Healthways Fourth-Quarter Earnings Increase 65% to $0.38 Per Diluted Share on 31% Growth in Revenues.

Establishes Guidance for Fiscal 2007 with Revenues Up 62% to 70% and Earnings Up 41% to 58%

NASHVILLE, Tenn. -- Ben R. Leedle, Jr., president and chief executive officer of Healthways, Inc. (NASDAQ: HWAY), today announced financial results for the fourth quarter and 12 months ended August 31, 2006. For the quarter, revenues increased 31% to $114,876,000 from $87,624,000

for the fourth quarter of fiscal 2005. Net income was $14,027,000, up 68% from $8,344,000. Earnings per diluted share increased 65% to $0.38 for the fourth quarter of fiscal 2006 from $0.23 for the fourth quarter of fiscal 2005. Results for the fourth quarter of fiscal 2006 included per-share costs of $0.07 related to the Company's long-term incentive compensation program (LTI); $0.01 related to international initiatives and a net $0.05 related to the Company's participation in two Medicare Health Support (MHS) pilots. Results for the fourth quarter of fiscal 2005 included per-share costs of $0.08 related to the MHS pilots.

Revenues for fiscal 2006 increased 32% to $412,308,000 from $312,504,000 for fiscal 2005. Net income for fiscal 2006 was $37,151,000, or $1.02 per diluted share, which included per-share costs of $0.26 related to the Company's LTI; $0.05 related to international initiatives and a net $0.20 related to the MHS pilots. Net income for fiscal 2005 was $33,084,000, or $0.93 per diluted share, which included per-share costs of $0.10 related to the MHS pilots.

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Leedle remarked, "We are very pleased with the strong performance of our core commercial business for the fourth quarter which was above expectations and which drove substantial profitable growth for the entire Company for the quarter. We attribute this performance to increasing business with existing customers, the addition of new customers, the launch of new programs and services and the resulting increased operating leverage. The results for our core commercial business for the fourth quarter were consistent with its performance throughout fiscal 2006, a year in which we also achieved tangible progress toward our goal of fully integrated WholeHealth solutions for entire populations.

"This progress included both pioneering new programs and services, such as myhealthIQ(SM), and a groundbreaking long-term alliance with Medco Health Solutions. In addition to these steps to expand our addressable market, we continued to invest in developing our services in international markets. In our MHS pilots, we engaged the populations, demonstrated initial savings and recognized revenues. We also took another major step toward our long-term growth objectives just last week with the announcement of our definitive agreement to acquire Axia Health Management (Axia). As a result - and as our financial guidance for 2007 indicates - we are confident Healthways is well positioned to produce further significant profitable growth in the year ahead."

* Core Commercial Business Produces 68% Growth in Fourth-Quarter Earnings Per Diluted Share - Healthways' core commercial business achieved earnings per diluted share of $0.52 for the fourth quarter of fiscal 2006 compared with the Company's original guidance of $0.39 to $0.41. Core commercial revenue growth primarily reflected 15 new, expanded or extended contracts for fiscal 2006. Contracts with self-insured employers on behalf of the Company's health plan customers increased to 526 employers at the fiscal year end, up 41% from 372 at the end of fiscal 2005. In addition to driving the Company's fourth-quarter revenues, the core commercial business accounted for annualized revenues in the Company's backlog of $6.6 million at the end of the fiscal year.

* Growth in Actual Lives under Management Approaching 2.5 Million - The Company completed fiscal 2006 with 2,426,000 actual lives under management, up 29% or 543,000 from the end of fiscal 2005 and 10% or 221,000 sequentially from the end of the third quarter of fiscal 2006. Included in this total, self-insured employer lives on behalf of the Company's health plan customers increased 49% or 313,000 to 954,000 at the end of fiscal 2006 from the end of fiscal 2005 and 14% or 117,000 sequentially from the end of the third quarter of 2006.

* Revenue Recognition on MHS Pilots - As previously announced, total MHS revenues did not meet the Company's original expectations for the fiscal year, which were in a range of $25 million to $28 million. However, as a result of demonstrated savings achieved in the MHS pilots, the Company did recognize $11 million for the full fiscal year, including $4 million for the fourth quarter.

* Axia Acquisition Expected to Accelerate Company's Response to Rising Demand for Single-Source WholeHealth Solutions - Consistent with Healthways' long-term strategy to drive the evolution of the healthcare industry toward personalized and integrated WholeHealth solutions, the Company recently announced a definitive acquisition agreement with Axia Health Management. This transaction, which is expected to be accretive for fiscal 2007, will combine the leading companies in health support and care support. Through this acquisition, Healthways expects to enable its customers to provide the broadest spectrum of integrated, personalized, proven and evidenced-based interventions designed to maintain and improve the health and productivity of every individual in a given population. The Company further expects these solutions to set a new standard in the healthcare industry and make Healthways the partner of choice for improving people's health and lowering their healthcare costs. Because of strong interest in single-source WholeHealth solutions among commercial and Medicare Advantage health plans, employers and government, Healthways anticipates a significant opportunity to expand its business within the combined companies' existing customer base, as well as with new customers in the commercial, government and international markets.

For the 12 months ended August 31, 2006, Axia had revenues of approximately $125 million which are expected to expand at an annual rate in excess of 30%. Its percentage profit margins are similar to the Company's. The $450 million cash transaction is expected to be completed by the end of calendar 2006, subject to the satisfaction of customary closing conditions, including clearance under Hart-Scott-Rodino.

* Substantial Cash Flow Strengthens Financial Position - Cash flow from operations increased 30% to $38.5 million for the fourth quarter of 2006 and 33% to $99.8 million for the full fiscal year, from the comparable prior-year periods. Cash and cash equivalents increased 144% to $154.8 million at the end of fiscal 2006 from the end of fiscal 2005. The Company had no bank debt at the end of fiscal 2006 and stockholders' equity of $274.9 million. The Company anticipates having a leverage ratio of approximately 2.5 times as of the expected closing date of the Axia acquisition. Because of the strong operating cash flows of the combined companies, Healthways expects the financing costs to decline quickly, through a rapid pay down of debt, to a leverage ratio expected to be less than one by the end of fiscal 2008.

Financial Guidance

Healthways today established its financial guidance for fiscal year 2007 and its first fiscal quarter. The Company's guidance for revenues for fiscal 2007 is in a range of $667 million to $701 million, a 62% to 70% increase over 2006 revenues of $412 million. The MHS pilots are expected to account for $22 million to $29 million of these revenues, with the remainder expected from the Company's core commercial business including approximately three fiscal quarters from the anticipated completion of the Axia acquisition on December 1, 2006. While the Company expects to sign international business in fiscal 2007, the Company's guidance does not include any revenues or implementation and operating expenses from international sources at this time.

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The Company's guidance for net income per diluted share for fiscal 2007 is in a range of $1.44 to $1.61 which includes transaction, financing and integration costs of the pending Axia acquisition. The Company's earnings guidance for fiscal 2007 includes net costs in a range of $0.03 to $0.14 per diluted share from the MHS pilots and $0.10 per diluted share for anticipated investment in international initiatives. The Company's core commercial business is expected to produce net income per diluted share in a range of $1.68 to $1.74 for fiscal 2007. Costs associated with the Company's LTI, which were broken out separately in fiscal 2006 for prior year comparison purposes because of the adoption of FAS 123(R) on September 1, 2005, are now included in the appropriate components of earnings per diluted share.

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In order to provide details on the expected impact of the pending acquisition of Axia, the table below reflects the Company's expectations of Axia's contribution to fiscal year 2007 diluted earnings per share that are included in the guidance provided above.

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The Company also established its guidance for net income per diluted share for the first quarter of fiscal 2007 in a range of $0.31 to $0.34, a 72% to 89% increase over first quarter fiscal 2006. The Company's first quarter earnings guidance includes (i) net costs per diluted share of $0.04 to $0.06 related to the MHS pilots; and (ii) $0.02 per diluted share related to anticipated international investment. The Company's core commercial business is expected to produce net income per diluted share in a range of $0.39 to $0.40 for the first quarter of fiscal 2007, a 56% to 60% increase over first quarter fiscal 2006. Costs associated with the Company's LTI, which were broken out separately in fiscal 2006 for prior year comparison purposes because of the adoption of FAS 123(R) on September 1, 2005, are now included in the appropriate components of earnings per diluted share.

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Leedle added, "Our guidance for fiscal 2007 highlights the strength of our core commercial business and its role in enabling us to fund our emerging government and international markets. These new markets each represent very large long-term potential growth opportunities, but as with any development stage business, we have less visibility about their short-term growth than our proven core commercial business. For the reasons stated earlier, and given the inherent difficulties in predicting the exact timing and extent of progression of our emerging market initiatives, we have provided a broad range in our guidance. For MHS we have used our relative performance achieved last year as a guide to expectations for 2007, meaning we expect to recover the revenues not recognized in fiscal 2006 and we expect at least as much new revenue, relative to the decrementing population, in fiscal 2007 as we recorded in fiscal 2006. Further, we have not included any revenues or start-up costs associated with an international contract, although we expect to secure our first international contract during the year."

Summary

Leedle said, "Healthways' position of industry leadership is based in part on its long history of, and leading role in, driving the creation and application of solutions proven to create new value by improving health and reducing the cost of care across whole populations. These efforts, coupled with increasing market demand, have created new strategic imperatives for our health plan customers to offer our Health and Care Support(SM) programs. We are firmly positioning ourselves for continued leadership in today's markets and to take advantage of future growth opportunities.

"Healthways' embrace of its government and international initiatives reflects our commitment to maintain and enhance our position of industry leadership. With the anticipated acquisition of Axia, we are taking a decisive step toward our vision of fully integrated WholeHealth solutions for every person in a given population. By combining our programs with Axia's, we are creating WholeHealth solutions that can benefit every person, regardless of age or health status."

Conference Call

Healthways will hold a conference call to discuss this release today at 5:00 p.m. Eastern time. Investors will have the opportunity to listen to the conference call live over the Internet by going to www.healthways.com and clicking Investor Relations, or by going to www.earnings.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 telephonic replay will be available for one week at 719/457-0820, code 9470412, and the replay will also be available on the Company's Web site for the next 12 months. Any material information disclosed on the quarterly conference call that has not been previously disclosed publicly will be available on the Company's website at www.healthways.com.

Safe Harbor Provisions

This press release contains forward-looking statements that are based upon current expectations and involve a number of risks and uncertainties. Those forward-looking statements include all statements that are not historical statements of fact and those regarding the intent, belief or expectations of the Company, including, without limitation, all statements regarding the Company's future earnings and results of operations, and all statements regarding pending acquisitions and planned expansions and developments. 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 the following important factors, among others, may affect these forward-looking statements. Consequently, actual operations and results may differ materially from those expressed in these forward-looking statements. The important factors include but are not limited to: the timing and costs of implementation, and the effect, of regulations and interpretations relating to the Medicare Prescription Drug, Improvement, and Modernization Act of 2003; the Company's ability to accurately forecast performance and the timing of revenue recognition under the terms of its health plan contracts and/or its cooperative agreement with CMS ahead of data collection and reconciliation in order to provide forward-looking guidance; the Company's ability to anticipate the rate of market acceptance of Health and Care Support solutions and the individual market dynamics in potential international markets and the ability of the Company to accurately forecast the costs necessary to implement the Company's strategy of establishing a presence in these markets; the Company's ability to effectively manage any growth that it might experience; the Company's ability to retain existing customers if they are acquired by other health plans which already have or are not interested in Health and Care Support programs; the Company's ability to sign and implement new contracts for Health and Care Support services; the risks associated with a significant concentration of the Company's revenues with a limited number of customers; the Company's ability to effect cost savings and clinical outcomes improvements under Health and Care Support contracts and reach mutual agreement with customers and/or CMS with respect to cost savings, or to effect such savings and improvements within the time frames contemplated by the Company; the ability of the Company to collect contractually earned performance incentive bonuses; the ability of the Company's customers and/or CMS 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 favorably resolve contract billing and interpretation issues with its customers; the uncertainty regarding Healthways' pending transaction with Axia, including whether or not a transaction will be consummated between the parties; the Company's ability to satisfy the conditions of its financing commitment; the Company's ability to integrate the operations of Axia and other acquired businesses or technologies into the Company's business; uncertainties with respect to the integration and management of the Medco Alliance; the market acceptance of the integrated health management services offered through the Medco Alliance; the ability of the Company to develop new products and deliver outcomes on those products; the ability of the Company to effectively integrate new technologies and approaches, such as those encompassed in its Health and Care Support initiatives or otherwise licensed or acquired by the Company, into the Company's Health and Care Support 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 Health and Care Support strategy within expected cost estimates; the ability of the Company to obtain adequate financing to provide the capital that may be necessary to support the growth of the Company's operations and to support or guarantee the Company's performance under new contracts; unusual and unforeseen patterns of healthcare 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 Health and Care Support 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; the impact of litigation involving the Company and/or its subsidiaries; the impact of future state and federal healthcare and other applicable 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; current geopolitical turmoil and the continuing threat of domestic or international terrorism; general worldwide and domestic economic conditions and stock market volatility; and other risks detailed in the Company's annual, quarterly, or other filings with the Securities and Exchange Commission. The Company undertakes no obligation to update or revise any such forward-looking statements.

About Healthways

Healthways, Inc. is the leading and largest provider of specialized, comprehensive Health and Care Support(SM) programs and services, including disease management, high-risk care management and outcomes-driven wellness to health plans, employers and government. As of August 31, 2006, the Company provided Health and Care Support services for more than 2.4 million people nationwide. Healthways helps people lead healthier lives while reducing overall healthcare costs. As The Health/Care Trust Channel(SM), Healthways provides people the support they need when they need it to enable them to make better choices and achieve better health outcomes. For more information, visit www.healthways.com.

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