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Four analysts and top management from eighty-one sector firms examine the healthcare sector in this special 298-page UBS Warburg Healthcare Services Conference issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info486.htm

TWST: On the government aspect, when you look at what would be considered event-driven risks, there is some thought that hospitals and care institutions have to stock, inventory, control and provide training in the event of significant health hazards. Is that an internally funded response for these companies?

Mr. Weakley: It’s a difficult question to answer. Preparing for bioterrorism has become a more relevant concern than it ever was in the past, of course, but the impact on our companies’ cost structure is very uncertain at this time. I haven’t been able to determine from any of our companies what sort of economic impact those preparations might entail. My gut instinct tells me that we probably are not going to incur a great deal of cost quite frankly because the perceived threat, despite what has happened with anthrax, is not very high. The fact is unless the federal government steps up and mandates a certain level of preparedness that hospitals need to have, it’s likely that hospitals will underinvest, in my opinion. They’re already prepared to deal with a host of contingencies, of course, but I think, quite frankly, this as part of the war on terrorism, it probably demands federal attention more than private industry initiative. The so called “free rider” problem is something that pervades any free market in the sense that if you’re not going to incur some sort of return on investment, then you tend to underinvest in it. If you were running a hospital out in Illinois, you’d think, “What are the chances of our being hit?” So you’d underinvest. That’s why the federal government has to step up and do something if they feel the perceived threat is high enough to warrant that kind of concern. In other words, it’s not the role of private industry to prepare for war, that’s the role of the federal government (“…provide for the common defense …”).

TWST: Not-for-profits are under the gun in many respects. They’re behind the pricing curve, they’re underfunded and the prospects for funding through their reduced investment portfolios and through philanthropic and state support have been lowered at this point. What kind of competitive threat, and then what kind of opportunity, does that diminishment imply for your companies?

Mr. Weakley: Not-for-profit hospitals today still constitute more than 80% of all the hospitals in America. Their ability to compete with for-profits is basically inhibited by their inability to allocate resources to the same degree that for-profit hospitals can, be it human capital or investor capital. So, increasingly, not-for-profit hospitals have been under pressure in many local markets. There are plenty of very strong not-for-profits, don’t get me wrong, but the fact is the latest numbers show that more than one-third of all hospitals are losing money, and we would guess that the vast majority of those are not-for-profits.

TWST: Which companies then are you focused on for better performance?

Mr. Weakley: On the hospital side, we have strong buys on four names, HCA (NYSE:HCA), Universal Health Services (NYSE:UHS), Province Healthcare (Nasdaq:PRHC) and Community Health (NYSE:CYH). We like all four of the names. In the rural sector, we have strong buys on Province Healthcare and Community Health Systems. As a result of its successful physician recruiting effort, Province Healthcare has in recent quarters proven among the best organic growth stories in our industry. As Province now begins to recruit more specialists to its existing markets, we believe organic growth trends will continue, driving higher revenue per admission growth, top-line performance, and return on invested capital. In addition, Province has a history of making smart acquisitions. For example, two facilities acquired in 2001 were in Selma, Alabama, providing Province the opportunity to consolidate services and dominate the local market.

This special conference issue includes:

1) Outlook for Health Care Services - In an in-depth (4,700 words) Analyst Interview, Howard G. Capek, Executive Director at UBS Warburg, examines the outlook for the sector and shares specific stock recommendations.

2) Healthcare Facilities - In an in-depth (3,300 words) Analyst Interview, Ken Weakley, Executive Director at UBS Warburg, examines the outlook for the sector and shares specific stock recommendations.

3) Managed Care Companies - In an in-depth (3,700 words) Analyst Interview, William S. McKeever, Managing Director in the healthcare services group at UBS Warburg, examines the outlook for the sector and shares specific stock recommendations.

4) Diagnostic Services Companies - In an in-depth (800 words) Analyst Interview, Ricky Goldwasser, Director at UBS Warburg LLC, examines the outlook for the sector and shares specific stock recommendations.

5) CEO interviews (average 2,500 words). Top management of eighty-one sector firms examine the outlook for their firm and the sector.