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Six analysts and top management from seven sector firms examine the Health Care Facilities sector in this special 64-page issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info386.htm

TWST: Gary, you’ve written that the operating environment for hospital management companies is currently the most favorable that it’s seen in at least a decade. What are the factors that have contributed to this, and are the trends in place that will favor a positive outlook going forward?

Mr. Taylor: I would echo some of the comments that Adam made, but I think, in general, you have to go back 20 years in the hospital industry to find an environment in which inpatient volumes were rising, commercial pricing was rising, and the government was a reasonable payor. That’s how long it’s been. The hospital industry went through a 15-year, multiyear, year-over-year decline in inpatient volume, and a very similar sort of trend on the pricing side for most of the 1990s. I believe the reasons that drove those declines are largely gone. The rebound that you’re seeing in volumes and the rebound you’re seeing in pricing are very much secular trends. I’ll touch on volume very quickly. The volume declines we saw in the 1980s and 1990s were very much driven by declining utilization rates, a large part of which we attribute to the transformation of insurance companies from being middlemen to actually being involved in managing care via physician gatekeepers, pre-certification, etc. What we’ve seen over the last three to four years in terms of volume growth is instead very much driven by demographic changes. We’ve seen a shifting of the population into age strata with very high disproportionate uses of hospital services, and I think we’re in the first inning of what’s going to be a nine-inning ballgame really driving higher utilization. So as Adam alluded to, we are seeing higher volume trends, and I very much believe that we’re going to continue to see higher than normalized trends. On the pricing side, again, I think pricing declines were attributed to a declining volume environment, hospitals being very afraid to see their occupancies falling, and being very afraid of being excluded from HMO networks. Now, with volumes rising, occupancy is picking up and hospitals are less willing to discount their services. HMO growth has been stagnant for the last five years. The huge fear of HMOs, that they would be able to materially steer patient volumes, never really materialized. Finally, labor costs are rising. I think hospitals absolutely believe they have to get pricing increases to be able to cover those costs. So again, they’re less willing to discount. Therefore, on both the volume and pricing side I think we’re going to continue to see the trends continue to move in the direction that they have been going in for the last few years.

TWST: Given a time horizon of 12 months, what’s your single best investment idea in the group today, Gary?

Mr. Taylor: I’m going to hedge myself a bit and give you one on the urban side — Tenet (NYSE:THC) — and one of the smaller cap names on the rural side — LifePoint (Nasdaq:LPNT).

TWST: What’s your rationale for the recommendation of Tenet?

Mr. Taylor: I still think published numbers are too low for the company. With regard to LifePoint, we see several catalysts that lead us to believe that you’re likely to see valuations on all the rural stocks increase in the next six to nine months. Taking a look at where we think earnings upside exists and where the consensus numbers are, I think that LifePoint will perform pretty well.

TWST: Are there any company-specific risks with either Tenet or LifePoint that investors should be aware of?

Mr. Taylor: Every company has some risk. LifePoint is a smaller company and its facility base is not quite as diversified as some of the other smaller companies. If you had significant operating problems at a single facility, those would potentially have greater impact on the performance of the corporate parent.

This special issue includes:

1) Health Care Facilities - In an in-depth (12,400 words) Analyst Roundtable, Adam Feinstein, Vice President in Equity Research at Lehman Brothers, Leslie Henshaw, Managing Director at ING Asset Management, Gary Taylor, Vice President of Equity Research at Banc of America Securities LLC, examine the outlook for the sector including, volume trends in hospitals, demographics and share specific stock recommendations.

2) The TWST confidential Off-The-Record survey of management performance at seventeen sector firms asked market insiders about the ability of management teams to create shareholder value.

3) Investing in Health Care Facilities - In an in-depth (4,700 words) Analyst Interview, James Kumpel, Health Care Services Analyst at Raymond James & Associates, examines the outlook for the sector and shares specific stock recommendations .

4) Specialty Healthcare Providers - In an in-depth (3,500 words) Analyst Interview, Peter Emch, Director-Equity Research at Credit Suisse First Boston, examines the outlook for the sector and shares specific stock recommendations.

5) Hospital Management Stocks - In an in-depth (3,300 words) Analyst Interview, Leo Murphy, Vice President-Senior Analyst at Pioneer Investment Management USA, Inc., examines the outlook for the sector and shares specific stock recommendations.

6) CEO interviews (average 2,500 words). Top management of seven sector firms examine the outlook for their firm and the sector.