Moody’s Not-For-Profit Healthcare Outlook Brad Spielman, Vice President Healthcare Ratings Group San Francisco, CA (415) 713-3223

Moody’s Healthcare Portfolio We rate ~530 not-for-profit hospitals and healthcare systems (~1,200 total hospitals) Approximately $113 billion of total rated debt outstanding Stand-alone hospitals (as small as 2,000 admissions) Multi-state systems (with more than 400,000 admissions) Specialty hospitals Not-for-profit healthcare median rating is A3

Moody’s Industry Outlook: 2008 - 2009 In September 2008, Moody’s reaffirmed the stable outlook on the U.S. Not-for-Profit Healthcare Industry: Most hospitals and health systems continue to show resiliency in financial performance; Medicare rates for FY 2009 appear relatively favorable However, substantially weaker economy in 2008 has created more challenging operating environment

Weaker Economy Has Created Challenges Higher charity care levels Employers discontinue coverage; more working poor Increased bad debt expense Co-pay and higher deductible products Softening inpatient volumes Patients self-regulate healthcare needs, postponing elective procedures Fundraising may suffer Recent consumer and corporate wealth declines Potential reductions in Medicaid funding Several state economies have weakened over the past year Decline in unrestricted cash Market turmoil has lead to large losses

Hospitals are Reacting Quickly to Challenges Productivity benchmarking regarding FTEs Length of stay reductions More aggressive upfront registration Outsourcing of certain functions Greater investment in IT; more rapid installation

Medicare Rates for FFY 2009 Relatively Favorable 3.6% increase for inpatient rates; 3.0% for outpatient 42 compliance measures for quality; down from 72 that were proposed, easing the burden Non payment for “never-events” begins Oct 1st Uncertainties surrounding “bundled payment” concept; testing begins in 2009 in four states

Operating Cash Flow Margin FY 2007 Medians: Down from FY 2006, Still Favorable to Years Following Balanced Budget Act of 1997 Ratio 2006 2007 1999 Operating Margin 2.3% 2.1% 0.51% Operating Cash Flow Margin 9.2% 9.0% MADS Coverage 3.9x 3.04x Days Cash on Hand 154.3 156.6 146.5 Cash-to-Debt 109.0% 110.9% 90.6% Debt-to-Cash flow 3.6x 3.7x 4.07x Debt-to-Cap. 38.9% 38.6% 37.8%

How Is the Industry Doing? Compares favorably to 2000 when 57% of hospitals reported an operating profit

How Is the Industry Doing? Another Look

Looking Forward Expect continued moderating in financial performance in FY 2008 Competition for patients will continue; leading to softer patient volumes, particularly ambulatory setting Medicare: Recovery Audit Contractor (RAC) initiative will increase pressure on revenues Uncertainty regarding CMS “bundled payment” concept may pressure performance Rates for FFY 2009 appear relatively favorable Cost reduction efforts will be key going forward Increased capital appetite as the population ages

Financing Trends High volume of issuance driven by replacement of Auction Rate Products, and Insured Variable Rate Demand Bonds Uninsured Fixed Rate Bonds; issuers looking for greater flexibility to issue bonds backed by only their own credit Variable Rate Demand Bonds backed by Letters of Credit or Self Liquidity, driven in part by pre-existing swap portfolios Increased rating activity Market volatility require issuers to be nimble, flexible

Appendix I Recent Rating Trends

Rating Activity Remains Favorable; Nearly Equal Downgrades to Upgrades through June 2008

Nearly Two Decades of Industry Shifts and Ratings Changes Negative Volatility post-BBA Medicare PPS, TRA Stabilization returns Relative stability (pre-BBA) Stabilization

About 10% (or 50) of Moody’s ratings are below Investment Grade Not-for-Profit Healthcare Ratings: More Spec Grade Than Other Muni Credits About 10% (or 50) of Moody’s ratings are below Investment Grade Unrated market of small healthcare organizations: nearly all spec grade (544 Ratings; Excludes Credit Enhanced Ratings)

Not-for-Profit Hospital Ratings Distribution Ratings Distribution (531 credits) Outlook Distribution