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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: Matthew, what kinds of companies do you include in your coverage of healthcare services?

Mr. Ripperger: I’m following two sectors in the small and mid-cap areas of healthcare services: post-acute care providers and companies that provide outsourced services to providers and payors. Included in the post-acute care area are the nursing homes, home respiratory companies and ambulatory surgery center companies. Included in the outsourcing area are companies that contract with hospitals to provide specialized services in areas such as diagnostic imaging, program management and nurse staffing. Also included under outsourcing are companies in the disease management space, which is an evolving market of specialized third party medical managers.

TWST: Are some companies more heavily dependent on government reimbursement, Medicare or Medicaid than others?

Mr. Ripperger: In my coverage universe, the post-acute care providers, specifically long-term care and home respiratory, have the most exposure to government reimbursement. The long-term care companies on average derive over 70% of their revenues from both the Medicare and Medicaid programs. The home respiratory companies, in particular Lincare (Nasdaq:LNCR), also derive a significant percentage of their revenue from government payors as well. As for the outsourcing companies, one attractive feature of these companies is that they have materially less direct government exposure than most companies in healthcare services because they generally do not bill directly to government payors, which is a positive.

TWST: How would you differentiate between Apria and Lincare as investments?

Mr. Ripperger: The way I would differentiate between the two companies is really looking at two specific metrics — one being revenue mix and one being payor mix. Generally, Apria gets about 30% of their revenue, including the co-pay, from Medicare, and the remainder from commercial payors, managed care and other. Lincare, on the other hand, gets about 70% from Medicare. So there’s a very different government payor exposure for the two companies, which can be both a positive and a negative. The second main comparison I would highlight is business mix. Apria gets about 65% of their business from respiratory therapy, which is oxygen, respiratory meds and other respiratory therapy services. They get about 18% from infusion and the remainder from DME or durable medical equipment. Lincare, on the other hand, is really targeting the pure play respiratory market. Therefore, they get 90% of their business from respiratory therapy and the remainder from DME. Broadly, I would say that Apria is trying to be more of a one-stop shop for commercial payors, while Lincare is trying to be a specialized respiratory company for the Medicare program. These business mix differences are a main reason for the margin discrepancy between the two companies, with Lincare having EBITDA margins in the 40% range, whereas Apria is at roughly 23%-24%.

TWST: What’s your rating on Lincare right now?

Mr. Ripperger: I rate Lincare a long-term buy, and I rate Apria a buy.

TWST: And what would it take for you to warm up to Lincare?

Mr. Ripperger: I think the fundamentals and the earnings that Lincare has shown have been very strong. The valuation has always been at a slight premium to Apria and I generally have more of a value inclination. One thing that would make me more receptive to the company would be the extinction of this potential reimbursement overhang related to the respiratory meds. Lincare derives roughly 20% of their revenues from Medicare-covered respiratory meds, which compares to 5% for Apria. However, Lincare remains a proven, “tried and true” growth story in healthcare services with some of the highest margins in healthcare services and some of the highest returns on capital.

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.