SNFs Must Drive Higher Acuity In Their Medicare Census; Behavioral Facility Sector Enjoying Strong Fundamentals Due To 40% Reduction In Industry Capacity

• On 2:19 pm EDT, Monday September 21, 2009

67 WALL STREET, New York - September 21, 2009 - The Wall Street Transcript has just published its Medical Real Estate: Healthcare REITs, Long-Term Care Facilities & Hospitals Report report offering a timely review of the sector to serious investors and industry executives. This 45 page feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Investor Perception -- Secular Shift -- Health Care Reform -- REITs Growth -- Public Markets -- Divident Yields -- Debt Levels -- Grow Generation -- Outpatient Versus Inpatient Care -- Health Care Delivery -- Leaseback Arrangements -- Skilled Nursing -- Seniors Housing -- Growth and Expansion -- Positioning the Company for Winning -- Portfolio Diversification -- Geographical Growth -- Advantages to Investing in Licensed Hospitals -- Higher Returns -- Underwriting -- Fragmented Industry -- Consolidation Opportunities -- Debt Refinancing -- Growth in Health Care Spending

Companies include: LifePoint Hospitals (LPNT); Community Health Systems (CYH); Psychiatric Solutions (PSYS) and Tenet (THC); Medical Properties Trust (MPW); Healthcare Realty Trust (HR); LTC Properties (LTC); Health Care REIT (HCN); National Health Investors (NHI); HCP Inc. (HCP); Alexandria (ARE); BioMed (BMR); Senior Housing Properties Trust (SNH); Omega Healthcare Investors (OHI); Ventas (VTR); Emeritus (ESC); Brookdale (BKO); Fannie Mae (FNM); US Physical Therapy (USPH); AmSurg (AMSG)

In the following brief excerpt from just one of the 9 interviews in the 45 page report, a "Best on the Street Analyst" on healthcare services discusses the outlook for the sector and for investors, specifically in the facilities based sector.

Frank G. Morgan, CFA, joined RBC Capital Markets as a Managing Director in November 2008. Based in Nashville, Tenn., Mr. Morgan's current research universe is dedicated to facility-based health care services, including acute care hospitals and senior living services, including skilled nursing and assisted living, and a range of specialty service providers, including institutional pharmacies, hospice care, long-term acute care, rehabilitation and behavioral health services. Mr. Morgan has earned recognition as a master stock picker in The Wall Street Journal's "Best on the Street Analysts Survey" and was named by Forbes.com and Zacks Investment Research as a Blue-Chip Analyst in the medical care sector. Mr. Morgan was named to the Nashville Business Journal's "Healthcare 100" list for five years. His views on health care have been quoted in The Wall Street Journal, Modern Healthcare, Business Week, Forbes, The New York Times, the Financial Times and many other financial publications. He has appeared on national TV and radio programs, including CNBC, Bloomberg Television and Radio, Market Place, as well as National Public Radio's Mornings Edition and All Things Considered. Mr. Morgan has 23 years' experience in equity research and investment banking, primarily in health care services. Prior to joining RBC Capital Markets, he was a Managing Director and Senior Analyst at Jefferies & Company, Inc, and was a Partner and Senior Analyst with J.C. Bradford & Co., where he covered facility-based health care services. He previously served as a member of the Alabama State Healthcare Planning and Development Council Certificate of Need review board as well as the State Health Coordinating Council. He holds a B.S. in microbiology and an MBA from the University of Alabama.

TWST: Let's start with your overall outlook for the health care facilities industry.

Mr. Morgan: The overall outlook is really a mixed picture, depending on which subsector you are talking about. I think the hospital sector should continue to post good results into 2010. Volumes haven't been as bad as the market had expected, and commercial pricing remains solid with good visibility. Medicare pricing for 2010 came in better than the initial proposal, and certainly the cost controls have been good. Free cash flows are improving as cap ex spending has started to abate slightly as a result of what's going on in the not-for-profit sector. On the skilled nursing side, I think there are more headwinds for the fundamentals going into 2010. Their final update for fiscal 2010 was a -1.1% for Medicare pricing, thanks to a 3.3% budget neutrality haircut to their market basket. And depending on what happens with health care reform, the update might be even more negative at around -3.3%. There is growing concern certainly over Medicaid budgets and the potential fallout for SNFs. Longer term, Medicare or CMS will be refining the RUGs' reimbursement system. That being said, it's more important than ever that SNFs drive higher acuity in their Medicare census. So longer term, I am confident SNFs will be able to refine their clinical focus on medically complex patients. Once again, a lot of headwinds for this sector, but a lot of it's already priced into the stocks. The inpatient rehab hospital side continues to perform well, and the market fundamentals have stabilized with providers having adjusted to the 60% rule. And for now providers will see their first market update in a while with a 90-basis-point increase for fiscal 2010. Obviously, this update is also in jeopardy depending on the fate of health care reform. Finally, the behavioral facility sector continues to enjoy strong fundamentals. There's still a significant supply/demand imbalance after a 40% reduction in industry capacity that goes back to the mid-1990s, when we had a period of explosive capacity growth. The sector has minimal exposure to uninsured and high bad-debt expenses, and the forthcoming Mental Health Parity Act could provide incremental volumes to the sector in 2010.

TWST: Overall, how are inpatient and outpatient admissions trending? Would you agree with what others have told me, which is that there is a greater trend toward outpatient?

Mr. Morgan: Absolutely. Admission trends for hospitals have been soft for several years now. Speaking in more recent terms, trends were especially soft in the latter part of 2008. Fortunately, expectations have been so low that even weak volumes have been viewed positively by the market when these companies reported their first and second quarter results. Over the balance of the year, I think the comps will get a little bit easier. But in general, you are correct - outpatient trends have been better than the inpatient side. In fact, in the most recent quarter, if you look at same-store inpatient admissions, they were up only 10 basis points year-over-year, while adjusted admissions, which reflect both inpatient and outpatient, were up 2.7%. From what we've seen so far, volumes got off to a good start in the third quarter. We do have some read-throughs into July on a couple of companies that mentioned it when they reported their second-quarter results. On the nursing home side, the growth in patient volumes has been largely driven by the Medicare population, that's short-stay business. Skilled-nursing providers have been focused on high acuity Medicare business, particularly patients needing physical therapy and rehabilitation. That may change a little bit going forward. As I mentioned earlier, with the forthcoming refinements to the RUGs system, SNFs will be shifting away from rehab patients more towards what we call "medically complex" patients. On the inpatient rehab side, they are starting to see some healthy volume growth as they have lapped the implementation of the 60% rule, which had impacted the criteria for admission to an inpatient rehab facility. And certainly, while there are some additional admission criteria set for 2010, we generally expect to see reasonable volume growth out of those guys as well.

The Wall Street Transcript is a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This 45 page special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online .

The Wall Street Transcript does not endorse the views of any interviewees nor does it make stock recommendations.

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