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Two analysts and top management from eleven sector firms examine the Healthcare sector in this special 51-page issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info438.htm

TWST: Michael, what primary areas of coverage are you responsible for at Raymond James & Associates?

Mr. Baker: I am a healthcare services analyst at Raymond James. I’m responsible for covering benefits management/processing companies; the area currently consists of the pharmacy benefit managers and the payroll processors. My coverage list includes the payroll companies because a key opportunity they face is benefits automation. Health care is a significant component of the benefit packages offered by corporations. Down the line, I will add managed care organizations to round out my coverage.

TWST: That’s a very interesting way of looking at it. I assume that a number of companies are perhaps going to the cafeteria approach where they will give their employees an amount of money that they can use on health care as they see fit.

Mr. Baker: That is certainly what Corporate America would like to achieve. One of the key challenges, though, is addressing the risk issue (adverse selection) from the standpoint of the health insurer. Insurance companies have been able to diversify their risk by covering the whole employee pool. Allowing employee choice upsets the balance by potentially driving the sick workers to one insurer and the healthy to another.

TWST: When you talk about specialty distribution, does that mean the distribution of drugs that need special handling?

Mr. Baker: Exactly. These products are coming from the robust biotech pipeline of drugs that is bearing fruit. The drugs have historically been handled differently than big pharma products by being included in the major medical benefit rather than the pharmacy benefit. With the rapid rise in pharmaceutical costs, we are seeing a change. Clients are looking to carve the high cost biotech drugs out of the medical benefit and move them to the pharmacy benefit to be managed by the PBM.

TWST: Are there some value-added services that companies also provide with that, such as advice and disease management?

Mr. Baker: Yes, disease management is a service that is provided to better manage health care spend.

TWST: How have the stocks of these companies performed in 2001? Have there been any earnings surprises?

Mr. Baker: Yes, guidance has moved up driving strong earnings and stock performance. We are in the early stages of convergence between the PBMs and the specialty distributors which is positive for the PBMs.

TWST: How does Ceridian compare as an investment?

Mr. Baker: Ceridian (NYSE:CEN) is an interesting situation in that they are in turnaround mode. They had acquired a company, ABR Information Services, making a bet that they could create a one-stop shop for clients in payroll and benefits. Pay off was delayed until they introduced their new Source 500 product. There are early signs that business is starting to pick up with orders growing. The challenge, though, is they face a pretty strong headwind — the economy, and the Fed’s actions to try to stimulate activity through rate cuts.

TWST: Are there any other business areas at Ceridian that could be helpful going forward, or that could drag it down?

Mr. Baker: Ceridian assists trucking companies in controlling cash outlays for their fleets while they are on the road.

TWST: And that’s highly cyclical.

Mr. Baker: Yes. In addition, they provide gift card services to retailers. So if consumer spending deteriorates, the business will be adversely impacted.

TWST: What should an investor do with Ceridian today?

Mr. Baker: I think an investor should certainly hold the stock. (It’s actually one stock that I personally own.) The beauty of owning these companies is that unlike other areas where you can have significant earnings disappointments, there is a recurring nature to this business that guards against that risk.

This special issue includes:

1) Investing in Healthcare Funds - In an in-depth (3,800 words) Analyst Interview, Mariola B. Haggar, President, General Partner and Portfolio Manager at Haggar Concord Partners, LP, examines the outlook for the sector and shares specific stock recommendations.

2) Healthcare Benefits Management/Outsourcing - In an in-depth (3,800 words) Analyst Interview, Michael J. Baker, Health Care Services Analyst focusing on benefits management/outsourcing at Raymond James & Associates, examines the outlook for the sector and shares specific stock recommendations.

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