Moody’s Not-For-Profit Healthcare Outlook

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

2. 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

3. 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

4. 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

5. 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

6. 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

7. FY 2007 Medians: Down from FY 2006, Still Favorable to Years Following Balanced Budget Act of 1997

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

9. How Is the Industry Doing? Another Look

10. 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

11. 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

12. Appendix IRecent Rating Trends

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

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

15. 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)

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