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Eight analysts and top management from eight sector firms examine the healthcare facilities sector in this special 73-page Healthcare Facilities issue from The Wall Street Transcript, available at (212/952-7433) or http://www.twst.com/info/info547.htm

TWST: What are you projecting for hospital admissions and length of stay in 2002 and looking out over the next couple of years?

Mr. Taylor: Actually, last May we did a pretty substantial quantitative study that suggests that hospital admissions growth, which has been growing over the last four years at an approximate average of 1% a year, will accelerate for the entire industry into the 2%-3% range. We believe you’ll see the for-profit hospitals continuing to grow slightly faster than the total industry, so somewhere in the 3%-4% range. I believe length of stay is going to continue to remain fairly flat. On an acuity-adjusted basis we’ve found a bottom in terms of length of stay, so I’m not looking for a lot of movement in either direction.

TWST: You touched earlier on the transformation of the insurance industry. How do you see the relationship between the hospitals and the health insurers today?

Mr. Taylor: I think some people will say the relationship can only become more antagonistic if and when insurance companies are no longer able to extort the double-digit premium pricing they’re getting from employers. I actually disagree. I think the US insurance industry, after a decade of movement toward being involved in delivery of care, is now moving in the opposite direction, becoming a middleman — someone who takes in premiums, pools risk, processes claims and isn’t that involved in the delivery of care or attempting to actively control costs. Within that framework, hospitals on a market-by-market basis are in position to negotiate more favorable pricing. And I think the insurance companies are simply going to have to pay those rates and will be forced to pass along the costs to employers and consumers. TWST: Do you also look at the nursing homes and the assisted living companies? Mr. Taylor: The only one I cover is Manor Care (NYSE:HCR).

TWST: And what’s your thinking there?

Mr. Taylor: I’d say Manor Care is absolutely the best company in its industry — the best management team, the best balance sheet, the best earnings quality.

TWST: And the least dependent on government?

Mr. Taylor: The least dependent on government, yes. I have continued to be fairly cautious on the stock, simply because of the industry itself. Returns on capital are not stellar, especially since the recent reimbursement changes that took away at least some of the ability for these companies to bill ancillaries. Its valuation is very similar to acute-care hospital companies, so I’ve just been much less inclined to be involved in an industry where returns are much lower. If there’s a single stock to own in the sector, I think it should be Manor Care. It’s just purely a valuation issue at this point. There’s still a little risk related to potential reimbursement reductions as some of the add-on Medicare payments expire on October 1. I think the industry will get some but not all of its add-ons extended. Unfortunately, I’m afraid it’s going to be a one-year fix, which means that a year from now we’ll be right back in the same spot. The industry obviously wants the reimbursement built into the base rates, but I don’t think Congress will do that this year.

TWST: In conclusion, what would your overall message be to investors who are looking at healthcare facilities stocks today?

Mr. Taylor: I would say, don’t miss the fundamental inflection points in the industry. In other words, you have investors who will look at the charts on these stocks and feel that they have completely missed the opportunity because over the last two to three years these stocks have done phenomenally well. I would say to them, “Don’t read the chart, look at the fundamentals of the industry; look at the fact that after 15 years of declining utilization, it’s now rising; look at the fact that after a decade of a declining pricing trend, it’s now rising; realistically look at the numbers and valuation.” I still think that the fundamental strength is going to continue to show here for the next couple of years.

This special issue includes:

1) Healthcare Facilities - In an in-depth (13,700 words) Analyst Roundtable, B. Kemp Dolliver, Managing Director at SG Cowen Securities Corp., Adam Feinstein, Vice President in Equity Research at Lehman Brothers, John Hindelong, Managing Director of Credit Suisse First Boston, Frank G. Morgan, Managing Director at Jefferies & Company, Inc. and Michael Yellen, Senior Portfolio Manager at AIM Capital Management Group, examine the outlook for the sector including earnings guidance, stock performance and share specific stock recommendations.

2) Hospitals & Healthcare Facilities - In an in-depth (3,500 words) Analyst Interview, Gary Taylor, Vice President, Equity Research at Banc of America Securities LLC, examines the outlook for the sector and shares specific stock recommendations.

3) Assisted Living & Healthcare REITs - In an in-depth (5,200 words) Analyst Interview, Jerry L. Doctrow, Managing Director, Equity Research at Legg Mason Wood Walker, Inc., examines the outlook for the sector and shares specific stock recommendations.

4) Long-Term Care & Specialized Service Providers - In an in-depth (6,700 words) Analyst Interview, Matthew Ripperger, Vice President and Equity Research Analyst at JP Morgan, examines the outlook for the sector and shares specific stock recommendations.

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