Vanguard Reports First Quarter Results

Market Wire, November, 2008

Vanguard Health Systems, Inc. ("Vanguard") today announced results for the first quarter ended September 30, 2008.

Total revenues for the quarter ended September 30, 2008, were $719.0 million, an increase of $56.5 million or 8.5% from the prior year quarter. Patient service revenues and health plan premium revenues increased $41.5 million and $15.0 million, respectively, from the prior year quarter. The increase in patient service revenues primarily resulted from a 5.7% increase in patient revenues per adjusted hospital discharge and a 2.9% increase in hospital adjusted discharges. The 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, 2008, Vanguard reported a loss from continuing operations of $0.1 million compared to a loss from continuing operations of $6.5 million during the prior year quarter. Salaries and benefits as a percentage of total revenues decreased from 41.3% during the prior year quarter to 40.7% during the current year quarter. This ratio was positively impacted during the current year quarter by a change in our employee medical benefit structure effective July 1, 2008 whereby we began providing self-insured coverage for all of our employees, which resulted in a greater amount of patient service revenues and benefits expense being eliminated in consolidation. This ratio was negatively impacted during the current year quarter by increases in the number of employed physicians and corporate resources necessary to implement our physician alignment and quality of care initiatives. The provision for doubtful accounts as a percentage of patient service revenues decreased to 9.1% during the current year quarter compared to 9.7% during the prior year quarter. The primary reason for this decrease was due to an increase in those accounts that met our charity care guidelines during the current year quarter. Charity care revenue deductions as a percentage of patient service revenues increased to 4.3% during the current year quarter compared to 3.1% during the prior year quarter.

For the quarter ended September 30, 2008, Vanguard's net income was $0.9 million compared to a net loss of $6.9 million during the prior year quarter.

Adjusted EBITDA was $63.2 million for the quarter ended September 30, 2008, an increase of $6.4 million or 11.3% from the prior year quarter. A reconciliation of Adjusted EBITDA to net income or loss as determined in accordance with accounting principles generally accepted in the United States for the quarters ended September 30, 2007 and 2008 is included in the attached supplemental financial information.

The consolidated operating results for the quarter ended September 30, 2008 reflect a 1.5% increase in discharges and a 2.9% increase in hospital adjusted discharges compared to the prior year quarter. Emergency room visits, inpatient surgeries and outpatient surgeries increased 1.7%, 2.8% and 4.3%, respectively, during the current year quarter compared to the prior year quarter.

Net cash provided by operating activities was $66.9 million for the quarter ended September 30, 2008 compared to $57.1 million for the prior year quarter. The improvement in operating cash flows was primarily attributable to improved operating results and improved cash collections of accounts receivable during the current year quarter compared to the prior year quarter. Net days in accounts receivable improved by 2 days during the current year quarter compared to the prior year quarter. Cash used in investing activities decreased $2.8 million during the current year quarter compared to the prior year quarter, primarily due to a $3.8 million decrease in capital expenditures.

"We are pleased that the progress we have made with our quality of care, physician alignment and employee engagement initiatives have resulted in solid first quarter operating results," commented Charles N. Martin, Jr., Chairman and Chief Executive Officer. "We expect to build on this momentum during the remainder of our fiscal year and continue our commitment to delivering a broad range of healthcare services based upon clinical excellence and operational efficiency to the communities we serve."

Vanguard will host a conference call for investors at 11:00 am EST on November 12, 2008. All interested investors are invited to access a live audio broadcast of the call, via webcast. The live webcast can be accessed on the home page of Vanguard's Web site at www.vanguardhealth.com by clicking on First Quarter Webcast or at http://www.visualwebcaster.com/event.asp?id=52725 . If you are unable to participate during the live webcast, the call will be available on a replay basis on Vanguard's Web site www.vanguardhealth.com . To access the replay, click on First Quarter Webcast on Vanguard's home page or later on the Latest News link on the Investor Relations page of www.vanguardhealth.com .