Vanguard Reports First Quarter Results

Market Wire, November, 2007

Vanguard Health Systems, Inc. ("Vanguard") today announced results for the first quarter ended September 30, 2007.

Total revenues for the quarter ended September 30, 2007, were $662.5 million, an increase of $44.2 million or 7.1% from the prior year quarter. Patient service revenues and health plan premium revenues increased $35.5 million and $8.7 million, respectively, from the prior year quarter. The quarter over quarter increase in patient service revenues primarily resulted from a 5.6% increase in patient revenues per adjusted hospital discharge from continuing operations and a 1.2% increase in hospital adjusted discharges from continuing operations. The quarter over quarter increase in health plan premium revenues resulted primarily from an increase in average membership in our managed Medicaid health plan in Phoenix, Arizona during the current year quarter compared to the prior year quarter.

For the quarter ended September 30, 2007, Vanguard reported a loss from continuing operations of $6.5 million compared to a loss from continuing operations of $2.7 million during the prior year quarter. The provision for doubtful accounts as a percentage of patient service revenues increased to 9.7% during the current year quarter compared to 7.8% during the prior year quarter. As previously disclosed, effective July 1, 2007 Vanguard implemented a new allowance for bad debts policy that more quickly recognizes uncollectible accounts associated with uninsured or underinsured patients. This policy change combined with a quarter over quarter increase in self pay net revenue payer mix resulted in an increase to the provision for doubtful accounts. This increase was partially offset by a quarter over quarter decrease in charity care deductions as a percentage of patient service revenues from 4.3% to 3.1%. Salaries and benefits as a percentage of total revenues decreased from 42.0% during the prior year quarter to 41.3% during the current year quarter primarily as a result of a 20.5% decrease in contract labor expense. Supplies as a percentage of total revenues decreased from 16.2% during the prior year quarter to 15.6% during the current year quarter primarily as a result of the implementation of certain of our corporate supply chain initiatives.

For the quarter ended September 30, 2007, Vanguard's net loss was $6.9 million compared to a net loss of $7.7 million during the prior year quarter.

Adjusted EBITDA was $56.8 million for the quarter ended September 30, 2007, an increase of $2.8 million or 5.2% from the prior year quarter. A reconciliation of Adjusted EBITDA to net loss as determined in accordance with accounting principles generally accepted in the United States for the quarters ended September 30, 2006 and 2007 is included in the attached supplemental financial information.

The consolidated operating results for the quarter ended September 30, 2007 reflect a 1.1% increase in discharges from continuing operations and a 1.2% increase in hospital adjusted discharges from continuing operations compared to the prior year quarter. The increase in quarter over quarter discharges is primarily attributable to a 3.7% increase in admissions through hospital emergency rooms during the current year quarter. Demand for higher acuity services and elective procedures in our markets remains weak due to multiple factors including an increase in the number of individuals who are uninsured or underinsured, while competition to provide those services remains intense. Emergency room visits from continuing operations increased 3.6% quarter over quarter. Outpatient surgeries from continuing operations decreased 5.8% quarter over quarter primarily as a result of the opening of a new physician-owned surgery center on the campus of one of Vanguard's hospitals in October 2006, elimination of certain unprofitable service lines and physician migration at certain other hospitals.

Net cash provided by operating activities was $57.1 million for the quarter ended September 30, 2007 compared to $0.4 million for the prior year quarter. The improvement in operating cash flows was primarily attributable to improved cash collections of accounts receivable during the current year quarter and a decrease in payments of accounts payable and other liabilities during the current year quarter. Cash used in investing activities decreased $12.2 million during the current year quarter compared to the prior year quarter, primarily due to a $15.5 million quarter over quarter decrease in capital expenditures. Payments for construction costs and equipment related to the expansion projects in San Antonio and Phoenix, which were completed in late fiscal 2007, were significantly higher during the prior year quarter than during the current year quarter.

As previously disclosed, in June 2007 Vanguard ceased providing acute care services at Phoenix Memorial Hospital ("PMH") and began leasing portions of the building to various third party healthcare providers under long-term operating leases. As a result of the change in use of this building, the acute care operations of PMH have been reclassified to discontinued operations for both periods presented. Discontinued operations, as presented in our condensed consolidated statements of operations, now includes the operations of the California hospitals and medical office buildings sold in October 2006 and March 2006, respectively, and the PMH acute care operations.