Northstar is a successful participant in a very successful industry. A Medicare Payment Advisory Commission report in March 2006 said that, between 1999 and 2005, the number of Medicare-certified ASCs increased from 2,786 to 4,506, an increase of 62%. As illustrated by the chart below, while the total number of surgeries has more than doubled, the proportion of outpatient surgeries has grown even faster. This is a massive change in the field of medicine.

Behind these trends is that major force in our economy today – technology. Technology makes many surgeries much less invasive than they previously were.

Our shareholders benefit from this technology, which serves the interests of surgeons, payors and patients.

• Surgeons get more done in less time, earn better incomes and enhance their quality of life;
• Patients prefer our more personalized environment; and
• Payors receive consistently one-third lower charges than those of conventional hospitals.

Instead of scalpels there are scopes for many removals and repairs. Arthroscopy repairs knee and shoulder cartilage and ligaments. Scopes even handle spinal disc replacement – none of this was possible even five years ago.

Anesthesia is also part of this revolution, permitting shorter recovery times for patients and allowing a growing number of procedures to be performed in ASCs.

As a result, we handled more than 10,000 cases in 2006 alone involving 10 operating and procedure rooms staffed by more than 90 surgeons carrying out a specific, narrow range of procedures.