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Health Management Associates Inc. (NYSE:HMA)

Q4 2007 Earnings Call

February 21, 2008 11:00 am ET

Executives

Burke Whitman - CEO

Bob Farnham - CFO

Kelly Curry - COO

John Merriwether - VP of Financial Relations

Analysts

Jason Gurda - Bear Stearns

Christine Arnold - Morgan Stanley

Bill Bonello - Wachovia

Shelley Gnall - Goldman Sachs

Adam Feinstein - Lehman Brothers

Sheryl Skolnick - CRT Capital Group

John Ransom - Raymond James

Gary Lieberman - Stanford Group

Operator

At this time, I would like to welcome everyone to the HMA Fourth Quarter and Yearend Earnings Call.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions)

Thank you. Mr. Merriwether, you may begin your conference.

John Merriwether

Thank you, Erica. Good morning. I'm John Merriweather, Vice President of Financial Relations for HMA. I would like to welcome you to our fourth quarter and yearend 2007 earnings conference call.

Please bear with me. Before we get started with the call, I would like to read our disclosure statement. Certain statements contained in this presentation, including without limitations, statements containing the words believes, anticipates, intends, expects, optimistic, objectives and words of similar import, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These statements may include projections of revenue, income or loss, capital expenditures, capital structure or other financial items; statements regarding the plans and objectives of management for future operations; statements of future economic performance; statements of the assumptions underlying or relating to any of the foregoing statements; and other statements, which are other than statements of historical fact.

Statements made throughout this presentation are based on current estimates of future events and the company has no obligation to update or correct these estimates. Listeners are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially as a result of these various factors.

In addition, EBITDA, as mentioned on this call, is defined as earnings before interest, taxes, depreciation, amortization, refinancing and debt modification costs and after minority interest. I will refer you to HMA's earnings press release issued last evening for a disclosure statement regarding EBITDA as a non-GAAP financial measure.

On the call with me this morning is Chief Financial Officer Bob Farnham; Chief Operating Officer, Kelly Curry; and Chief Executive Officer, Burke Whitman. Thank you for your attention and now I'll turn the call over to Burke.

Burke Whitman

Thanks, John. Good morning to each of you and thanks for joining our call. Before Bob Farnham discusses our financial results, and before Kelly Curry describes the progress we’re making operationally, I’m going to tell you about the way forward for HMA.

2008 is more than a new calendar year for HMA. For the first time as of January 1st last month we have all of the elements in place to execute our turnaround. During the past two quarters, since I became CEO of our company, we have put all those elements into place. And so, we now have a new direction and we have new leadership and I’m going to tell you about both the new direction and the new leadership.

First the new direction, it has four elements: a new mission, new vision, new strategy and a new business plan. Our new mission is to deliver compassionate and high quality health care services that improve the quality of life for our patients, physicians, and the communities we serve. Our team understands this and our leaders are on board.

Our new vision is, to lead the hospital industry and quality and customer satisfaction within two years, in order to better accomplish our mission and to maximize our company's value within the current competitive environment.

Our new operating strategy is aimed directly towards achieving that vision. The strategy has several major components: First, stabilize our operations; secondly, build a foundation for more sustainable performance within the current competitive environment; third, take all the detailed actions we need to take in order to lead the industry in quality and customer satisfaction; fourth, seize and defend market share; fifth, maintain our traditional management discipline, especially regarding cost management but enhance that management discipline with new multifaceted initiatives that further improve our revenues and limit the growth in our expenses, especially in bad debt expense; sixth, rationalize our portfolio of assets by selling some hospitals and just as important, selling minority interest in other hospitals to valuable strategic partners for our mutual benefit; and lastly seventh, de-leverage our balance sheet gradually to achieve a more optimal capital structure.

Our detailed business plans are aimed indirectly at implementing that strategy. It should accomplish our vision gradually over the next two years. For the first time a year for 2008, our business plans were developed from the bottom-up, our leaders in hospitals and our divisions who will be accountable for achieving those plans led the development of those plans within the strategic direction that I've outlined. And for the first time in years our operational leaders will be more directly accountable for achieving those plans. They understand this. So that's under direction with this new mission, vision, strategy and plan.

Now let me describe our new leadership. This is the leadership that we put in place in the last two quarters to execute the new direction. The new leadership is more than just new leaders, although it certainly includes that starting with Kelly Curry, who rejoined the company as our COO to lead our operational turnaround. But the new leadership has four elements. New people, new organization, new culture and new accountability, and I will be going to go through each of those.

Regarding our people in the organization, we have new people and new positions whose purpose is specifically to lead us to industry leadership in clinical affairs, quality, nursing, physicians, recruiting, case management, managed care, facility inspections, maintenance and more.

We've added two more divisions, and reduced the number of hospitals per division in order to allow our experienced division CEOs and CFOs to focus on a smaller span of responsibility, so they can better support the development of stronger and more sustainable and more mutually beneficial relationships with the key providers in their communities.

And the small divisions will also reinforce our financial discipline in improving revenues and limiting the growth in our cost. We've appointed a number of new hospital CEOs, new division CEOs, and new division CFOs, as well as the corporate leaders in those functional areas that are key to implementing our strategy and achieving our position.

Regarding culture, we are deliberately and methodically building upon the company's historically rock solid culture base of integrity, hard work and discipline, by introducing and rewarding some additional cultural elements such as leveraging our clinical excellence, placing greater priority on developing and maintaining key relationships and customer satisfactions, setting reasonable expectations based on bottom-up planning, and accepting personal accountability.

In regarding that accountability, our leaders will now be paid on the metrics to drive performance, including not just metrics of current operating results, but also metrics related to building the foundation for more sustainable performance. These include quality and customer satisfaction, physician recruiting, and the volume of paying patients in the physicians in our communities sent directly to us.

Our leaders are more directly accountable for achieving those objectives and we are going to reward our leaders and our other employees more than ever, if they achieve those objectives and again they understand this.

That completes my way of top summary of the company’s new direction and new leadership through the next couple of years. For the new year of 2008, we announced last night our earnings per share objective between $0.40 and $0.50 per share, and on net revenue of $4.5 billion to $4.7 billion.

Our EPS guidance focuses deliberately on the midpoint of $0.45, and it acknowledges upside potential to that midpoint number. It incorporates our best estimate regarding the impact of four areas of uncertainty for us. These are the amount and timing of our asset sales and partnerships; the structuring timing of our upcoming corporate refinancing; the length of time it takes for our new direction to impact our operating results; and the conditions of the general economy.

Our earnings guidance allows for some possible shortfall in any of those factors relative to our current expectations. The $0.10 ranging guidance between the low-end of $0.40 and the high end of $0.50 equates to roughly of $40 million range between the low end and high end of expected EBITDA, or pretax results for the year. As you would imagine, we may narrow and adjust the EPS guidance as we progress through the year.

You of course need to see results, so do I. But watch us in 2008 and 2009. Although we continue to face industry headwinds that are well-known and not new, our team and I believe that we have an opportunity in this company, even within the context of those headwinds, to perform better. That is what we intend to do that's what we believe we will do. Over the next two years with our new direction and our new leadership, I believe you will see us execute our plan, implement our strategy, achieve our vision, accomplish our mission, and generate stronger and more sustainable financial results that increase the value of our company.

Now Bob Farnham, our CFO will follow me to discuss our financial results. Kelly Curry, our COO will follow Bob and tell you about some of the traction where we achieving operationally. Bob.

Bob Farnham

Thanks Burke and good morning everyone. Last night we announced the result for the fourth quarter and year ended December 31, 2007. For the fourth quarter ended December 31, 2007, HMA reported net revenue of $1,096.3 million; Earnings before interest, income taxes, depreciation, amortization, refinancing and debt modification costs and after minority interests, EBITDA of $149.8 million; Income from continuing operation of $18.8 million; Diluted EPS from continuing operations of $0.08; net income of $12.5 million; and diluted earnings per share of $0.05.

For the year ended December 31st, 2007 HMA reported net revenue of $4,392.1 million, EBITDA of $631.0 million, income from continuing operations of $117.9 million, diluted earnings per share from continuing operations of $0.48, net income of $119.9 million and diluted EPS of $0.49.

Continuing same hospital operations for the fourth quarter decreased 1.0%, while continuing same hospital adjusted admissions increased 1.6%, compared to the same quarter a year ago. Continuing same hospital emergency room visits and surgeries grew 4.1% and 0.5% respectively, compared to the same quarter a year ago.

Pricing in the fourth quarter showed continued growth of a 3.0% increase in continuing same hospital net revenue per adjusted admission, relative to the same period a year ago, which contributed to a continuing same hospital net revenue increase of 4.6%.

During the fourth quarter, HMA ceased operating its Mesquite community hospital as a general acute-care hospital, converted it to a specialty women's hospital and renamed it Woman's Center at Dallas Regional Medical Center. As part of this conversion, the new Women's Center discontinued virtually all emergency room services, and as expected, emergency volumes in their corresponding general acute-care admissions declined significantly. To compare the statistics for the same hospital continuing operations provided above, exclude the changes in the Women's Center.

Our same hospital EBITDA from continuing operations for the fourth quarter was $170.8 million, and the corresponding same hospital EBITDA margin from continuing operations was 15.9%. Continuing same hospital salary and benefit expense as a percent of net revenue was 39.7% for the fourth quarter or approximately 10 basis points higher than the same quarter a year ago. This increase is attributable to employed physicians at the same hospitals.

Maintaining our historical disciplined costs controls was imperative to meeting our EBITDA expectations for 2008. We are beginning to see early indications of our net revenue initiatives are achieving some traction and we must manage our operating expenses to ensure we improve our returns.

Discontinued operations for the quarter continued, include the Little Rock, Arkansas facility, some final accounting with regard to the Pennington Gap in Northern Virginia hospitals we sold during the third quarter and now the Biloxi Gulf Coast Hospital, which was the small of the two Biloxi Mississippi hospitals that we acquired in 2006.

Uninsured patient volumes and increasing bad debt expense continues to be an industry issue effecting operating return. Continuing same hospital, uninsured admissions for the fourth quarter totaled approximately 7.2% of total admissions, which was also 7.2% for the same quarter year ago, and down 70 basis points sequentially from the 7.9% for the quarter ended September 30th, 2007.

This marks the first time in several years that we have seen no quarterly increase in the percentage of uninsured total admits as compared to the prior year quarter. And the same flat to down trend is continuing in this first quarter of 2008 also.

There are three components that comprised our HMA accounts for uninsured and underinsured patients. Bad debt expense, uninsured discounts and charity/indigent care write-offs.

Bad debt expense for the fourth quarter was a $135.2 million or 12.3% of the net revenues, compared to $125.7 million or 11.8% of net revenue for the third quarter ended September 30, 2007.

This is in line with our expectations of approximately 12%, which we forecasted in July of 2007. There was no sale of additional written-off accounts receivable during this fourth quarter of 2007.

A second quarter declining uninsured accounts receivable is further evidence of our bad debt policies are appropriately accounting for the uninsured. Uninsured accounts receivable declined $12.8 million as of December 31, 2007 compared to September 30th. And recall that uninsured accounts receivable declined $9 million in the third quarter compared to the second quarter.

Since February of 2007, HMA has provided 60% discount to uninsured patients for non-elective services. Uninsured discounts for the quarter were $149.9 million compared to $153.5 million for the third quarter. HMA's charity/indigent care, the write-offs for the fourth quarter was $17.7 million, compared to $145.8 million for the same period a year ago and $19.1 million for the third quarter.

To accurately compare our HMA accounts for the uninsured it is necessary to review all three components together. Therefore the sum of bad debt expense, uninsured discounts and charity/indigent write-offs as a percent of the sum of net revenue uninsured discounts and charity/indigent write-offs was 24.0% for the fourth quarter, compared to 37.7% for the same quarter a year ago, which will include the $200 million of additional bad debt reserves at December 31st of 2006 and 24.1% for the third quarter ended September 30th, 2007.

The uninsured volume and bad debt expense has two components; an accounting component and an operational component. For the accounting component, I feel very comfortable that we are now reserving more timely and accurately for the uninsured and underinsured accounts.

And I'm pleased to see, what I believe will be a trend in the stabilization of uninsured volume, as evidenced by the flattening of uninsured admission as a percent of total admissions in the December of 2007 quarter and this first quarter of 2008.

This confirms at least in part that the operational initiatives being put in place at our hospitals and emergency rooms are achieving some success. I'm not saying that we have resolved this issue, but I'm pleased to see some progress, and I believe, we have some opportunity to see bad debt expense coming at less than 12% of revenue in 2008. Again, this will be dependent upon the actual level of uninsured our cash collections and the economy as a whole.

Moving over to the balance sheet and cash flow statement, total assets are more than $4.6 billion. The balance in accounts receivable net, as of December31st, 2007 was $627.9 million, and balance in the allowance for doubtful accounts was $485.8 million.

Cash flow from continuing operations for the year ended December 31, 2007 was $322.5 million. After-cash interest and cash tax payments aggregating $294.2 million. Cash flows from continuing operations for the quarter were $81.3 million, after-cash interest and cash tax payments totaling $58.3 million.

Lastly, HMA's day sales outstanding our DSOs as of December 31st, 2007 were 51 days compared to 53 days as of December 31st, 2006 or 70 days before the $200 million of additional bad debt expense and 53 days as of September 30th, 2007.

We currently have a $575 million [4.375%] convertible bond issue outstanding for which the bond holders have a put right forecast at par on August 2008. We are confident we have a number of strategies and alternatives available to the company to satisfy this obligation.

To review the fourth quarter results, continuing same hospital operations declined 1.0% during the quarter for adjusted admissions, emergency room visits and surgeries increased 1.6%, 4.1% and 0.5% respectively. Continuing same hospital net revenue per adjusted admission increased 3.0%. Net revenue increased 4.9% and same hospital net revenue from continuing operations increased 4.6%. Continuing same hospital EBITDA margins were 15.9% and uninsured accounts receivable declined to almost $13 million during the quarter and same hospital uninsured admissions as a percent of total admissions remained flat at 7.2% for the fourth quarter of December, compared to the same quarter a year ago.

I will now turn the call over to Kelly for an update on our operations.

Kelly Curry

Thanks Bob and good morning to each of you. We are continuing to focus our energies on the operating and strategic initiatives that we have enumerated to you in the past two calls. These will lead to improved volume, revenue and EBITDA growth as Burke has described.

To further update you during this past quarter, we realized the benefits of our previously discussed programs for dealing with the large upsurge in non-insured patients. These volumes have continued to flatten and cash collections have greatly improved from both private pays and for deductibles in co-pays.

Our hospital divisional leadership and facility executives are now been incentiveised for increasing our direct admission patients. This includes special programs for our hospital concierge works with the physicians' office to offer a very smooth minimum paper work process for those patient admissions. Initial results are very encouraging, we renegotiated about 60% of our managed care agreements in the last year and we are very pleased with our rate increases ranging from 7% to 9%. This bodes very well for the 40% of those agreements coming up during this fiscal year.

During the year, our document, our excellence program completed its first phase. These results showed a mark pickup in our intensities, as well as improved documentation accounting for 20% of our quarter-over-quarter per case increases in payments. We have several major enhancements in process to our automated system that will be coming online during the year, which will produce further efficiency gains.

We continue to develop joint venture programs with our physicians, including whole hospital and outpatient service areas. The interest has been strong but we have seen our closings extended due to the credit market circumstances at this time.

Our clinical excellence program has now been officially kicked off as of January 1 and this effort is very visible to our hospital employees and physicians. Quality is job one at HMA and we plan to be the number one quality provider as a system in the United States, within the next two years. As a part of our clinical excellence focus, we put our last leadership piece of the puzzle in place on January 1, 2008 by bringing Dr. Ron Reimer on board as our Chief Medical Officer.

Dr. Reimer is cardiologist with a Mayo Clinic background, a published author and a very impressive guy, well-known in industry circles for building relationships between physicians and hospitals. He is highly regarded on both sides. His appointment further demonstrates our commitment to quality care and physician relationships with our medical staffs.

In mid-January, all of our hospital CEOs came together in Orlando for an intense 24-hour session to kickoff fiscal year 2008. Burke and I emphasized the vision and accountability that was necessary to be an effective leader.

In clear, undeniable terms, HMA’s senior management confirmed the 2008 business plans and the criteria upon, which compensation for 2008 would be based. There is a higher level of accountability than ever and the management objectives are very clear. With that understanding, we have begun 2008 with a new focus and momentum.

These initiatives, we believe, will bear fruit during this fiscal year, but to a lesser degree in 2009 reflecting the progressive nature of the satisfaction in quality programs.

With that I will conclude, and pass the call back to Burke.

Burke Whitman

That ends our initial comments. We'll turn it over to you all for any questions that you all may have. And Erica, if you want to take some calls for us, please?

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of Jason Gurda.

Jason Gurda - Bear Stearns

Good morning, everyone.

John Merriwether

Good morning.

Burke Whitman

Hi, Jason.

Jason Gurda - Bear Stearns

A quick question, one of your peers discussed -- the inter-quarter trend of volumes is a little bit unusual this quarter just because October was up and November was up but then December was a lot weaker and might have been impacted due to the holiday schedule. Is that anything that you guys saw?

Kelly Curry

Well anytime in December where we have Christmas on a Tuesday or Wednesday and even Thursday is, you’re going to see an impact in December but in general other than that it was pretty typical of what we expected in terms of our admission volumes. That is the small change that we saw really is more reflective of the programs that we put in place in our facilities for dealing with the no-pay and with the cash collection procedures.

Jason Gurda - Bear Stearns

Okay. It is great to see that the uninsured growth is starting to stabilize and it looks down sequentially and you had mentioned some improvements on the cash collections side, both in private pay and on the co-pay?

Kelly Curry

Yes.

Jason Gurda - Bear Stearns

Could you add a little color to that?

Kelly Curry

Sure. Really in a couple of areas, our number one is that what’s important to me is net revenue less bad debt, Jason. And what we look at is we need to be collecting that number because that should be cash and we in fact have an incentive program that kicks in at 101%. So you have to collect 101% of your net revenue less bad debt to begin earning your incentive. Now what we are seeing is that because of our programs are in place we are actually collecting better than the 101% and I know that you want to ask me, how much better than 101% and Bob has restricted me from telling you that.

And however, I can tell you and one of things that will probably come up as a follow-on question is that well, hey, shouldn't increased cash collections affect you’re provisioning methodologies? And the answer of that is, yes it will eventually because the accounting for it would be a debit to cash and a credit to the allowance for doubtful accounts on the balance sheet. So overtime the improved collection experience will impact our provisioning model. However, that's going to be, as we move forward we will be able to see that.

In addition on our deductibles and co-pays we have seen our collections there improve from 53% to about 57%. In this day and age and the amounts that we are looking at there, I think the best we will be able to do is about 60 in that area. But we've made good progress and we have good programs in place to continue to emphasize those.

Jason Gurda - Bear Stearns

Okay, thanks. Just a final quick question is it looks like on your balance sheet that your long-term debt increased sequentially. Could, I get those short-term debt number?

Kelly Curry

Jason, I don't have that off the top of my head but I have to maybe look at that in…

Bob Farnham

We probably get back to you before the call is over.

Jason Gurda - Bear Stearns

Just to clarify though, did the debt increase from one quarter to next or they just may some moved over?

Bob Farnham

It's about a $197 million at the end of the year here. I can tell you there is -- the biggest change really between the third quarter and fourth quarter, we have about a $115 million of the convertible bond issued that of the $575 million that's in current portion of long-term debt. It looks like we have enough availability under our $500 million line to refinance most of that, but about a $150 million. So it was about a $150 million of the convertible that in current portion of long-term debt that December 31st is compared to September 30th.

Jason Gurda - Bear Stearns

Okay. Thank you very much.

Bob Farnham

Plus we had at September 30th we had probably about $325 million.

Jason Gurda - Bear Stearns

Okay. That makes sense. Thank you.

Burke Whitman

No Jason, we didn't add any new additional debt.

Kelly Curry

No, not they are coming off…

Burke Whitman

I was just making a broad comment. We didn't incur any more in total.

Operator

Your next question comes from the line of Christine Arnold with Morgan Stanley.

Christine Arnold - Morgan Stanley

HI there, a couple of questions. First could you walk through how much the fourth quarter bore of January and December gross receivables?

Bob Farnham

Christine, I don't really want to try to get into too many specifics. We really haven't stratified it that way. I mean what we did say at the end of June is, we would see more of those older gross receivables reserved at lower rates rolling through in the third quarter as compared to the fourth quarter.

So I don’t really - we haven't broken or tried to break it down specifically on those lines.

Christine Arnold - Morgan Stanley

Okay.

Bob Farnham

But our bad debt expense of December quarter was 12.3% of revenue. For the third quarter, it was, as you know 11.8%, but that was after the $16 million benefit from the sale of that whole previously written-off AR. And it was 13.3% before that.

What I had said after the end of the third quarter was that the fourth quarter would be somewhere between 11.8% and 13.3%, but probably closer to the 12% number and it was. We also have talked about our go-forward run rate being approximately 12%. We still feel that way, and I know you've thought it could be less than that. I would tell that I'm feeling more comfortable that we have the opportunity to do better than 12% giving our flat trends on the uninsured during the fourth quarter and continuing into this year, and also with regard to cash collection as Kelly just talked about.

Kelly, do you want to add anything to that?

Kelly Curry

Christine, the grapevine works both ways. The message is get now. We don't have a problem dealing with the patients that we're going to get that are ours, if you will, in the terms of the uninsured. It's those that are driving past other hospitals, coming to us that we want to make sure they know that we're no different than anybody else in terms of looking for collections.

Speaking of this quarter, the procedures that we put in place, and one of the most important one of those that we added is what we call acknowledgement of financial responsibility and folks that have availed of hospital services, and if you have, you probably read the little point 2 type size right above your signature that said you acknowledge responsibility and you would probably understand that. But the way that's typically written, most people don't or don't read it.

So what we have done is we have a one page document that's in 12-point types that says, you have presented yourself without insurance for services at our hospital. First, you will receive, no questions asked, a 60% discount on all your services received, right upfront, very fair. Number two, you will either supply us with an insurance, sign a promissory note for installments on the account, pay the account in full within three days or you will be sent to a collector. And I can tell you that this is getting results.

We are seeing people elect where there is non-emergent care or there, if they do elect care, they know they must pay. And we're seeing results from this. It's very clear. It's very upfront. And the reality is, is that by the time these accounts actually do go to the collector, you're really talking about, in the case an inpatient, 14 days. But that compares to 120 days under our old system. So these accounts are going very, very fast to the collector. And our collector results reflect the fact that they're getting them a lot faster.

Burke Whitman

One more thing, Christine, this is one of the areas in which we believe we have some upside potential in our earnings. We have headwinds here in the industry and we don't see any indications that the industry is going to fare better. But we knew we had some opportunities to improve on this and things that Kelly and all our operating leaders are putting into place seem to be making a difference. And if we continue to have momentum then we may have some upside out of this.

Bob Farnham

One of the things that we'll really capitalize on that, Christine, also is that if you look at our same-store information, what you see there is that our decline in same-store EBIT year-over-year is the same $31 million. It's the same as the increase in our provision for doubtful accounts. So we have positioned the rest of our expense controls to really benefit from improvements in this area.

Christine Arnold - Morgan Stanley

Okay. And if I could just follow-up on this, the convert is a pretty big issue. Can you give me a sense for where you stand with potential asset sales? Is this kind of, gee, we hope we might be able to sell hospitals, or is it we have expressions of interest and we think that up to a third, a half, three-quarter, some number of that 575 could be written off? Then I have one more follow-up.

Burke Whitman

Yeah. We don't have anything that we can announce to you in the way of divestitures or partnerships, but I can tell you we are very far along on completing some significant transactions. It could be anywhere up to the $400 million range and could happen during this quarter and the next quarter, well enough in advance of the refinancing event this summer, so that we can incorporate that into getting the right side of the balance sheet addressed.

I can't tell you for sure when we'll be able to announce something because we have mutual confidentiality agreements on this, but they feel good. It's certainly much more than a wish. These are not closed agreements. And the number is somewhere between zero, although I think it will be north of that, and somewhere in the $400 million range.

Christine Arnold - Morgan Stanley

Okay.

Burke Whitman

We feel good about the likelihood. I mean I think it's much more likely that we will have something to say here fairly soon than that we would have nothing to say, Christine.

Christine Arnold - Morgan Stanley

Okay. And then, Bob, just because if I call you offline, I'll get a Reg FD answer. Is $20 million a reasonable estimate of December and January cliffs in the fourth quarter?

Bob Farnham

I’m not going to answer that.

Burke Whitman

But it is a very good question.

Christine Arnold - Morgan Stanley

And you can’t blame a girl for trying on.

Burke Whitman

You just asking the right question, you see.

Christine Arnold - Morgan Stanley

Thanks.

Operator

Your next question comes from the line of Bill Bonello with Wachovia.

Bill Bonello - Wachovia

Good morning. I just wanted to back track to one question again, about the refinancing or the convert. When you were discussing the short-term debt, did I understand you to say that you believe you could buy back all but $115 million of the $575 million convert with funding from your revolver or were you saying something different?

Bob Farnham

No, just some pure accounting standpoint we have a $500 million revolver and we have about $40 million or so that is reserved I guess for outstanding lines of credit and that leaves $460 million availability under that line and with the outstanding convertible being $575 million that leaves about $115 million as the balance.

Bill Bonello - Wachovia

Okay, in reality I’m assuming you won’t be able to draw that much on your revolver because you would probably end up violating some of the covenants?

Bob Farnham

There some convince restrictions with regard to using our revolver to early pay down debt in advance of a scheduled maturity but if we are successful in closing one of the transactions that Burke was just talking about, I mean I could apply those proceeds down against my term loan and then I would have the room to take up my revolver. So the money is more or less fungible there. So yes, if I reduce my term B, that's one way to create availability on the revolver, I can't say that I will want to use all of my revolving line of credit because that would eat up all my liquidity. But just from a pure accounting standpoint that's what the auditors thought that was the most appropriate thing to do.

Bill Bonello - Wachovia

Okay. That's pretty helpful and then the next question is just can you help us sort of bridge the gap from an $0.08 quarter in Q4 to $0.40 to $0.50 for the year. I mean, I know there is normal seasonality but on top of that there is, you are projecting a significant amount of improvement. And so I'm just curious how much of that is cost that you had in Q4 that aren't going to recur in future quarters versus underlying improvement in volume or revenue or the other operating metrics?

Bob Farnham

Yeah just in broad terms I'm not going to give out really a range on EBITDA but what I could tell you is that our objective is to see a higher growth rate in our EBITDA than our net revenue, which means to say that we do think we can grow margins incrementally in 2008. I will point to a number of broad categories where we believe that we have the opportunity to favorably impact margins in 2008. One is in revenue improvement from our initiatives in managed care, contracting and case management, number two would be our opportunity to reduce bad debt expense under 12%, based on, as we talked about improved levels of uninsured in our collections.

Number three would be to our plans to improve the performance of our employed physician practices throughout the company, which we started to make progress here in the last two quarters of this year, and finally the progress we will make on our local Collier County market and more specifically our de novo Collier Boulevard hospital that we opened in 2007.

So just in broad categories of buckets those are some of the areas of opportunity that we have in 2008 that we believe we can increase our EBITDA and see better results.

Bill Bonello - Wachovia

And are the employed physician practices; are they a fairly significant drag on earnings right now?

Bob Farnham

I would just. Yeah, I mean our physician practices do operate in loss, they do operated a higher loss right now than the national average, and I would just tell you that Kelly and his team have a goal of bringing that down significantly under the national averages.

Bill Bonello - Wachovia

Okay. That's very helpful. Thank you.

Burke Whitman

Bill this is Burke. I'm going to just take a moment here to address a couple more things that transactions you asked questions now related to those and Christine did before you. Just want to make clear for those who haven't heard before, the transactions we're looking at include not only sales of potentially a small number of hospitals, but also partnering potentially with folks who would invest in our hospitals with a minority stake would be strategically valuable.

The net result of all of this is these transactions, if we execute them we believe would be beneficial on four fronts. First, they would bring cash in, and I have talked about maybe up to $400 million in this first half of this year. The second thing they would do, though, is deleverage the company by any measure debt to EBITDA or any other measure.

Thirdly, they would let us redeploy capital from couple of assets where there probably just is not that much opportunity for us. There is more opportunity elsewhere for us to use that capital in our other assets. And fourth, if we are right about the partners that we are talking to, there really could be significant upsides of the performance for both of us by entering into these partnerships.

So we're excited and that only about just getting the cash, which is what I addressed in initially answering Christine's question, we're also excited about the other three elements; the deleveraging, redeploying capital and having partners. It will be strategically valuable to us in ways that we'll be able to explain once we can announce some of these things.

Unidentified Analyst

Can I ask a follow-up question to that?

Burke Whitman

Yeah.

Unidentified Analyst

I mean you may not want to get into this, but it would seem like one of the opportunities if you joint venture is that you can piggyback off, better leverage, let's say, with managed care payers in those markets that the bigger systems might have. Is that reasonable?

Burke Whitman

That is reasonable. Absolutely. That is one of the several specific potential opportunities.

Unidentified Analyst

Okay. Thank you.

Operator

Your next question comes from the line of Matthew Borsch.

Shelley Gnall - Goldman Sachs

Hi, thanks, this is Shelley Gnall for Matt Borsch today. Burke, if I could ask a follow-up, just clarifying question, can we assume then that any asset sales, the EBITDA contribution from those hospitals that could be sold would not put the EPS guidance range or margin improvement at risk?

Burke Whitman

We're uncertain right now about which things we're going to close and when. And that's one of the reasons that we have left a fairly broad EPS guidance for you. We got room to have some things to be a little accretive or little diluted depending on which ones we do and when and how we do them. Our best estimate right now is that whatever we do would not result in having to change, certainly not meaningful change, and possibly not change at all what our earnings guidance will be.

But particularly, with regard to this EBITDA impact, the idea would be that any of these things that we do, if we do a transaction EBITDA, it would decline, but so would interest expense, and on a non-cash basis, so would depreciation and amortization. And those, in broad terms, within a fairly broad range, will be more or less a wash while at the same time letting us deleverage, redeploy the capital and have some upside potential from the partnerships.

And we'll obviously just have to provide some more detail once we get to the point of having a specific transaction or transactions that we can announce.

Shelley Gnall - Goldman Sachs

Okay. Great. Thanks so much. I guess then if I could just change topics for a second, I'd like to ask you a question on the new organizational structure. Can you talk a little bit about maybe the current view of what functions will be centralized and what's going to go out to local leadership?

Burke Whitman

Kelly?

Kelly Curry

Sure. Actually, what we have centralized is our physician relations recruiting, what we call the HMA Physician Security Plus program where we're taking a lot more active role from a corporate perspective and developing leads and seeing to the fact that once physicians are contacted, once physicians are identified that we are following up with them to make sure that their transition goes smoothly, offering them not through the company, but for sourcing for them, places to obtain good reasonable prices for various services.

We have new people on new positions for clinical affairs, also in quality, nursing, and as I mentioned, our new Chief Medical Officer, and also for our managed care and facility inspections, as well that are being held from a more of a centralized perspective.

In terms of our divisions what we've done is, is that we've trumped the number of hospitals within each division and expanded the number of divisions from six to eight. And my reason for that is that I want our more seasoned executives to have more boot time on the ground in the operational setting because my view is that if you are in the office you are not working. For me, personally, that is meant that I've made 38 operational hospital visits since coming on board July 10. I've been to more hospitals than that, but that I've operational visits too. And I'm continuing that pace.

And we have a lot more of our time now with direct contact between our divisional CEOs, the physicians, the hospital leadership and the community leaders.

And we are seeing initially I have to say anecdotal, okay? But we are seeing anecdotal evidence that our quality programs are definitely catching attention, gaining some traction, our satisfaction program as we previously reported have shown tremendous improvements.

In addition, our relationships are improving, and we believe that this is translating into increased utilization of our facilities.

Shelley Gnall - Goldman Sachs

Great, thank you.

Burke Whitman

What we did, as we discussed is identify over these past few months, things that we could add in the way of centralized support that made sense given the current competitive environment, the things that Kelly now articulated all those things, and we still believe that's the case and we believe we are seeing some initial traction.

The other flipside of it was to decentralized the ability to carry it out and have the authority to do what you do to develop the key relationship because this is the business of relationships, to develop those in the community of this centralized team being able to support that, reinforce that.

Operator

Your next question comes from the line of Adam Feinstein with Lehman Brothers.

Adam Feinstein - Lehman Brothers

Okay, thank you. Good morning, everyone. I just have a couple of quick housekeeping questions. With the uninsured volumes, can you just give those numbers for the quarter in terms of the uninsured volume growth?

I know you talked about it before, but I just want to make sure I had the right numbers down.

Bob Farnham

For the quarter, Adam, it was basically flat 7.2% this year, 7.2% last year. It was basically 5,500 this year versus 5,600 last year.

Adam Feinstein - Lehman Brothers

Okay. Great, and then just, Bob just on the balance sheet, do you have the allowance for doubtful accounts number?

Bob Farnham

Yeah, I mentioned it during the prepared comments it was $485.8 million.

Adam Feinstein - Lehman Brothers

Okay. Good and just one question Burke I appreciate your -- to the level of details provided in at the opening. Just as you go back through that business plan, you spoke about a lot of different things. Maybe it would just be helpful if you could just kind of characterize what you think is more a wall hanging fruit, for lack of a better word and what's going to be more longer term in nature. So just maybe this if you say few words of the highlights you had mentioned, I was just curious if you could just maybe provide a little bit more detail about where we all see the most immediate impact and then what would be more longer term?

Burke Whitman

The biggest opportunity we have to add value that cant be really as operational and as Kelly and I have talked about most of these things we feel, on the one hand confident and good about our ability to carry out, on the other hand they are going to be gradual in their impact throughout 2008 and 2009. There are not many of those that are immediate. We could see some immediate, somewhat immediate impact to the value of the company perhaps based on what we're able to get done on way of this transactions and Bob's work in getting the refinance and the convertible taken care of, but I think most of the elements that I talked about and that Kelly talked about will be steady and gradual, an upwardly moving sine wave over the next two years. A lot of that we have got traction on now and I think you'll continue to see that through out the couple of years here.

Adam Feinstein - Lehman Brothers

Okay. And just one final question here. I guess in terms of expansion of hospitals or building new hospital I guess that you opened the new facility in April last year, I guess there is a news obviously, I think you got the approval to build another hospital in Florida in a different city, as well as the expansion of Heart of Florida hospital, maybe just if could you talk a little bit about just the opportunities there in terms of building a hospitals as well as expanding hospitals and just is that something that -- in terms of as you think about the company in longer term, do you see a better return from building relative to buying?

Burke Whitman

I think you will see is doing both, we are obviously in a mode right now where we are getting things in order operationally and our biggest focus is in the transaction front it’s mostly having people, buy into our assets and even actually up right potentially sell a couple more. But we absolutely view ourselves even looking out just two and three years being a growth company will explode some of the opportunities to acquire, will exploit some of the opportunities to build and we were delighted to get confirmation of our ability to build the Oviedo site, we have some expansions underway now. In a number of our hospitals we are actually going to be investing capital to add facilities, add outpatient services at a number of places that should be fairly quickly helpful even this year. Kelly any specifics…?

Kelly Curry

In addition we are also carrying out a number of projects to significantly upgrade the esthetics of our facilities in terms of patient rooms and service areas for just bring them into more current decorating style etcetera and we also have an ongoing program, I just brief alluded to. We have very detailed inspections going on and which I do too. I think I've probably got the reputation out there in the field now for wearing a white glove because I go around and when I look at the hospitals, I'm very much looking at their cleanliness. I think the hospital ought to be a plate of chicken you can really eat off the floor and so we have -- that's identifying this course of things in the esthetic area that we need to work on. So those kinds of things are ongoing.

Burke Whitman

For the investment of capital in new markets it just depends on the opportunity of course and we are looking at many of them, but I would, I think I would summarize them all by saying the things that we are looking at now, that we expect to look at over these next two years would be hospitals and markets of strategic value to this company and reinforcing the performance of what we already had. We do have some of those opportunities, we are looking at those. The mix of acquisition versus new build, our best guess would be more in the way of acquisitions. They are not just accretive to earnings but really sort of accretive to the strategic value of the company overtime. We might do a build or two. The only thing that is on the horizon for us would be to go and follow through on these opportunity and it will be in Florida and potentially one or two others.

Adam Feinstein - Lehman Brothers

All right. Thank you.

Operator

Your next question comes from the line of Sheryl Skolnick of CRT Capital Group.

Sheryl Skolnick - CRT Capital Group

Gentlemen, I put a different pair of glasses on and you are right and it says one of two not two facilities. So for the record there is on the comparability of your earnings report $0.05 after the discontinued operations would or held for sale operations would still compare to the way that we all did our estimates, not knowing that you were going to move those two facilities into discontinued operations, is that fair?

Burke Whitman

Bob. You want to?

Bob Farnham

No. I mean we've had, Little Rock is a discontinued facility all year long.

Sheryl Skolnick - CRT Capital Group

Correct.

Bob Farnham

We did make a decision to close the smaller of the two hospitals in the Biloxi market that we acquired from [tenant] in 2006, and so it would be inappropriate and I wouldn't be comparing apples-to-apples to continued to have included that hospital since we closed it in the continuing operations.

Sheryl Skolnick - CRT Capital Group

Sure.

Burke Whitman

I have one thing on that, when it is closed, it is not held for sale, we actually closed the…

Sheryl Skolnick - CRT Capital Group

Right. And Little Rock is the one that's held for sale.

Burke Whitman

Yeah.

Bob Farnham

Yes.

Sheryl Skolnick - CRT Capital Group

Okay, but was there anyway that we would have known that there would have been this change in your definition of continuing operations prior to the preview? Did I miss something?

Bob Farnham

No, we did not announce anything.

Sheryl Skolnick - CRT Capital Group

Okay.

Bob Farnham

For competitive reasons and legal and so on and so forth, we did not -- we don't want preannounce into a market the fact you are going to close a hospital.

Sheryl Skolnick - CRT Capital Group

Understood.

Bob Farnham

Timing is obviously important when you do something like that.

Kelly Curry

And hey, by the way Sheryl, the land there is pretty valuable.

Sheryl Skolnick - CRT Capital Group

It's in a nice spot, that's the truth. Okay.

Bob Farnham

Great place for something other than hospital.

Burke Whitman

Also because they are specific markets, we can't give you specifics on it, but can tell you each of these are very, very small compared to other hospitals, in respect of revenues, the EBITDA and so forth.

Sheryl Skolnick - CRT Capital Group

I understand. Okay. So just wanted to clarify that. Now I am -- hello, hello.

Burke Whitman

We're still here. Hello. Yeah can we release you? Hello. Erica did we lose you. Hello, hello. Erica.

John Merriwether

Has she gone?

Operator

Ladies and gentlemen, this is the operator. Today's conference has a technical delay, please do not disconnect. You will be rejoined in a moment here.

John Merriwether

Hello, Erica.

Operator

Yes, Mr. Meriwether?

John Merriwether

Are we back on line now?

Operator

We are back on line.

John Merriwether

Everybody, I apologize for the disconnection there we had some technical difficulties. Erica, can you tell me if Sheryl is still in the Q&A queue?

Operator

She is.

John Merriwether

All right, can you reconnect her?

Operator

She is on. Her line is open.

John Merriwether

Thank you.

Sheryl Skolnick - CRT Capital Group

Thank you so much. I really appreciate you holding this for me. Second quarter in a row that happened. So I wanted to ask completely different set of question, but they are related to something you’ve already spoken about and also a little housekeeping.

So let me just ask the question in that way maybe and we can get through this one, I hadn’t any more excitement. First of all, could you talk about your physician retention and recruiting efforts, sort of growth number of hires and/or employee hires and/or recruits end and then the net number net of the one that you’ve lost for the year, for the quarter, any detail you can give us on that?

The second issue is can you talk a little bit about how much of valuation, how much of a premium valuation you need on the assets that you will be selling and in order to not trip the covenants meaning that -- word on the street is that you are looking at 7.5 and 8.5 times on an enterprise value to EBITDA basis. I assume that is sort of 12 months trailing is opposed to forward.

And if that’s the case then,-that’s a pretty healthy multiple and if we are looking at same-store margins in the 15ish percent or 16ish percent for some of your assets. Maybe you are selling a better once rather than your worst ones, but that still seems to me to be a pretty healthy multiple for assets to EBITDA margins, you should excuse me, they have been declining significantly over time. So I’m curious about whether; A). You can confirm that valuation. B) Do you need to get a valuation that high, in order not to trip up EBITDA coverage covenants under credit facility even if you don’t use the revolver or the term loans to pay for the put?

Burke Whitman

Yeah, all right. I wish I could tell you more about the evaluations I can tell you the things were looking at our transactions, that I believe when we announced, and you would agree they are attractive from perspective with regard to evaluation. But I think Sheryl you would conclude that they also make sense for the other side. We sold, we did two outright sales towards the end of this past year, two hospitals at Virginia to a very well positioned large group in Virginia that was looking to expand their presence there and it's good fit for them, a very attractive evaluations from our standpoint, a good strategic addition for them and we'll just have to describe it you that, I just, because where we own these things it just wouldn't be appropriate yet to describe it. The right question is if you had asked the questions, I would have answered; we just really can't speak to it, just yet. Kelly you want to address this?

Kelly Curry

Burke let me make- I guess may be two points and one is that even at the low end of our guidance what that would translate into in terms of EBITDA is sufficient that we would meet the covenants compliance ratios throughout all of 2008.

Sheryl Skolnick - CRT Capital Group

Good.

Kelly Curry

And also with regard to evaluation I can tell you that we will not complete a transaction that was not a delivering transaction and with our average at 5.5%. Yes, the market is correct in assuming that it would obviously have to be higher than that.

Sheryl Skolnick - CRT Capital Group

I'm sorry, say that again. What has to be higher than that?

Kelly Curry

Evaluations.

Sheryl Skolnick - CRT Capital Group

You mean higher than 5.5 times.

Kelly Curry

Yeah absolutely.

Sheryl Skolnick - CRT Capital Group

You said 5.5%, so that's I was confused. I didn’t know meant a coupon or cost of capital or multiple. Okay. All right and then the physician recruiting retention numbers, if you wouldn't mind, and then also an explanation of the $19 million cash inflow for the year from other liabilities?

Kelly Curry

Well, in terms of the physician situation, I think in the past the company Sheryl might have given out detailed information or spoken in terms of recruited docs, etcetera, but I got to tell you something.

From my perspective, the numbers that we were looking at in the past included HBTs and assorted physicians that you need in order to get physicians to admit, and I don't consider that to be a number that's valid from when you are really looking at the details of this what you need to be doing in terms of recruiting. So I can tell you that I have eliminated all of that.

We're only talking about for our recruitment programs, we did a -- we got some outside assistance, we did a very detailed needs analysis by market and we came up with a specific list of what I'm going to call real doctors that we need in each one of those markets, we have them specifically identified according to importance and in order that we want to have them brought on board.

We have created a group by each one of our divisions. We have a recruitment person who is working directly with us here at corporate, whose job is to facilitate all aspects of that physician, from the point of identification by our recruiter all the way through to their visits etcetera, detailed explanations of what the opportunity is.

In addition, we are bringing them -- once we have come to an agreement with them we bring them to corporate for a full day. We go through their opportunity and their markets and identify for them, how they can bring their business forward, what is specifically who the people are here that will assist them in various areas, whether its mechanized system for their office etcetera. So it’s a very turnkey [shift in that] whole program.

Sheryl Skolnick - CRT Capital Group

And is this new over the last call it in nine months to a year.

Kelly Curry

Definitely.

Sheryl Skolnick - CRT Capital Group

Okay, perfect

Kelly Curry

It started after I came on Board.

Sheryl Skolnick - CRT Capital Group

Good, okay. Thank you.

Burke Whitman

And the key things here. There is Senior Corporate person who is responsible for and in fact even paid based on how well we do in our recruiting retention this year, which we didn't have before and secondly the division leaders and the hospital leaders are specifically, quantitatively having their pay tied to how well we do in that.

Kelly Curry

Absolutely and this I mean we are pretty focused in it, at the risk of -- it was a little bit of the shell game before, it is not anymore.

Operator

Your next question comes from the line of…

Bob Farnham

Sheryl, well I haven't answer the last question Sheryl I have within other long-term liabilities. The biggest driver, the increase in that line item is professional liability accrual. It is little smaller this year than last year. Last year that line item increase was 32 million and this year its 19 million, the reason its small this year than last year is that that's a net number and we had a couple of larger claims settlements on some prior year claims that we settled earlier in the year. Thank you operator.

Burke Whitman

And Sheryl, this Burke I have one more follow-up, the transactions that we're talking about doing all of them would actually improve our leverage ratios in every case, that is the case. We're not looking anything currently that would actually make that deteriorate, it would be better and that's debt-to-EBITDA or the other measure.

Operator

Your next question comes from the line of John Ransom with Raymond James.

John Ransom - Raymond James

Hi, as you look at '08 versus '07, what is the net savings you expect to get from changes you're making with respect to your employed physicians?

Kelly Curry

Well, I can tell you, John, we're not separately reporting what's going on with our employed physicians, but I can tell you we have made heck of a lot of progress in the last six months and we're continuing to make progress. And what I mean by that is putting physicians I mean just like you have to produce in order to be paid and I have to do the same thing, that is exactly the way we're going to run our physician clinic business, can't be any other way.

So that is a clear message that's out there, results are being gained. Frankly, we had a -- just because we were good at billing insurance, which is what we are good at, it didn't mean we were necessarily good at billing small patient dollar accounts. It turns out that we weren't very good. We have had to get a heck of an education over the last six moths in that area and that's another place that we're making good progress. We are eliminating -- I should say we have gained appreciably from some hard lessons in that area. So I am very -- this year is going to be a improvement over the prior year and significant.

John Ransom - Raymond James

So with significance set in an excel spreadsheet, can you give me some other than that? It's got to be some order of magnitude, bigger than the bread box.

Kelly Curry

I am sorry, Bob has a hammer here and he threatened to use it on me twice already. So…

John Ransom - Raymond James

Okay. All right, so it is significant, we are left at significant. The next question I have, as you guys, I mean clearly as we've read and I think there is so many things going on there and I think you are part of it. As you look at all of your hospitals, how many would you say today or as you look at your '08 budget, how many of those are cash flow negative, if you fully allocate the debt cost etcetera?

Kelly Curry

I would tell you that it's zero to two.

John Ransom - Raymond James

Okay. Not many.

Kelly Curry

No.

John Ransom - Raymond James

And with this include another Naples hospital go off to a bumpy start and is Naples cash flow positive yet?

Bob Farnham

Hey come on back down here and let me show you that hospital, man.

John Ransom - Raymond James

Is it cash flow positive?

Bob Farnham

It's doing great. Yes it is.

John Ransom - Raymond James

Okay and then I guess my other question just generally speaking the environment, Medicaid environment in Florida and Mississippi. Could you speak -- I know we don't have our fiscal '09 budget here, but could you about what the latest ingredients are there?

Kelly Curry

Yeah. Good question, John. Obviously with the economic circumstances that state Medicaid programs are running short of funding, what we are seeing first off with Mississippi is that they've got a budget shortfall that they are trying to solve. There are a couple of different proposals, one of which would be cigarette tax. That would more than take care of the issue. There is a couple of other more onerous suggestions down there. I think and then there is the Board suggestion, which is get it out of tobacco money that we've got. There is - we are on the committee that is looking at alternative. We are also heavily engaged with the various industry efforts to acquaint legislators with what the issues really are. I can tell you that within Mississippi, us not included that there are hospitals that would close, if the state were to go forward with what the governor has proposed, and you can imagine what kind of results that's getting.

It's a bit of political saber rattling going on out there right now; we are not at this stage concerned about what the outcome is going to be. However, it would be, it is possible that it could have an effect upon us.

It depends how they settle it. We are not -- we don't think they are going to go forward with this tax. I think they've got some legislative statutes that frankly create a real difficulty for them, and I think we could -- the whole industry would be on Board for opposing that in court.

So at this stage I can't tell you exactly what's going to happen. It could have an impact and we are watching it very, very closely in Mississippi, it kind of goes along with I think some of the earlier comments that were made by Burke and Bob.

I mean if we're going to have steep and deep recession then that's going to be a different issue as we look forward.

John Ransom - Raymond James

Sure.

Kelly Curry

If it's not going to be, that's another matter. In Florida, the Medicaid situation is not significant to us. The main thing that we're -- there are some things and being considered that are being proposed by the governor that we would be opposed to along with every other hospital in the state, and there are significant measures underway in terms of dealing with that in a legislative level as well, and we are highly involved in that.

John Ransom - Raymond James

Got you. Okay, thanks very much.

Kelly Curry

You're welcome.

Operator

Your next question comes from the line of Gary Lieberman with Stanford Group.

Burke Whitman

Gary?

Gary Lieberman - Stanford Group

About some of the last question, in terms of Florida and could you just talk a little bit more in depth in terms of what impact if any is the weakened economy going to have in Florida from -- increased bankruptcies and weaker real-estate market, considering the high concentration of hospitals you have in Florida, what sounds like continued growth in the state for you?

Kelly Curry

Yes Gary, I can answer that. First, I have to say that we have not had any impact from that. I think, part of the reason for that is that our locations are not in the high, second home, market areas that impacted all of the location that we are in, that people that come down here, bring their home with them, if you know what I mean.

So, we've not seeing any impact from that situation in Florida at this time. In fact, it's really quite the opposite. So, and that doesn't mean again, I'll qualify that by saying that, we're going to have a major recession. Although I did a FOX Business news yesterday that one of their folks call it bottom to the credit debacle already. So, that's the case and I don't think we'll have a steep and deep recession. But if we are than I am sure that we will eventually, but to date no.

Gary Lieberman - Stanford Group

And I guess, just a follow-up, is that sort of what is assumed in your assumption for bad debt for 2008?

Kelly Curry

Absolutely. We are going have more than 16% of the population that is not insured. That’s not something that we’ve figured into our calculations. We do know that -- right now what I’m seeing, I’m sure you saw the same number, if that unemployment is going to be 5.5%, perhaps 5.6% that sort of thing, if that is accurate than I don’t think that we will see significant changes in that figure.

John Merriwether

Yeah, Gary, I would say, I was really overall pleased the Florida in the December quarter we had number of markets that were up, also a number that were down. But Florida admissions were actually up for the quarter and overall admissions exceeded a very small increase in what was uninsured. So the overall increase in admissions we had in Florida for December quarter was good admissions, it was good business. So as Kelly said really so far, knock on wood, we haven’t had a negative impact.

Burke Whitman

Finally, just with respect to the impact on earnings couple of this was mentioned early on in the call that our range of earnings guidance allows for some shortfall in expectations on the economic front not big ones, but if it is a little softer than kind of our midpoint expectations we got some room to recover from that state within our objectives.

Gary Lieberman - Stanford Group

Great, thanks a lot.

Operator

Ladies and gentlemen we have reached the allotted time for question and answers, Mr. Merriwether, do you have any closing remarks.

John Merriwether

Erica I just want to say thank you, thank you everybody for your patience during the call and that wraps it up our Q4 and 2007. Thank you.

Burke Whitman

Thank you each of you.

Operator

This concludes today's conference call. You may now disconnect.

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