Fitch Affirms MedStar's 'BBB' Rating, Outlook Stable.

Business Editors

NEW YORK--(BUSINESS WIRE)--June 5, 2003

Fitch has affirmed its 'BBB' rating on approximately $730 million of MedStar Health Inc.'s (MedStar) outstanding bonds (listed below). In addition, Fitch maintains the Stable Rating Outlook.

The affirmation and Stable Outlook stem from expected benefits from recent rate increases throughout the system, continued strong operating performance of MedStar's Baltimore facilities, and management's past success in meeting its goals. MedStar was successful in achieving rate increases from its managed care contracts for its Washington D.C. facilities which should lead to an improvement in operations in this region. In addition, MedStar's Baltimore facilities will receive rate increases which are expected to add $35 million in revenue. MedStar's Baltimore facilities posted a combined $14.3 million operating profit through the nine months ended March 31, 2003, versus a budgeted gain of 18.4 million. Only one of MedStar's four Baltimore facilities had an operating loss through the first nine months of 2003.

The bulk of credit pressures are focused on MedStar's Washington D.C. facilities. The Washington Hospital Center (WHC) and Georgetown University Hospital (GUH) lost a combined $29.9 million from operations through the nine months ended March 31, 2003 versus a budgeted loss of 11 million. The worse than budgeted results were due to several factors including lower than expected admissions at both facilities, a rise in indigent care at WHC, and difficulty in physician recruitment at GUH. System wide, MedStar expects to lose $36 million from operations in fiscal 2003 compared to a budgeted loss of $14.0 million. Fiscal 2003 will be the first year in which MedStar has not shown a marked improvement over prior years since fiscal 2000.

MedStar is projecting a loss of $21.2 million from operations in 2004 and expects to reach breakeven profitability by fiscal 2005. Despite MedStar's weaker that budgeted fiscal 2003 results, Fitch believes that rate increases, along with management programs should allow MedStar to reach its budgeted goals. Lack of progress in improved operations, coupled with any further deterioration to MedStar's balance sheet, will strain the current rating level. MedStar has engaged Cap Gemini to assist in the identification of revenue and expense opportunities, some of which have already occurred, including a reduction of 200 FTE's over the last year. In addition, MedStar is evaluating consolidation of certain services between WHC and GUH. MedStar is reviewing its options with respect to refinancing the series 2001 bonds in early calendar 2004.

MedStar Health is a large, integrated health care system composed of seven hospitals (three in Washington D.C. and four in Baltimore) with a total of 2,332 staffed beds, two long term care facilities, two freestanding ambulatory surgery centers, and several other health care related organizations. MedStar had total operating revenues of $2.1 billion in fiscal 2002. MedStar covenants to provide annual and quarterly disclosure to Fitch and bondholders, which to date has been thorough and timely.

Outstanding Debt

District of Columbia's $40,000,000 series 2001A multimodal revenue bonds (MedStar Health, Inc.)

District of Columbia's $32,000,000 series 2001B multimodal revenue bonds (MedStar Health, Inc.)

District of Columbia's $27,500,000 series 2001C multimodal revenue bonds (MedStar Health, Inc.)

District of Columbia's $50,500,000 series 2001D multimodal revenue bonds (MedStar Health, Inc.)

-- $300,000,000 District of Columbia (DC), (Medlantic/Helix)

multi-modal revenue bonds series 1998A, 1998B, and 1998C

(insured: FSA).

-- $166,605,000 Maryland Health and Educational Facilities

Authority (MD), (Medlantic/Helix) revenue bonds series 1998A

(insured: FSA).

-- $116,910,000 Maryland Health and Educational Facilities

Authority (MD), (Medlantic/Helix) revenue bonds series 1998B

(insured: AMBAC)