• potential competition that alters or impedes our acquisition strategy by decreasing our ability to acquire additional inpatient facilities on favorable terms;

• our substantial indebtedness and our ability to receive timely additional financing and refinance our revolving credit facility on terms acceptable to us to fund our acquisition strategy and capital expenditure needs;

• risks inherent to the health care industry, including the impact of unforeseen changes in regulation and exposure to claims and legal actions by patients and others;

• efforts by federal and state health care programs and managed care companies to reduce reimbursement rates for our services;

• our ability to comply with applicable licensure and accreditation requirements;

• our ability to comply with extensive laws and government regulations related to billing, physician relationships, adequacy of medical care and licensure;

• the potential adverse impact of government investigations and liabilities and other claims asserted against us;

• our ability to retain key employees who are instrumental to our successful operations;

• our ability to maintain favorable and continuing relationships with physicians who use our inpatient facilities;

• our ability to maintain effective internal controls in accordance with
Section 404 of the Sarbanes-Oxley Act;

• our ability to ensure confidential information is not inappropriately disclosed and that we are in compliance with federal and state health information privacy standards;

• our ability to comply with federal and state governmental regulation covering health care-related products and services on-line, including the regulation of medical devices and the practice of medicine and pharmacology;

• our ability to obtain adequate levels of general and professional liability insurance;

• future trends for pricing, margins, revenue and profitability remain difficult to predict in the industries that we serve;

• negative press coverage of us or our industry that may affect public opinion; and

• those risks and uncertainties described from time to time in our filings with the SEC.

We caution you that the factors listed above, as well as the risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2007, may not be exhaustive. We operate in a continually changing business environment, and new risk factors emerge from time to time. We cannot predict such new risk factors nor can we assess the impact, if any, of such new risk factors on our businesses or the extent to which any factor or combination of factors may cause actual results to differ materially from those expressed or implied by any forward-looking statements.

Overview
Our business strategy is to acquire inpatient behavioral health care facilities and improve the operating results of our inpatient facilities and managed inpatient behavioral health care operations.
Effective March 1, 2008, we completed the acquisition of five inpatient behavioral health care facilities from United Medical Corporation ("UMC") for $120 million. These facilities, located in Florida and Kentucky, include approximately 400 beds.
During 2007, we acquired 16 inpatient behavioral health care facilities with an aggregate of approximately 1,600 beds, including the May 31, 2007 acquisition of Horizon Health Corporation ("Horizon Health"), which operated 15 inpatient facilities.
We strive to improve the operating results of our inpatient behavioral health care operations by providing the highest quality service and expanding referral networks and marketing initiatives. In order to meet the increased demand for our services, we are actively exploring ways to expand our services and develop new services. We have added beds to several of our inpatient facilities and have expansion projects planned for the future. In addition, during the second quarter of 2008 we opened Lincoln Prairie Behavioral Health Center, a 120 bed facility in Springfield, Illinois. We also attempt to improve operating results by optimizing staffing ratios, controlling contract labor costs and reducing supply costs through group purchasing. During the three and nine months ended September 30, 2008, our same-facility revenue from owned and leased inpatient facilities increased by 8.7% and 8.1%, respectively, compared to the same period in 2007. Same-facility revenue growth was driven primarily by increases in patient days and revenue per patient day. Same-facility patient days increased 3.7% and 3.0% during the three and nine months ended September 30, 2008, respectively, compared to the same periods in 2007. Same-facility revenue per patient day increased 4.8% and 4.9% for the three and nine months ended September 30, 2008, respectively, compared to the same periods in 2007. Same-facility growth refers to the comparison of each inpatient facility owned and leased during 2007 with the results for the comparable period in 2008, adjusted for closures and combinations for comparability purposes. Sources of Revenue
Patient Service Revenue
Patient service revenue is generated by our inpatient facilities as a result of services provided to patients on an inpatient and outpatient basis within the inpatient behavioral health care facility setting. Patient service revenue is recorded at our established billing rates less contractual adjustments. Generally, collection in full is not expected at our established billing rates. Contractual adjustments are recorded to state our patient service revenue at the amount we expect to collect for the services provided based on amounts reimbursable by Medicare or Medicaid under provisions of cost or prospective reimbursement formulas or amounts due from other third-party payors at contractually determined rates. Patient service revenue comprised approximately 90.1% and 92.3% of our total revenue for the nine months ended September 30, 2008 and 2007, respectively.
Other Revenue
Other revenue accounted for approximately 9.9% and 7.7% of our total revenue for the nine months ended September 30, 2008 and 2007, respectively. This portion of our business primarily consists of our contract management and employee assistance program ("EAP") businesses. Our contract management business involves the development, organization and management of behavioral health care programs within medical/surgical hospitals. Our EAP business contracts with employers to assist employees and their dependents with resolution of behavioral conditions or other personal concerns. Services provided are recorded as revenue at contractually determined rates in the period the services are rendered, provided that collectability of such amounts is reasonably assured.

Results of Operations
   The following table illustrates our consolidated results of operations for
the three and nine months ended September 30, 2008 and 2007 (dollars in
thousands):

                                For the Three Months Ended September 30,                            For the Nine Months Ended September 30,
                                  2008                             2007                             2008                              2007
                          Amount             %             Amount            %              Amount             %              Amount             %
Revenue                $    448,015          100.0 %     $  396,419          100.0 %     $  1,320,114          100.0 %     $  1,062,565          100.0 %
Salaries, wages,
and employee
benefits (including
share-based
compensation of
$4,935, $4,423,
$15,013 and $12,006
for 2008 and 2007,
respectively)               245,578           54.8 %        220,853           55.7 %          725,775           55.0 %          590,071           55.5 %
Professional fees            45,022           10.1 %         39,868           10.0 %          133,803           10.1 %          104,530            9.8 %
Supplies                     24,323            5.4 %         21,317            5.4 %           71,769            5.4 %           58,185            5.5 %
Provision for
doubtful accounts            10,254            2.3 %          7,003            1.8 %           25,976            2.0 %           20,871            2.0 %
Other operating
expenses                     47,192           10.5 %         43,548           11.0 %          139,502           10.6 %          118,188           11.1 %
Depreciation and
amortization                 10,171            2.3 %          8,472            2.1 %           29,570            2.2 %           21,888            2.1 %
Interest expense,
net                          19,337            4.3 %         22,252            5.6 %           59,440            4.5 %           53,666            5.0 %
Loss on refinancing
long-term debt                    -            0.0 %              -            0.0 %                -            0.0 %            8,179            0.8 %

Income from
continuing
operations before
income taxes                 46,138           10.3 %         33,106            8.4 %          134,279           10.2 %           86,987            8.2 %
Provision for
income taxes                 17,533            3.9 %         12,537            3.2 %           51,026            3.9 %           32,783            3.1 %

Income from
continuing
operations             $     28,605            6.4 %     $   20,569            5.2 %     $     83,253            6.3 %     $     54,204            5.1 %

Three Months Ended September 30, 2008 Compared To Three Months Ended
September 30, 2007
   The following table compares key same-facility and total facility statistics
for the quarters ended September 30, 2008 and 2007.

                                         Three Months Ended September 30,          %
                                             2008                 2007           Change
   Same-facility results:
   Revenue (in thousands)              $      386,443        $      355,425        8.7 %
   Admissions                                  39,555                36,634        8.0 %
   Patient days                               660,703               637,318        3.7 %
   Average length of stay (in days)              16.7                  17.4       -4.0 %
   Revenue per patient day             $          585        $          558        4.8 %

   Total facility results:
   Revenue (in thousands)              $      403,936        $      355,425       13.6 %
   Admissions                                  41,816                36,634       14.1 %
   Patient days                               691,147               637,318        8.4 %
   Average length of stay (in days)              16.5                  17.4       -5.2 %
   Revenue per patient day             $          584        $          558        4.7 %

Revenue. Revenue from continuing operations was $448.0 million for the quarter ended September 30, 2008 compared to $396.4 million for the quarter ended September 30, 2007, an increase of $51.6 million, or 13.0%. Revenue from owned and leased inpatient facilities accounted for $403.9 million in 2008 compared to $355.4 million in 2007, an increase of $48.5 million, or 13.6%. The increase in revenue from owned and leased inpatient facilities relates primarily to acquisitions of behavioral health care facilities and same-facility growth in patient days and revenue per patient day of 3.7% and 4.8%, respectively. Other revenue was $44.1 million in 2008 compared to $41.0 million in 2007. The increase in other revenue is primarily the result of other operations acquired in the last twelve months.
Salaries, wages and employee benefits. Salaries, wages and employee benefits ("SWB") expense was $245.6 million for the quarter ended September 30, 2008, or 54.8% of total revenue, compared to $220.9 million for the quarter ended September 30, 2007, or 55.7% of total revenue. SWB expense includes $4.9 million and $4.4 million of share-based compensation expense for the quarters ended September 30, 2008 and 2007, respectively. Excluding share-based compensation expense, SWB expense was $240.6 million, or 53.7% of total revenue, in the quarter ended September 30, 2008 compared to $216.4 million, or 54.6% of total revenue, for the quarter ended September 30, 2007. SWB expense for owned and leased inpatient facilities was $216.6 million, or 53.6% of revenue, in 2008. Same-facility SWB expense for owned and leased inpatient facilities was $207.4 million, or 53.7% of revenue, in 2008

compared to $193.7 million, or 54.5% of revenue, in 2007. SWB expense for other operations increased to $17.1 million in 2008 from $16.2 million in 2007 primarily due to the operations acquired in the last twelve months. SWB expense for our corporate office was $11.9 million, including $4.9 million in share-based compensation, for 2008 compared to $10.7 million, including $4.4 million in share-based compensation, for 2007. Excluding share-based compensation, SWB expense for our corporate office increased approximately $0.6 million primarily as a result of hiring additional staff necessary to manage and support the inpatient facilities acquired during 2007 and 2008.
Professional fees. Professional fees were $45.0 million for the quarter ended September 30, 2008, or 10.1% of total revenue, compared to $39.9 million for the quarter ended September 30, 2007, or 10.0% of total revenue. Professional fees for owned and leased inpatient facilities were $36.8 million in 2008, or 9.1% of revenue. Same-facility professional fees for owned and leased inpatient facilities were $35.1 million in 2008, or 9.1% of revenue, compared to $33.0 million in 2007, or 9.3% of revenue. Professional fees for other operations as well as our corporate office increased to $8.2 million in 2008 from $6.8 million in 2007. This increase is primarily the result of support services necessary to comply with subpoenas from the U.S. Department of Justice requesting certain information regarding Riveredge Hospital, one of our inpatient psychiatric facilities near Chicago, Illinois (the "Riveredge investigation"). Future expenditures relating to the Riveredge investigation may be necessary.
Supplies. Supplies expense was $24.3 million for the quarter ended September 30, 2008, or 5.4% of total revenue, compared to $21.3 million for the quarter ended September 30, 2007, or 5.4% of total revenue. Supplies expense for owned and leased inpatient facilities was $23.8 million in 2008, or 5.9% of revenue. Same-facility supplies expense for owned and leased inpatient facilities was $22.6 million in 2008, or 5.9% of revenue, compared to $20.9 million in 2007, or 5.9% of revenue. Supplies expense for other operations as well as our corporate office consisted primarily of office supplies and is negligible to our supplies expense overall.
Provision for doubtful accounts. The provision for doubtful accounts was $10.3 million for the quarter ended September 30, 2008, or 2.3% of total revenue, compared to $7.0 million for the quarter ended September 30, 2007, or 1.8% of total revenue. The provision for doubtful accounts at our owned and leased inpatient facilities comprised substantially all of our provision for doubtful accounts. This increase in provision for doubtful accounts as a percent of revenue was primarily the result of the inability to collect Medicare claims for patient care provided during the Medicare certification process at two new facilities in 2008 as well as recoveries in 2007 of accounts previously written off.
Other operating expenses. Other operating expenses consist primarily of rent, utilities, insurance, travel, and repairs and maintenance expenses. Other operating expenses were approximately $47.2 million for the quarter ended September 30, 2008, or 10.5% of total revenue, compared to $43.5 million for the quarter ended September 30, 2007, or 11.0% of total revenue. Other operating expenses for owned and leased inpatient facilities were $33.6 million in 2008, or 8.3% of revenue. Same-facility other operating expenses for owned and leased inpatient facilities were $32.1 million in 2008, or 8.3% of revenue, compared to $29.8 million in 2007, or 8.4% of revenue. Other operating expenses for other operations and our corporate office were $13.6 million in 2008 compared to $13.7 million in 2007.
Depreciation and amortization. Depreciation and amortization expense was $10.2 million for the quarter ended September 30, 2008 compared to $8.5 million for the quarter ended September 30, 2007. This increase in depreciation and amortization expense was primarily the result of the acquisitions of inpatient facilities during 2007 and 2008.
Interest expense, net. Interest expense, net of interest income, was $19.3 million for the quarter ended September 30, 2008 compared to $22.3 million for the quarter ended September 30, 2007, a decrease of $2.9 million. This decrease in interest expense is primarily the result of a decrease in interest rates on our variable rate debt, partially offset by an increase in our long-term debt.
Loss from discontinued operations, net of taxes. The loss from discontinued operations (net of income tax effect) was $2.2 million for the quarter ended September 30, 2008 compared to $0.2 million for the quarter ended September 30, 2007. We made plans to dispose of a leased inpatient facility during the quarter ended September 30, 2008 and recorded a $1.5 million write-down to fair value of the assets held-for-sale for this facility.

Nine Months Ended September 30, 2008 Compared To Nine Months Ended September 30, 2007
The following table compares key same-facility and total facility statistics for the nine months ended September 30, 2008 and 2007.

                                          Nine Months Ended September 30,         %
                                              2008                 2007         Change
    Same-facility results:
    Revenue (in thousands)              $     1,053,632        $   975,010        8.1 %
    Admissions                                  107,832            102,606        5.1 %
    Patient days                              1,814,171          1,760,748        3.0 %
    Average length of stay (in days)               16.8               17.2       -2.3 %
    Revenue per patient day             $           581        $       554        4.9 %

    Total facility results:
    Revenue (in thousands)              $     1,189,374        $   980,423       21.3 %
    Admissions                                  124,837            103,256       20.9 %
    Patient days                              2,068,166          1,771,369       16.8 %
    Average length of stay (in days)               16.6               17.2       -3.5 %
    Revenue per patient day             $           575        $       553        4.0 %

Revenue. Revenue from continuing operations was $1,320.1 million for the nine months ended September 30, 2008 compared to $1,062.6 million for the nine months ended September 30, 2007, an increase of $257.5 million, or 24.2%. Revenue from owned and leased inpatient facilities accounted for $1,189.4 million in 2008 compared to $980.4 million in 2007, an increase of $209.0 million, or 21.3%. The increase in revenue from owned and leased inpatient facilities relates primarily to acquisitions of behavioral health care facilities in 2007 and 2008. The remainder of the increase in revenue from owned and leased inpatient facilities is attributable to same-facility growth in patient days and revenue per patient day of 3.0% and 4.9%, respectively. Other revenue was $130.7 million in 2008 compared to $82.1 million in 2007. The increase in other revenue is primarily the result of other operations acquired in the Horizon Health acquisition, including an EAP business and numerous management contracts.
Salaries, wages and employee benefits. SWB expense was $725.8 million for the nine months ended September 30, 2008, or 55.0% of total revenue, compared to $590.1 million for the nine months ended September 30, 2007, or 55.5% of total revenue. SWB expense includes $15.0 million and $12.0 million of share-based compensation expense for the nine months ended September 30, 2008 and 2007, respectively. Excluding share-based compensation expense, SWB expense was $710.8 million, or 53.8% of total revenue, in the nine months ended September 30, 2008 compared to $578.1 million, or 54.4% of total revenue, for the nine months ended September 30, 2007. SWB expense for owned and leased inpatient facilities was $638.8 million, or 53.7% of revenue, in 2008. Same-facility SWB expense for owned and leased inpatient facilities was $562.7 million, or 53.4% of revenue, in 2008 compared to $526.8 million, or 54.0% of revenue, in 2007. SWB expense for other operations increased to $49.7 million in 2008 from $28.7 million in 2007 primarily due to the management contract and EAP businesses acquired in the Horizon Health acquisition. SWB expense for our corporate office was $37.3 million, including $15.0 million in share-based compensation, for 2008 compared to $30.8 million, including $12.0 million in share-based compensation, for 2007. Excluding share-based compensation, SWB expense for our corporate office increased approximately $3.5 million primarily as a result of hiring additional staff necessary to manage and support the inpatient facilities acquired during 2007 and 2008.
Professional fees. Professional fees were $133.8 million for the nine months ended September 30, 2008, or 10.1% of total revenue, compared to $104.5 million for the nine months ended September 30, 2007, or 9.8% of total revenue. Professional fees for owned and leased inpatient facilities were $110.2 million in 2008, or 9.3% of revenue. Same-facility professional fees for owned and leased inpatient facilities were $97.0 million in 2008, or 9.2% of revenue, compared to $90.8 million in 2007, or 9.3% of revenue. Professional fees for other operations and our corporate office increased to $23.6 million in 2008 from $12.8 million in 2007 primarily due to the other operations acquired in the Horizon Health acquisition.
Supplies. Supplies expense was $71.8 million for the nine months ended September 30, 2008, or 5.4% of total revenue, compared to $58.2 million for the nine months ended September 30, 2007, or 5.5% of total revenue. Supplies expense for owned and leased inpatient facilities was $70.5 million in 2008, or 5.9% of revenue. Same-facility supplies expense for owned and leased inpatient facilities was $61.1 million in 2008, or 5.8% of revenue, compared to $56.8 million in 2007, or 5.8% of revenue. Supplies expense for other operations as well as our corporate office consisted primarily of office supplies and is negligible to our supplies expense overall.
Provision for doubtful accounts. The provision for doubtful accounts was $26.0 million for the nine months ended September 30, 2008, or 2.0% of total revenue, compared to $20.9 million for the nine months ended September 30, 2007, or 2.0% of total revenue. The provision for doubtful accounts at our owned and leased inpatient facilities comprised substantially all of our provision for

doubtful accounts.
Other operating expenses. Other operating expenses consist primarily of rent, utilities, insurance, travel, and repairs and maintenance expenses. Other operating expenses were approximately $139.5 million for the nine months ended September 30, 2008, or 10.6% of total revenue, compared to $118.2 million for the nine months ended September 30, 2007, or 11.1% of total revenue. Other operating expenses for owned and leased inpatient facilities were $96.1 million in 2008, or 8.1% of revenue. Same-facility other operating expenses for owned and leased inpatient facilities were $84.0 million in 2008, or 8.0% of revenue, compared to $82.7 million in 2007, or 8.5% of revenue. The decrease in same-facility other operating expenses for owned and leased inpatient facilities as a percentage of revenue is primarily the result of reductions in risk management costs as a percent of revenue. Other operating expenses for other operations and our corporate office were $43.4 million in 2008 compared to $34.6 million in 2007. The increase in other operating expenses for other operations was primarily due to the management contract and EAP businesses acquired in the Horizon Health acquisition.
Depreciation and amortization. Depreciation and amortization expense was $29.6 million for the nine months ended September 30, 2008 compared to $21.9 million for the nine months ended September 30, 2007. This increase in depreciation and amortization expense was primarily the result of the acquisitions of inpatient facilities during 2007 and 2008.
Interest expense, net. Interest expense, net of interest income, was $59.4 million for the nine months ended September 30, 2008 compared to $53.7 million for the nine months ended September 30, 2007, an increase of $5.8 million. This increase in interest expense is primarily the result of an increase in our long-term debt offset by a reduction in our overall effective interest rate. We borrowed $443.2 million in May 2007 to finance the Horizon Health acquisition and borrowed $130.0 million in the first quarter of 2008 principally to finance the acquisition of five inpatient behavioral health care facilities from UMC, acquisitions of EAP businesses, capital expenditures and other general corporate purposes.
Loss from discontinued operations, net of taxes. The loss from discontinued operations (net of income tax effect) was $2.3 million for the nine months ended September 30, 2008 compared to $1.1 million for the nine months ended September 30, 2007. We made plans to dispose of an inpatient facility during the quarter ended September 30, 2008 and recorded a $1.5 million write-down to fair value of the assets held-for-sale for this facility. Liquidity and Capital Resources
Working capital at September 30, 2008 was $188.4 million, including cash and . . .