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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: Let's move into the two primary areas that you focus on, beginning with alternate site care and outpatient services. What is the prognosis for those areas over the next 12-24 months? What are some of the company specifics that we should be watching over that same time frame?

Mr. Capek: Almost everything in the healthcare provider-land was created to either facilitate or compete with hospitals. And for lack of better terminology, this “segment” is broadly defined as “alternate site.” With respect to rehabilitation and outpatient surgery care, we begin and finish with Healthsouth (NYSE:HRC), which we estimate has somewhere between 20% of the outpatient and surgery assets in the country and 30% of the inpatient rehab assets. Sticking within rehab and outpatient surgery, but moving down into the small cap arena, we cover a company called AmSurg Corporation (Nasdaq:AMSG). Where HEALTHSOUTH is the biggest and competes head to head with hospitals, by contrast AmSurg is the biggest of the small, and they avoid competition with hospitals, and facilitate physicians’ practice-based delivery of surgeries. Amsurg’s focus is on ophthalmology and internal medicine, the higher volume, lower dollar, and faster growing procedures (which ties in the demographic and technology trends mentioned earlier). The company has been around since 1992 and by partnering with physicians to facilitate existing utilization in the local market, in a setting very close to their own practice, it has built a highly defensible brand awareness with the medical community. AmSurg should sustain 15% or so organic top-line growth, coming from roughly 10% same-store treatment volume gains and 5% from new or greenfield development. Prudent fill-in acquisitions add another 5% or so top-line growth, and operating margins in this business are still jelling. As such, we expect it to deliver 25% annual EPS growth for a while. In 2001 AmSurg reached a milestone event in that it became a self-funding entity, which means that its operating cash flow is large enough to cover all of its cap-ex requirements. This is not a status achieved by many in small cap healthcare-land. So we have a stellar balance sheet and good returns on capital in the business to go with that 25% EPS growth. The stock is trading at 25 times 2002 EPS forecast of 0.94 (or 9.7 times EBITDA). We're looking at a 34 price target over the next 12 months, which is really 35 times our 2002 EPS. Earnings leadership is going to drive our price target. That and a dearth of comparable investment vehicles — the small cap, nichey growth, good ROIC and free cash flow area in health care.

TWST: We started off with what you hoped to accomplish for the group and for the size of this group. What would be the summary action for investors as they look at the healthcare services area today?

Mr. Capek: There are tremendously positive fundamentals in healthcare services, and much of these fundamental strengths seem to stretch across all of the service sectors. Despite this, there seems to be an argument that sector rotation and the recovering economy are not the best things for health care. Our argument, however, is that healthcare services should outperform because of the intermediate- and long-term fundamental growth trends in place. Moreover, when one views the various sectors in the S&P and other broad markets, it is very difficult to find more compelling relative valuations and risk/reward profiles than in healthcare services. In our view, the worst of sector rotation has probably already occurred. So it's important to be able to buy these stocks at neither all-time highs nor all-time lows, but somewhere at smart money, mid-valuation levels, which for the type of "sleep at night," predictable growth and cash flow that we're talking about is a nice value proposition.

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.