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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: We’ve heard a lot about how the hospitals and particularly the nursing homes and the rehabilitation companies were hurt by the Balanced Budget Act. And now, there have been some givebacks. Have these companies felt a meaningful benefit?

Mr. Emch: In general, they’ve benefited slightly, although it varies from company to company. I think that most of the benefit on the givebacks is really centered in the hospital space. Regarding specialty providers, I don’t think that either the lab companies or the home respiratory companies benefited much. The dialysis companies benefited slightly. But it’s been a minor positive.

TWST: How have the stocks in the group that you follow performed over the past six to 12 months?

Mr. Emch: They were the best performing group in the S&P 500 in the fourth quarter of last year, and were again among the stronger groups in the S&P in the second quarter of 2001. If you remember, many of the healthcare stocks closed at peaks at the end of December, so compared with the end of the year, there are more of these stocks that are up than are down, but they’re not up tremendously. Year to date the median stock in my coverage area is up 9% and the group is outperforming the S&P 500.

TWST: For the most part, what kind of guidance are companies giving for third and fourth quarter earnings?

Mr. Emch: The earnings reports have been generally strong. I virtually can’t think of any company — with a stock price of more than a couple of bucks — that has missed the numbers. And we’re not looking for that trend to change in the second quarter. I think, in general, the pricing environment for non-government has been strengthening, although not as much as for the hospitals. The volumes have been generally in line or better than what we’ve been looking for.

TWST: Aren’t dialysis companies in a fairly favorable reimbursement situation?

Mr. Emch: I wouldn’t say that. I think that they were about the only group that got helped by the 1997 Balanced Budget Act, and they did get an increase this year from the Medicare program of 2.4%. While that’s certainly much better than zero, most every other provider in the Medicare program is basically entitled to inflation-based increases that are going to run in that neighborhood. Dialysis providers are not. At this point, they have to lobby every year to get a rate increase. Right now, we are not anticipating a rate increase for next year, though it is possible that Congress may choose to grant them one. Eventually, perhaps by 2003, I think that Congress will implement an annual update for dialysis, similar to what every other provider gets.

TWST: How should investors differentiate between DaVita (NYSE:DVA) and Renal Care Group?

Mr. Emch: Both are very good companies, well run. I think that Renal Care Group (Nasdaq:RCGI) has had higher profit margins owing to the residue of the mistakes made at Total Renal Care, although the margins at DaVita are moving up much more rapidly than the margins at Renal Care Group. So I think at this point, one way to differentiate the two would be to ask the question, which of these companies is more likely to make or exceed earnings estimates? At this point, and certainly going into next year, we think DaVita has a slightly better chance of exceeding earnings estimates than Renal Care Group. But we like Renal Care Group and we think it’s extremely well run, and certainly not particularly expensive.

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.