American Healthways Reports 130% Growth in First-Quarter Earnings Per Diluted Share to $0.23; Increases Fiscal 2003 Earnings Guidance to $1.02 to $1.06 Per Diluted Share.

Business Editors

NASHVILLE, Tenn.--(BUSINESS WIRE)--Dec. 19, 2002

Thomas G. Cigarran, Chairman and Chief Executive Officer of American Healthways, Inc. (Nasdaq/NM: AMHC), today announced financial results for the first quarter of fiscal 2003, which ended November 30, 2002. Total revenues for the quarter increased 53%, to $37,538,000 from $24,542,000 for the first quarter of fiscal 2002. Net income rose 148% to $3,699,000 from $1,494,000. Earnings per diluted share for the quarter were $0.23, up 130% from $0.10 for the first quarter of fiscal 2002.

"Fiscal 2003 got off to a better than expected start," said Mr. Cigarran, "as continued strong revenue growth and increasing operating leverage produced our sixth consecutive triple-digit increase in comparable-quarter earnings per share. Our earnings per diluted share of $0.23 for the quarter exceeded our targeted range of $0.20 to $0.21. This performance was primarily driven by an 84% increase in the average number of health plan equivalent lives under management for the period compared with the first quarter of fiscal 2002 and includes expenses related to the opening of our sixth care enhancement center. We also benefited from health plan incentive bonuses for the first quarter, totaling $0.03 per diluted share, continuing evidence of the excellent financial results we are producing for our customers."

Continued Substantial Growth in Health Plan Lives Under Management and Contract

In addition to its strong financial performance for the first quarter, the Company increased its health plan lives under contract to 772,000 at the end of the first quarter, up 66% from the end of the first quarter of fiscal 2002. This total includes a 90% increase to 682,000 lives under management at quarter's end, up from 359,000 at the end of the first quarter of fiscal 2002 and a 14%, or 83,000 lives, increase from the end of the fourth quarter of fiscal 2002.

Mr. Cigarran commented, "We continue to be pleased by the growing health plan and employer focus on disease management, which is reflected in the strength of our pipeline of potential new health plan contracts and existing contract expansions. Increasing demand is particularly evident in the faster than anticipated growth of the Company's ASO/PPO business, which expanded to 90,000 equivalent lives under contract at the end of the first quarter. With the first quarter signing of a contract with The Principal Financial Group to market our programs to the more than one million people in its ASO/PPO business, our aggregate potential market for ASO/PPO business has increased to approximately eight million people. As is our policy, no ASO/PPO lives will be added to our lives under contract or management until our health plan customers actually contract with their employer customers for their purchases of our services.

"As anticipated, the growth in lives under management generated substantial economies of scale, which produced significantly improved profit margins. We achieved this improvement even as we continued substantial investment in infrastructure and new capacity, including the opening of our sixth care enhancement center in St. Louis, Missouri, as well as in enhanced information management technology capabilities.

"We remain positive about the Company's potential for increasing the number of lives under contract and management for fiscal 2003. Our confidence is based on, among other things, our acknowledged leadership position in the disease management and care enhancement industry. That position was further strengthened during the first quarter by the certification of our disease management programs by the Joint Commission on Accreditation of Health Care Organizations ("JCAHO"), making American Healthways the first and only health care organization in the disease management industry to be certified or accredited by all three of the major accreditation organizations." (JCAHO, NCQA and URAC)

Fiscal 2003 Earnings Guidance Increased; Second Quarter Guidance Established

American Healthways continues to target revenues for fiscal 2003 in a range of $180 million to $195 million, a 47% to 59% increase over revenues of $123 million for fiscal 2002. This guidance is based on a combination of the Company's current health plan equivalent lives under management and in backlog, further penetration of the ASO/PPO market and its positive overall contracting momentum. Our revenue guidance reflects the expected seasonal decline in lives under management resulting from the normal health plan disenrollment and enrollment process that annually affects second quarter revenue and profits. Notwithstanding this seasonality, the Company expects that second quarter revenues will increase slightly from the first quarter and will accelerate in the third and fourth quarters.

In addition, as a result of its stronger-than-expected first-quarter performance, the Company also today increased its targeted range for earnings per diluted share for fiscal 2003 to $1.02 to $1.06 from its previous target of $1.01 to $1.05, representing anticipated growth of 59% to 66% over $0.64 for fiscal 2002. American Healthways also currently anticipates earnings per diluted share for the second quarter of fiscal 2003 will increase to a range of $0.25 to $0.26, from $0.15 for the second quarter of fiscal 2002.

Conclusion

"With an average increase in health benefit costs for U.S. companies of approximately 15% for 2002, the need for our programs, which have demonstrated their ability to reduce health care costs in both the short and long term by focusing on improving the health of participating individuals, becomes even clearer and more urgent," Mr. Cigarran concluded. "We remain confident that American Healthways has a unique capability to fill this need because of the comprehensiveness, scalability and proven effectiveness of our programs, our proprietary information technology, the strength of our financial position and our focus on, and commitment to, the success of our customers."

Conference Call

American Healthways will hold a conference call to discuss this release today at 5:15 p.m. Eastern time. Investors will have the opportunity to listen to the conference call live over the Internet by going to www.americanhealthways.com and clicking Investor Relations or by going to the following Web site - www.streetevents.com - at least 15 minutes early to register, download, and install any necessary audio software. For those who cannot listen to the live broadcast, a replay will be available at these Web sites shortly after the call through the end of business on January 19, 2003.

Forward-Looking Statements

This press release contains forward-looking statements that are based upon current expectations and involve a number of risks and uncertainties. In order for the Company to utilize the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, investors are hereby cautioned that these statements may be affected by the important factors, among others, set forth below, and consequently, actual operations and results may differ materially from those expressed in these forward-looking statements. The important factors include: the Company's ability to execute new contracts for health plan disease management services and care enhancement services and to execute new contracts for hospital-based diabetes services; the risks associated with a significant concentration of the Company's revenues with a limited number of health plan customers; the Company's ability to effect cost savings and clinical outcomes improvements under health plan disease management and care enhancement contracts and reach mutual agreement with customers with respect to cost savings, or to effect such savings and improvements within the time frames contemplated by the Company; the Company's ability to accurately forecast performance under the terms of its health plan contracts ahead of data collection and reconciliation; the ability of the Company to collect contractually earned incentive performance bonuses; the ability of the Company's health plan customers to provide timely and accurate data that is essential to the operation and measurement of the Company's performance under the terms of its health plan contracts; the Company's ability to resolve favorably contract billing and interpretation issues with its health plan customers; the ability of the Company to effectively integrate new technologies such as those encompassed in its care enhancement initiatives into the Company's care management information technology platform; the Company's ability to renew and/or maintain contracts with its customers under existing terms or restructure these contracts on terms that would not have a material negative impact on the Company's results of operations; the ability of the Company to implement its care enhancement strategy within expected cost estimates; the ability of the Company to obtain adequate financing to provide the capital that may be needed to support the growth of the Company's health plan operations and to support or guarantee the Company's performance under new health plan contracts; unusual and unforeseen patterns of health care utilization by individuals with diabetes, cardiac, respiratory and/or other diseases or conditions for which the Company provides services, in the health plans with which the Company has executed a disease management contract; the ability of the health plans to maintain the number of covered lives enrolled in the plans during the terms of the agreements between the health plans and the Company; the Company's ability to attract and/or retain and effectively manage the employees required to implement its agreements with hospitals and health plan organizations; the impact of litigation involving the Company; the impact of future state and federal health care legislation and regulations on the ability of the Company to deliver its services and on the financial health of the Company's customers and their willingness to purchase the Company's services; and general economic conditions. The Company undertakes no obligation to update or revise any such forward-looking statements.

American Healthways is the nation's leading and largest provider of specialized, comprehensive care enhancement services to hospitals, physicians and health plans. In addition, American Healthways is the only company in its industry whose programs are designed to meaningfully address the needs of 100% of its customer populations. The clinical excellence of the Company's programs have been reviewed and approved by Johns Hopkins, and their quality has been recognized by the National Committee on Quality Assurance, the Joint Commission on Accreditation of Health Care Organizations, and the American Accreditation Health Care Commission, making American Healthways the first and only care enhancement provider in the nation to be accredited or certified by all three organizations. American Healthways contracts to provide disease and care management programs to health plans with members in all 50 states, the District of Columbia and Puerto Rico. The Company also operates diabetes management programs in nearly 80 hospitals nationwide. Further information about American Healthways and its programs can be found at www.americanhealthways.com.

                       AMERICAN HEALTHWAYS, INC.
                    Unaudited Financial Highlights
                 (In thousands, except per share data)

                                            Three Months Ended
                                                November 30,
Consolidated Statements              --------------    -------------
  of Operations:                           2002             2001(1)
                                     --------------    -------------
Revenues                             $       37,538    $      24,542
Cost of services                             24,626           18,186
                                     --------------    -------------
   Gross margin                              12,912            6,356

   Selling, general and
     administrative expenses                  3,918            2,266
   Depreciation and amortization              2,539            1,504
   Interest                                     185               53
                                     --------------    -------------
Income before income taxes                    6,270            2,533
Income tax expense                            2,571            1,039
                                     --------------    -------------
Net income                           $        3,699    $       1,494
                                     ==============    =============

Basic income per share               $         0.24    $        0.10
                                     ==============    =============

Diluted income per share             $         0.23    $        0.10
                                     ==============    =============
Weighted average common shares and equivalents:
   Basic                                     15,396           14,373
   Diluted                                   16,345           15,598


                                       November 30,      August 31,
Financial Position:                       2002              2002
                                     --------------    -------------
Cash and cash equivalents            $       19,249    $      23,924
Current assets                               48,352           49,421
Property and equipment (net)                 24,293           21,805
Total assets                         $      119,029    $     118,017

Contract billings in excess
  of earnings                        $        8,798    $       5,726
Current liabilities                          21,702           25,126
Long-term liabilities                         4,253            4,082
Stockholders' equity                         93,074           88,809
Total liabilities and stock-
  holders' equity                    $      119,029    $     118,017

(1) Certain items have been reclassified to conform to
    current classifications.

                       AMERICAN HEALTHWAYS, INC.
                    Unaudited Financial Highlights
                        (Dollars in thousands)

                                          Three Months Ended
                                             November 30,
                                   -------------------------------
                                        2002              2001
Segment Operating Information:     --------------    -------------
Revenues:
   Health plan contracts           $       33,507    $      19,761
   Hospital contracts                       3,947            4,680
   Other revenue                               84              101
                                   --------------    -------------
                                   $       37,538    $      24,542
                                   ==============    =============
   Income (loss) before income taxes:
   Health plan contracts           $       11,932    $       4,837
   Hospital contracts                         753            1,042
   Shared support services                 (5,246)          (2,720)
                                   --------------    -------------
       Total segments                       7,439            3,159
   General corporate                       (1,169)            (626)
                                   --------------    -------------
                                   $        6,270    $       2,533
                                   ==============    =============
Operating Statistics:
Health Plan Segment -
  Equivalent Lives(1)
--------------------------------
Lives under management at
  end of period                           682,159          358,549
Lives in backlog at end of period          90,000         105,000 (2)
                                   --------------    -------------
Total lives at end of period              772,159         463,549 (2)
Average number of lives under
   management during period               638,493         346,460

(1) Equivalent lives converts cardiac and respiratory lives to the
    approximate revenue equivalent of diabetes lives.
(2) Includes equivalent lives added for the Blue Cross and Blue Shield
    of Minnesota contract signed in December 2001.

Hospital Segment
Contracts at end of period                     54              55
Hospital sites at end of period                72              78
New contracts signed during period              1               1
Contracts discontinued during period            2               1
Contracts renewed during period                 4               1
Average number of contracts in
  operation during period                    53.0            55.0