Vanguard Health Systems (VHS) 8-K Vanguard Reports Third Quarter Results

EXHIBIT 99.1

Vanguard Reports Third Quarter Results

NASHVILLE, Tenn.—May 12, 2003 -- Vanguard Health Systems, Inc. (the “Company” or “Vanguard”) today announced results for the third quarter ended March 31, 2003.  “We have continued our in-market business development initiatives and capital investment plans and remain excited about the prospects for continued growth and leadership in those markets,” commented Charles N. Martin, Jr., Chairman and Chief Executive Officer.  “Since the beginning of our partnership with Baptist Health System of San Antonio, we have made significant progress in integrating the operations while continuing to deliver high quality health care to the San Antonio community.”

For the quarter ended March 31, 2003, total revenues were $402.4 million, an increase of $166.5 million or 70.6% from the prior year period.  Patient service revenues and health plan premium revenues increased $161.6 million and $4.9 million, respectively, from the prior year period.

Income before income taxes increased by $3.6 million or 51.4% to $10.6 million for the quarter ended March 31, 2003, from $7.0 million for the prior year period.  Net income for the quarter ended March 31, 2003 was $6.6 million, an increase of $0.2 million from the prior year period.  For the quarter ended March 31, 2003, income tax expense was $4.0 million, an effective tax rate of 37.3%, compared to $0.6 million, an effective tax rate of 8.8%, for the prior year period.  The Company expects its future effective tax rate to approximate 40%, the full statutory rate.

EBITDA increased to $32.9 million for the quarter ended March 31, 2003 compared to $22.9 million for the prior year period, an increase of $10.0 million or 43.7%.  A reconciliation of EBITDA to income before income taxes as determined in accordance with generally accepted accounting principles for the quarters ended March 31, 2002 and 2003 is included in the supplemental financial information attached to this earnings release.

The consolidated operating results for the quarter ended March 31, 2003, reflect an 81.2% increase in discharges and an 87.6% increase in patient days compared to the prior year period.  On a same hospital basis, discharges increased by 2.2% during the quarter ended March 31, 2003.

For the nine months ended March 31, 2003, total revenues were $937.6 million, an increase of $271.3 million or 40.7% from the prior year period.  Patient service revenues and health plan premium revenues increased $245.0 million and $26.3 million, respectively, from the prior year period.

Income before income taxes increased by $13.5 million to $19.0 million for the nine months ended March 31, 2003, compared to $5.5 million for the prior year period.  Net income increased to $11.6 million for the nine months ended March 31, 2003, compared to $4.8 million

for the prior year period.  During the nine months ended March 31, 2002, the Company incurred debt extinguishment costs of $6.6 million related primarily to the refinancing of its credit facility debt and the termination of an interest rate collar agreement.  For the nine months ended March 31, 2003, income tax expense was $7.4 million, an effective tax rate of 38.9%, compared to $0.6 million, an effective tax rate of 11.7%, for the prior year period.  The Company expects its future effective tax rate to approximate 40%, the full statutory rate.

EBITDA increased to $75.0 million for the nine months ended March 31, 2003 compared to $55.4 million for the prior year period.  A reconciliation of EBITDA to income before taxes as determined in accordance with generally accepted accounting principles for the nine months ended March 31, 2002 and 2003 is included in the supplemental financial information attached to this earnings release.

The consolidated operating results for the nine months ended March 31, 2003, reflect a 42.6% increase in discharges and a 45.2% increase in patient days compared to the prior year period.  On a same hospital basis, discharges increased by 2.2% during the nine months ended March 31, 2003.

On January 3, 2003, the Company purchased the five acute care hospitals aggregating 1,537 beds and related health care businesses of Baptist Health System in San Antonio, Texas.  The purchase price was $295.0 million, payable $247.0 million in cash and $48.0 million in the convertible subordinated debt, convertible preferred stock and common stock securities of the Company or its subsidiaries.  In addition, the Company assumed certain of the seller’s current liabilities as of the closing date related to the assets purchased.  The Company funded the cash portion of the purchase price with proceeds from an expanded credit facility, from private sales of its common stock to existing shareholders and with available cash.

The Company is in the process of constructing West Valley Medical Center, a 73-bed acute care hospital located in the West Valley of metropolitan Phoenix, Arizona.  The construction remains on schedule for the hospital’s expected opening during August 2003.  This hospital will give the Company a direct market presence in a fast-growing area of the Phoenix market.

The Company will host a conference call for investors at 11:00 am EDT on May 13, 2003.  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 the Company’s Web site at www.vanguardhealth.com by clicking on Third Quarter Webcast.  If you are unable to participate during the live webcast, the call will be available on a replay basis on the Company’s Web site www.vanguardhealth.com.  To access the replay, click on Third Quarter Webcast on the Company’s home page or later on the Latest News link on the Investor Relations page of www.vanguardhealth.com.

At March 31, 2003, Vanguard Health Systems, Inc. owned and operated 15 acute care hospitals and complementary facilities and services in Chicago, Illinois; Phoenix, Arizona; Orange County, California and San Antonio, Texas.  The Company’s strategy is to develop locally branded, comprehensive health care delivery networks in urban markets.  Vanguard will pursue acquisitions where there are opportunities to partner with leading delivery systems in new urban

markets.  Upon acquiring a facility or network of facilities, Vanguard implements strategic and operational improvement initiatives including expanding services, strengthening relationships with physicians and managed care organizations, recruiting new physicians and upgrading information systems and other capital equipment.  These strategies improve quality and network coverage in a cost effective and accessible manner for the communities we serve.

This press release contains forward-looking statements within the meaning of the federal securities laws, which are intended to be covered by the safe harbors created thereby.  These forward-looking statements include all statements that are not historical statements of fact and those statements regarding the Company’s intent, belief or expectations.  Do not rely on any forward-looking statements as such statements are subject to numerous factors, risks and uncertainties that could cause the Company’s actual outcomes, results, performance or achievements to be materially different from those projected.  These factors, risks and uncertainties include, among others, the Company’s high degree of leverage; the Company’s ability to incur substantially more debt; operating and financial restrictions in the Company’s debt agreements; the Company’s ability to successfully implement its business strategies; the Company’s ability to successfully integrate its recent and any future acquisitions; the highly competitive nature of the health care business; governmental regulation of the industry including Medicare and Medicaid reimbursement levels; changes in Federal, state or local regulation affecting the health care industry; the possible enactment of Federal or state health care reform; the ability to attract and retain qualified management and personnel, including physicians and nurses; claims and legal actions relating to professional liabilities or other matters; changes in accounting practices; changes in general economic conditions; the ability to enter into managed care provider and other payer arrangements on acceptable terms; the efforts of insurers, managed care payers, employers and others to contain health care costs;  the availability and terms of capital to fund the expansion of the Company’s business; the timeliness of reimbursement payments received under government programs; the potential adverse impact of known and unknown government investigations; and those factors, risks and uncertainties detailed in the Company’s filings from time to time with the Securities and Exchange Commission, including, among others, the Company’s annual reports on Form 10-K and its quarterly reports on Form 10-Q.

Although the Company believes that the assumptions underlying the forward-looking statements contained in this press release are reasonable, any of these assumptions could prove to be inaccurate, and, therefore, there can be no assurance that the forward-looking statements included in this press release will prove to be accurate.  In light of the significant uncertainties inherent in the forward-looking statements included herein, you should not regard the inclusion of such information as a representation by the Company that its objectives and plans anticipated by the forward-looking statements will occur or be achieved, or if any of them do, what impact they will have on the Company’s results of operations and financial condition.  The Company undertakes no obligation to publicly release any revisions to any forward-looking statements contained herein to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events.

VANGUARD HEALTH SYSTEMS, INC.
Condensed Consolidated Income Statements (Unaudited)
(In thousands)

	Three months ended March 31,
			2002					2003
Patient service revenues	$	186,775			79.2	%	$	348,390		86.6	%
Premium revenues		49,110			20.8			54,038		13.4
Total revenues		235,885			100.0			402,428		100.0
Costs and Expenses:
Salaries and benefits		99,118			42.0			175,264		43.6
Supplies		30,040			12.7			66,352		16.5
Medical claims expense		34,935			14.8			40,473		10.0
Insurance		2,937			1.2			8,538		2.1
Other operating expenses		34,017			14.4			53,773		13.4
Provision for doubtful accounts		11,927			5.1			24,179		6.0
Depreciation and amortization		8,672			3.7			12,905		3.2
Interest, net		7,194			3.1			10,351		2.6
Debt extinguishment costs		–			0.0			–		0.0
Total costs and expenses		228,840			97.0			391,835		97.4
Income before income taxes		7,045			3.0			10,593		2.6
Income tax expense		620			0.3			3,950		1.0
Net income		6,425			2.7			6,643		1.6
Preferred dividends		(455		)	(0.2	)		(960	)	(0.2	)
Net income attributable to common stockholders	$	5,970			2.5	%	$	5,683		1.4	%
EBITDA (a)	$	22,976					$	32,901
(a)  EBITDA is defined as income before interest expense (net of interest income), income taxes, depreciation, amortization,       minority interests, gain or loss on the sale of assets, equity method income or loss and debt extinguishment costs.       EBITDA is not intended as a substitute for net income, operating cash flows or other cash flow statement data       determined in accordance with accounting principles generally accepted in the United States.  Due to varying methods       of calculation, EBITDA as presented may not be comparable to similarly titled measures of other companies.

VANGUARD HEALTH SYSTEMS, INC.
Condensed Consolidated Income Statements (Unaudited)
(In thousands)

	Nine months ended March 31,
			2002					2003
Patient service revenues	$	530,687			79.6	%	$	775,683		82.7	%
Premium revenues		135,635			20.4			161,950		17.3
Total revenues		666,322			100.0			937,633		100.0
Costs and Expenses:
Salaries and benefits		281,064			42.2			402,301		42.9
Supplies		83,518			12.5			137,749		14.7
Medical claims expense		97,400			14.6			118,823		12.7
Insurance		9,710			1.5			21,068		2.2
Other operating expenses		97,081			14.6			129,980		13.9
Provision for doubtful accounts		41,975			6.3			51,797		5.5
Depreciation and amortization		23,043			3.4			31,966		3.4
Interest, net		20,435			3.1			24,944		2.7
Debt extinguishment costs		6,627			1.0			–		0.0
Total costs and expenses		660,853			99.2			918,628		98.0
Income before income taxes		5,469			0.8			19,005		2.0
Income tax expense		642			0.1			7,400		0.8
Net income		4,827			0.7			11,605		1.2
Preferred dividends		(1,319		)	(0.2	)		(1,893	)	(0.2
Net income attributable to common stockholders	$	3,508			0.5	%	$	9,712		1.0	%
EBITDA (a)	$	55,412					$	75,014
(a)  EBITDA is defined as income before interest expense (net of interest income), income taxes, depreciation, amortization,       minority interests, gain or loss on the sale of assets, equity method income or loss and debt extinguishment costs.       EBITDA is not intended as a substitute for net income, operating cash flows or other cash flow statement data       determined in accordance with accounting principles generally accepted in the United States.  Due to varying methods       of calculation, EBITDA as presented may not be comparable to similarly titled measures of other companies.

VANGUARD HEALTH SYSTEMS, INC.
Supplemental Financial Information (Unaudited)
Reconciliation of EBITDA to Income before Income Taxes
(In thousands)

		Three months ended March 31,						Nine months ended March 31,
		2002			2003			2002			2003
EBITDA	$	22,976		$	32,901		$	55,412		$	75,014
Depreciation and amortization		(8,672	)		(12,905	)		(23,043	)		(31,966	)
Interest, net		(7,194	)		(10,351	)		(20,435	)		(24,944	)
Minority interests		(123	)		139			(532	)		(291	)
Equity method income (loss)		95			936			397			1,119
Gain (loss) on sale of assets		(37	)		(127	)		297			73
Debt extinguishment costs		–			–			(6,627	)		–
Income before income taxes	$	7,045		$	10,593		$	5,469		$	19,005

VANGUARD HEALTH SYSTEMS, INC.
Condensed Consolidated Balance Sheets
(In thousands)

	June 30, 2002		(Unaudited) March 31, 2003
ASSETS
Current assets:
Cash and cash equivalents	$	55,408	$	25,298
Accounts receivable, net of allowance for uncollectible accounts of       approximately $23,173 and $46,447, at June 30, 2002 and       March 31, 2003, respectively		169,363		216,185
Supplies		15,481		28,863
Prepaid expenses and other current assets		30,392		16,228
Total current assets		270,644		286,574
Property, plant and equipment, net		454,837		724,982
Goodwill		79,078		94,202
Intangible assets, net		38,304		39,397
Other assets		9,081		27,178
Total assets	$	851,944	$	1,172,333
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	49,676	$	76,791
Accrued health claims		22,345		27,858
Other accrued expenses and current liabilities		106,960		102,102
Current maturities of long-term debt		3,762		6,620
Total current liabilities		182,743		213,371
Other liabilities		22,461		57,292
Long-term debt, less current maturities		311,018		474,940
Payable-In-Kind Preferred Stock		24,106		55,999
Stockholders’ equity:
Common Stock		2		2
Additional paid-in capital		305,369		353,477
Accumulated other comprehensive loss		–		(597	)
Retained earnings		6,245		17,849
Total liabilities and stockholders’ equity	$	851,944	$	1,172,333

VANGUARD HEALTH SYSTEMS, INC.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)

	Nine months ended March 31,
	2002			2003
Operating activities:
Net income	$	4,827		$	11,605
Adjustments to reconcile net income to net cash provided by     operating activities:
Depreciation and amortization		23,043			31,966
Provision for doubtful accounts		41,975			51,797
Amortization of loans costs		1,018			1,142
Debt extinguishment costs		6,627			–
(Gain) loss on sale of assets		(297	)		(73	)
Changes in operating assets and liabilities, net of     effects of acquisitions:
Accounts receivable		(49,307	)		(48,577	)
Establishment of accounts receivable of recent acquisitions		(1,522	)		–
Supplies		(474	)		(1,248	)
Prepaid expenses and other current assets		(1,491	)		16,149
Accounts payable		(3,781	)		929
Accrued expenses and other current liabilities		59			(25,080	)
Other liabilities		4,372			28,935
Net cash provided by operating activities		25,049		$	67,545
Investing activities:
Acquisitions including working capital settlement payments:	$	(59,106	)	$	(297,019	)
Capital expenditures		(20,483	)		(50,140	)
Proceeds from asset dispositions		–			1,594
Other		(541	)		497
Net cash used in investing activities		(80,130	)		(345,068	)
Financing activities:
Proceeds from long-term debt		300,000			167,642
Payments of long-term debt and capital leases		(153,026	)		(3,435	)
Payments of loan costs		(14,641	)		(2,255	)
Proceeds from termination of swap agreement		–			5,460
Exercise of stock options		20			–
Proceeds from issuance of Common stock and PIK Preferred stock		–			80,001
Net cash provided by financing activities		132,353			247,413
Net increase (decrease) in cash and cash equivalents		77,272			(30,110	)
Cash and cash equivalents, beginning of period		12,079			55,408
Cash and cash equivalents, end of period	$	89,351		$	25,298

VANGUARD HEALTH SYSTEMS, INC.
Selected Operating Statistics (Unaudited)

		Three months ended March 31,
		2002			2003		% Change
Actual:
Number of hospitals at end of period		9			15
Licensed beds at end of period		1,838			3,666
Discharges		19,735			35,751		81.2		%
Adjusted discharges-hospitals		28,504			50,980		78.9		%
Average length of stay		4.18			4.33		3.6		%
Patient days		82,550			154,857		87.6		%
Adjusted patient days-hospitals		120,121			219,734		82.9		%
Patient revenue per adjusted discharge-hospitals	$	6,208		$	6,493		4.6		%
Gross inpatient revenue per discharge	$	18,624		$	18,875		1.3		%
Outpatient surgeries		9,241			14,542		57.4		%
Emergency room visits		81,765			118,738		45.2		%
Gross revenue payer mix:
Medicare		27.5	%		33.0	%
Medicaid		8.9	%		9.3	%
Managed care		59.4	%		52.1	%
Commercial		3.8	%		2.0	%
Self pay		0.5	%		3.6	%
Total		100.0	%		100.0	%
Same hospital:
Number of hospitals		9			9
Total revenues (in millions)	$	235.9		$	258.6		9.6		%
Patient service revenues (in millions)	$	186.8		$	204.6		9.5		%
Discharges		19,735			20,162		2.2		%
Adjusted discharges-hospitals		28,504			29,913		4.9		%
Average length of stay		4.18			4.02		(3.8	)	%
Patient days		82,550			81,111		(1.7	)	%
Adjusted patient days-hospitals		120,121			120,906		0.7		%
Patient revenue per adjusted discharge-hospitals	$	6,208		$	6,419		3.4		%
Gross inpatient revenue per discharge	$	18,769		$	20,732		10.5		%
Outpatient surgeries		9,241			9,745		5.5		%
Emergency room visits		81,765			75,473		(7.7	)	%

VANGUARD HEALTH SYSTEMS, INC.
Selected Operating Statistics (Unaudited)

		Nine months ended March 31,
		2002			2003		% Change
Actual:
Number of hospitals at end of period		9			15
Licensed beds at end of period		1,838			3,666
Discharges		55,362			78,932		42.6		%
Adjusted discharges-hospitals		80,966			115,360		42.5		%
Average length of stay		4.06			4.14		1.9		%
Patient days		224,845			326,515		45.2		%
Adjusted patient days-hospitals		331,717			477,200		43.9		%
Patient revenue per adjusted discharge-hospitals	$	6,021		$	6,376		5.9		%
Gross inpatient revenue per discharge	$	17,913		$	19,141		6.9		%
Outpatient surgeries		27,327			34,581		26.5		%
Emergency room visits		221,355			275,922		24.7		%
Gross revenue payer mix:
Medicare		25.0	%		29.9	%
Medicaid		6.5	%		8.8	%
Managed care		60.3	%		54.8	%
Commercial		3.7	%		2.4	%
Self pay		4.4	%		4.1	%
Total		100.0	%		100.0	%
Same hospital:
Number of hospitals		8			8
Total revenues (in millions)	$	634.6		$	684.9		7.9		%
Patient service revenues (in millions)	$	499.0		$	522.9		4.8		%
Discharges		51,533			52,649		2.2		%
Adjusted discharges-hospitals		74,891			77,488		3.5		%
Average length of stay		4.08			3.98		(2.5	)	%
Patient days		210,370			209,300		(0.5	)	%
Adjusted patient days-hospitals		308,752			310,881		0.7		%
Patient revenue per adjusted discharge-hospitals	$	6,088		$	6,305		3.6		%
Gross inpatient revenue per discharge	$	18,179		$	20,118		10.7		%
Outpatient surgeries		25,189			25,255		0.3		%
Emergency room visits		207,528			199,084		(4.1	)	%

Contact: Vanguard Health Systems, Inc.
                Aaron Broad, Director Investor Relations
                (615) 665-6131