debt extinguishment costs, impairment and
    restructuring charges and pension expense (credits). Management uses
    Segment EBITDA to measure performance for Vanguard's segments and
    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 which 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 assessing the value of Vanguard. Segment
    EBITDA is not 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. Segment
    EBITDA, as presented, may not be comparable to similar measures of
    other companies.







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

                               Nine months ended March 31, 2010
                     -----------------------------------------------------
                       Acute
                       Care    % of     Health   % of    Elimina-  Consol-
                     Services Revenues  Plans  Revenues   tions    idated
                     --------  ------   ------  -------  -------  --------
Patient service
 revenues(1)         $1,922.2   100.0 % $    -        -% $ (31.7) $1,890.5
Premium revenues            -       -    628.0    100.0        -     628.0
                     --------  ------   ------  -------  -------  --------
  Total revenues      1,922.2   100.0    628.0    100.0    (31.7)  2,518.5

Salaries and
 benefits
(excludes stock
compensation)           933.9    48.6     25.2      4.0        -     959.1
Health plan claims
 expense(1)                 -       -    531.6     84.7    (31.7)    499.9
Supplies                339.3    17.6      0.1        -        -     339.4
Provision for
 doubtful accounts      113.0     5.9        -        -        -     113.0
Other operating
 expenses               336.2    17.5     27.2      4.3        -     363.4
                     --------  ------   ------  -------  -------  --------
  Total operating
   expenses           1,722.4    89.6    584.1     93.0    (31.7)  2,274.8
                     --------  ------   ------  -------  -------  --------
  Segment EBITDA(2)     199.8    10.4     43.9      7.0        -     243.7
Less:
 Interest, net           85.3     4.4     (0.6)    (0.1)       -      84.7
 Depreciation and
  amortization           98.6     5.1      3.3      0.5        -     101.9
 Equity method income    (0.8)      -        -        -        -      (0.8)
 Stock compensation       3.5     0.2        -        -        -       3.5
 Loss on disposal of
  assets                  0.4       -        -        -        -       0.4
 Monitoring fees and
  expenses                3.9     0.2        -        -        -       3.9
 Debt extinguishment
  costs                  73.2     3.8        -        -        -      73.2
 Impairment and
  restructuring
  charges                43.1     2.3        -        -        -      43.1
                     --------  ------   ------  -------  -------  --------
Income (loss) from
 continuing
 operations
 before income taxes $ (107.4)   (5.6)% $ 41.2      6.6% $     -  $  (66.2)
                     ========  ======   ======  =======  =======  ========



(1) Vanguard eliminates in consolidation those patient service revenues
    earned by its healthcare facilities attributable to services provided
    to enrollees in its owned health plans and eliminates the corresponding
    medical claims expenses incurred by the 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, realized gains or
    losses on investments, monitoring fees and expenses, acquisition
    related expenses, debt extinguishment costs, impairment and
    restructuring charges and pension expense (credits). Management uses
    Segment EBITDA to measure performance for Vanguard's segments and
    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 which 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 assessing the value of Vanguard. Segment
    EBITDA is not 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. Segment
    EBITDA, as presented, may not be comparable to similar measures of
    other companies.





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

                               Nine months ended March 31, 2011
                     -----------------------------------------------------
                       Acute
                       Care    % of     Health   % of    Elimina-  Consol-
                     Services Revenues  Plans  Revenues   tions    idated
                     --------  ------   ------  -------  -------  --------
Patient service
 revenues(1)         $2,781.0   100.0%  $    -        -% $ (33.2) $2,747.8
Premium revenues            -       -    646.3    100.0        -     646.3
                     --------  ------   ------  -------  -------  --------
  Total revenues      2,781.0   100.0    646.3    100.0    (33.2)  3,394.1

Salaries and
 benefits
(excludes stock
compensation)         1,352.5    48.6     25.1      3.9        -   1,377.6
Health plan claims
 expense(1)                 -       -    541.2     83.7    (33.2)    508.0
Supplies                462.2    16.6      0.1        -        -     462.3
Provision for
 doubtful accounts      214.1     7.7        -        -        -     214.1
Other operating
 expenses               508.5    18.3     30.9      4.8        -     539.4
                     --------  ------   ------  -------  -------  --------
  Total operating
   expenses           2,537.3    91.2    597.3     92.4    (33.2)  3,101.4
                     --------  ------   ------  -------  -------  --------
  Segment EBITDA(2)     243.7     8.8     49.0      7.6        -     292.7
Less:
 Interest, net          118.9     4.3     (1.0)    (0.1)       -     117.9
 Depreciation and
  amortization          128.3     4.6      3.3      0.5        -     131.6
 Equity method income    (0.6)      -        -        -        -      (0.6)
 Stock compensation       3.6     0.1        -        -        -       3.6
 Loss on disposal of
  assets                  0.9       -        -        -        -       0.9
 Monitoring fees and
  expenses                3.7     0.1        -        -        -       3.7
 Realized loss on
  investments             0.1       -        -        -        -       0.1
 Acquisition related
  expenses               11.9     0.4        -        -        -      11.9
 Impairment and
  restructuring
  charges                 6.0     0.3        -        -        -       6.0
Pension credits          (1.1)      -        -        -        -      (1.1)
                     --------  ------   ------  -------  -------  --------
Income (loss) from
 continuing
 operations
 before income taxes $  (28.0)   (1.0)% $ 46.7      7.2% $     -  $   18.7
                     ========  ======   ======  =======  =======  ========

(1) Vanguard eliminates in consolidation those patient service revenues
    earned by its healthcare facilities attributable to services provided
    to enrollees in its owned health plans and eliminates the corresponding
    medical claims expenses incurred by the 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, realized gains or
    losses on investments, monitoring fees and expenses, acquisition
    related expenses, debt extinguishment costs, impairment and
    restructuring charges and pension expense (credits). Management uses
    Segment EBITDA to measure performance for Vanguard's segments and
    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 which 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 assessing the value of Vanguard. Segment
    EBITDA is not 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. Segment
    EBITDA, as presented, may not be comparable to similar measures of
    other companies.





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


                                               Quarter ended
CONSOLIDATED:                                     March 31,
                                            --------------------
                                               2010       2011    % Change
                                            ---------  ---------  --------
Number of hospitals at end of period               15         26
Licensed beds at end of period                  4,135      6,280
Discharges                                     42,293     66,990      58.4%
Adjusted discharges                            73,419    119,573      62.9
Adjusted discharges - hospitals                69,646    111,692      60.4
Average length of stay                           4.27       4.60       7.7
Patient days                                  180,672    308,183      70.6
Adjusted patient days                         313,638    550,086      75.4
Adjusted patient days - hospitals             297,522    513,833      72.7
Patient revenue per adjusted discharge      $   8,624  $  10,507      21.8
Patient revenue per adjusted discharge -
 hospitals                                  $   8,737  $  10,733      22.8
Inpatient surgeries                             9,188     15,181      65.2
Outpatient surgeries                           18,425     28,932      57.0
Emergency room visits                         154,987    291,722      88.2%

Charity care and uninsured discounts as a
 percent of acute care segment revenues
 (prior to these discounts)                       9.5%       7.7%

Provision for doubtful accounts as a
 percent of acute care services segment
 revenues (prior to charity and uninsured
 discounts)                                       5.5%       7.8%

Net patient revenue payer mix:
  Medicare                                       26.2%      25.5%
  Medicaid                                        7.5       15.2
  Managed Medicare                               14.9        9.9
  Managed Medicaid                                9.2        9.4
  Managed care                                   34.6       30.3
  Commercial                                      1.1        0.7
  Self-pay                                        6.5        9.0
                                            ---------  ---------
     Total                                      100.0%     100.0%
                                            =========  =========

Discharges by payer:
  Medicare                                       28.3%      29.2%
  Medicaid                                        8.7       10.1
  Managed Medicare                               16.7       13.6
  Managed Medicaid                               15.1       18.0
  Managed care                                   26.2       22.8
  Commercial                                      0.4        0.5
  Self-pay                                        4.6        5.8
                                            ---------  ---------
     Total                                      100.0%     100.0%
                                            =========  =========





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


                                             Nine Months Ended
CONSOLIDATED:                                    March 31,
                                           ---------------------
                                             2010        2011     % Change
                                           ---------  ----------  --------
Number of hospitals at end of period              15          26
Licensed beds at end of period                 4,135       6,280
Discharges                                   126,211     158,770      25.8%
Adjusted discharges                          220,063     283,739      28.9
Adjusted discharges - hospitals              208,763     267,584      28.2
Average length of stay                          4.19        4.35       3.8
Patient days                                 528,877     690,560      30.6
Adjusted patient days                        922,157   1,234,103      33.8
Adjusted patient days - hospitals            874,803   1,163,840      33.0
Patient revenue per adjusted discharge     $   8,410  $    9,392      11.7
Patient revenue per adjusted discharge -
 hospitals                                 $   8,502  $    9,172       7.9
Inpatient surgeries                           28,076      34,764      23.8
Outpatient surgeries                          56,885      67,823      19.2
Emergency room visits                        465,714     643,085      38.1%

Charity care and uninsured discounts as a
 percent of acute care segment revenues
 (prior to these discounts)                     10.5%        9.3%

Provision for doubtful accounts as a
 percent of acute care services segment
 revenues (prior to charity and uninsured
 discounts)                                      5.2%        7.0%

Net patient revenue payer mix:
  Medicare                                      25.6%       25.6%
  Medicaid                                       7.3        11.4
  Managed Medicare                              14.9        12.3
  Managed Medicaid                               9.6         9.2
  Managed care                                  34.8        32.2
  Commercial                                     1.1         0.9
  Self-pay                                       6.7         8.4
                                           ---------  ----------
     Total                                     100.0%      100.0%
                                           =========  ==========

Discharges by payer:
  Medicare                                      27.5%       28.5%
  Medicaid                                       8.7        10.3
  Managed Medicare                              16.3        14.8
  Managed Medicaid                              15.3        16.1
  Managed care                                  26.9        24.2
  Commercial                                     0.4         0.5
  Self-pay                                       4.9         5.6
                                           ---------  ----------
     Total                                     100.0%      100.0%
                                           =========  ==========





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


                                               Quarter ended
SAME HOSPITAL (1):                                March 31,
                                            --------------------
                                              2010       2011     % Change
                                            ---------  ---------  --------
Number of hospitals at end of period               15         15
Licensed beds at end of period                  4,135      4,029
Patient service revenues (in millions)      $   646.7  $   691.1       6.9%
Discharges                                     42,293     42,979       1.6
Adjusted discharges                            73,419     76,335       4.0
Adjusted discharges - hospitals                69,646     72,092       3.5
Average length of stay                           4.27       4.27       0.0
Patient days                                  180,672    183,721       1.7
Adjusted patient days                         313,638    326,309       4.0
Adjusted patient days - hospitals             297,522    308,168       3.6
Patient revenue per adjusted discharge      $   8,624  $   8,863       2.8
Patient revenue per adjusted discharge -
 hospitals                                  $   8,737  $   8,813       0.9
Inpatient surgeries                             9,188      9,034      (1.7)
Outpatient surgeries                           18,425     17,675      (4.1)
Emergency room visits                         154,987    175,274      13.1%

Charity care and uninsured discounts as a
 percent of acute care services segment
 revenues (prior to these discounts)              9.5%      10.7%

Provision for doubtful accounts as a
 percent of acute care services segment
 revenues (prior to charity and uninsured
 discounts)                                       5.5%       6.9%

Net patient revenue payer mix:
  Medicare                                       26.2%      23.9%
  Medicaid                                        7.5        8.5
  Managed Medicare                               14.9       15.5
  Managed Medicaid                                9.2        9.3
  Managed care                                   34.6       33.3
  Commercial                                      1.1        1.3
  Self-pay                                        6.5        8.2
                                            ---------  ---------
     Total                                      100.0%     100.0%
                                            =========  =========

Discharges by payer:
  Medicare                                       28.3%      27.9%
  Medicaid                                        8.7        8.5
  Managed Medicare                               16.7       18.5
  Managed Medicaid                               15.1       15.0
  Managed care                                   26.2       24.9
  Commercial                                      0.4        0.5
  Self-pay                                        4.6        4.7
                                            ---------  ---------
     Total                                      100.0%     100.0%
                                            =========  =========

(1) Same hospital results exclude those facilities that were not part of
    Vanguard for the full quarters of both years.




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


                                             Nine Months Ended
SAME HOSPITAL (1):                                March 31,
                                            --------------------
                                              2010       2011     % Change
                                            ---------  ---------  --------
Number of hospitals at end of period               15         15
Licensed beds at end of period                  4,135      4,029
Patient service revenues (in millions)      $ 1,890.5  $ 1,991.9       5.4%
Discharges                                    126,211    126,848       0.5
Adjusted discharges                           220,063    226,648       3.0
Adjusted discharges - hospitals               208,763    214,432       2.7
Average length of stay                           4.19       4.18      (0.0)
Patient days                                  528,877    530,194       0.2
Adjusted patient days                         922,157    947,336       2.7
Adjusted patient days - hospitals             874,803    896,272       2.5
Patient revenue per adjusted discharge      $   8,410  $   8,605       2.3
Patient revenue per adjusted discharge -
 hospitals                                  $   8,502  $   8,642       1.6
Inpatient surgeries                            28,076     26,780      (4.6)
Outpatient surgeries                           56,885     53,928      (5.2)
Emergency room visits                         465,714    496,209       6.5%

Charity care and uninsured discounts as a
 percent of acute care services segment
 revenues (prior to these discounts)             10.5%      10.8%

Provision for doubtful accounts as a
 percent of acute care services segment
 revenues (prior to charity and uninsured
 discounts)                                       5.2%       6.5%

Net patient revenue payer mix:
  Medicare                                       25.6%      24.6%
  Medicaid                                        7.3        7.7
  Managed Medicare                               14.9       15.3
  Managed Medicaid                                9.6        9.4
  Managed care                                   34.8       34.4
  Commercial                                      1.1        1.1
  Self-pay                                        6.7        7.5
                                            ---------  ---------
     Total                                      100.0%     100.0%
                                            =========  =========

Discharges by payer:
  Medicare                                       27.5%      27.6%
  Medicaid                                        8.7        8.6
  Managed Medicare                               16.3       17.4
  Managed Medicaid                               15.3       15.4
  Managed care                                   26.9       25.6
  Commercial                                      0.4        0.4
  Self-pay                                        4.9        5.0
                                            ---------  ---------
     Total                                      100.0%     100.0%
                                            =========  =========

(1) Same hospital results exclude those facilities that were not part of
    Vanguard for the nine-month periods of both years.


Contact Information

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