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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: Focusing on the hospital management companies, how do you see the environment for the group today and over the next couple of years?

Mr. Murphy: I know there are some well-informed analysts out there today who are making a secular case for investing in the hospital management industry. I’m reticent to make secular cases for any industry, especially something that is related to health care. The one thing that you have to remember about health care is that it has the word “entitlement” wrapped all around it. People do feel that they are entitled to proper health care one way or the other, and because of that, they are vocal on the issue. The social nature of the product/service being provided by the healthcare industry results in constant public appraisals and criticism of the industry. Everyone is aware of the ongoing Washington oversight of the industry and resulting investigations, reviews, etc. The demand-supply economics that might work very favorably in some industries don’t work as efficiently in this industry With that as a background I’m reticent to project secular moves in the equity markets for the healthcare industry. I will say that the fundamentals in the industry are much better than they have been for several years. I will not bore you with the fallout from the Balanced Budget Act of 1997 (BBA97) but will cover the subject later.

TWST: One sellside analyst has said that the current environment is more favorable than at any time in the last decade.

Mr. Murphy: Let’s go back to the early 1990s. You had hospital admissions declining for about 15 years through the mid-1990s and then they turned around. So yes, admissions have been showing relative strength for several years. Also, reimbursement has improved over the last year from both Medicare and managed care payors. Depending on the company, Medicare can represent 35%-55% of corporate revenues and as a result the reimbursement cuts mandated by BBA97 were devastating for the industry. Let me give you some numbers. The Medicare program should approximate $250 billion in year 2002 and BBA97 Medicare cuts amounted to approximately $230 billion (before recent givebacks) over the five-year period of 1997-2002. Congress literally eliminated one year of the Medicare program—that’s how severe the cutbacks were. The hospital industry is projected to generate $500 billion of revenues in year 2002 and represent approximately 33% of the total $1.5 trillion of healthcare spending in the country. Medicare spending on hospitals should represent about $150 billion of the above noted $500 billion of total hospital spending for 2002. Congress in its wisdom has decided to give back approximately $50 billion of the $230 billion of Medicare cuts, with hospitals receiving $20 billion.

TWST: Is this a good place for investors to be for the near to intermediate term?

Mr. Murphy: It is as long as the industry has relative earnings momentum. Sometime in 2002 other sectors of the market will appear capable of generating earnings growth in excess of 20% and will assume the relative earnings growth leadership. At that point the hospital management stocks could begin to struggle and should be sold. However, that is somewhere down the road. I think Tenet (NYSE:THC) has done a wonderful job over the last four quarters, especially the management of their working capital and the debt reduction. They certainly have put up some excellent operating numbers. Unfortunately I missed the move in the stock, which I think has upside to the upper $50s. Earnings should approximate $2.85 per share in calendar 2002 and the company should sustain growth in the 12%-13% range.

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.