The Universal Health Services Third Quarter 2023 Conference Call began with an introduction from the operator and CFO Steve Filton. Filton discussed the company's results for the third quarter, highlighting key developments and business trends. The company reported a net income of $2.40 per diluted share, with an adjusted net income of $2.55 per diluted share. Same facility revenues at behavioral health hospitals increased by 7.6% due to a 6.5% increase in revenue per adjusted patient day.

In the third quarter of 2023, the company saw greater patient day growth in their acute care behavioral hospitals compared to their lower acuity residential treatment centers, leading to an increase in revenue per day. However, there was a negative impact on behavioral health volumes due to Medicaid redeterminations in certain states. The company also experienced strong demand for their services in the third quarter, with adjusted admissions increasing by 6.8%. There was a shift from inpatient to outpatient procedures, and managed care behavior has become more aggressive in terms of denials and patient status changes. Despite a decline in premium pay, the company's cash generated from operating activities increased compared to the same period in 2022. They also spent a significant amount on capital expenditures and share acquisitions.

The company has been successful in repurchasing a significant portion of its outstanding shares and has a strong borrowing capacity. The CEO, Marc Miller, acknowledges the challenges faced in the operating environment but remains confident in the company's ability to meet its revised earnings guidance. The company is focused on countering aggressive behavior from payers and seeking price increases to offset inflation. They also see potential for growth in their behavioral segment and expect to see positive impact from state directed programs in Florida and Nevada. The call is now open for questions.

Justin Lake of Wolfe Research asks about guidance for 2024 and the potential impact of the Nevada supplemental program. Steve Filton responds that they will not give formal guidance until the fourth quarter earnings call, but they believe the metrics of the two businesses are returning to pre-pandemic levels. He also mentions that the Nevada program has been submitted to CMS and they believe it meets their requirements. Historically, similar programs have been approved by CMS without issue.

The speaker discusses the potential impact of Medicaid redeterminations on behavioral volumes, stating that they are estimating the effect and have noticed a decline in calls and inquiries from patients in states like Texas where many have been redetermined off the rolls. They hope to work with patients to get them back on coverage, but are unsure of the full impact.

The speaker discusses the managed care environment and how it relates to Medicaid redeterminations. They believe that the increase in redeterminations may have impacted their volume growth in the third quarter, especially in Texas. They also mention that share repurchase activity picked up in the quarter and that they plan to use their free cash flow for share repurchase going forward.

The speaker is discussing the impact of managed care companies' utilization review and claims denial practices on their hospital's commercial rates. They believe that these tactics have become more aggressive as healthcare utilization has picked up post-pandemic. This has resulted in a slight decrease in their acute care revenue per adjusted admission, but they view it as temporary and expect to collect the denied claims in the future.

The speaker, A.J. Rice, asks about the impact of MCO behavior and lower acuity volumes on the company's revenue per adjusted admission in the acute care sector. He also asks about the demand for behavioral services and potential constraints such as Medicaid redeterminations and staffing challenges. The speaker, Steve Filton, responds by explaining that the industry is experiencing a recapture of procedures that were postponed during the pandemic, which tend to be lower acuity and less intense. He also mentions that there is a cascade of demand for procedures and visits to primary care physicians as things return to a more normal trajectory.

The speaker discusses the impact of people returning to their primary care doctors after not seeing them for a few years. This has led to higher volumes but lower revenue per admission. However, the speaker expects volumes to moderate and revenue per admission to increase over time. They also mention that the long-term model for the business has not changed significantly, with historical revenue growth in the mid-single-digit range split between price and volume. On the behavioral side, pricing has been strong due to weakness in the residential business. However, as residential volumes increase, pricing will naturally decrease. The speaker also mentions ongoing staffing issues, but they are working to improve recruitment and retention metrics to drive greater volumes.

In response to a question about physician subsidies, Steve Filton confirms that the expenses have been in line with expectations for the quarter. He also discusses the market dynamics and how the industry has had to reset itself since the No Surprise Billing Act passed. Filton expects the rate of increase in physician expenses to moderate significantly in 2024, possibly in the range of 10% to 15%. This is due to the impact of the lower billings and the profitability of physician services.

The company is replacing expensive contracts and in some cases, bringing services in-house to drive greater efficiencies. They expect 2024 to be less volatile with fewer material increases. The progress of three new hospitals is on track, with one opening in late Q3 or early Q4 of 2024. The Medicaid redetermination process is primarily for inpatient services.

During the third quarter, there was an increase in inquiries from patients who did not have appropriate financial coverage, particularly in states where Medicaid redeterminations were high, such as Texas, Arkansas, and Indiana. However, it is difficult to determine the exact source of these inquiries and whether they are from referral sources or direct contact with patients. The company does not document the history of patients' Medicaid coverage, making it difficult to provide precise data on the issue.

The speaker clarifies that while the number of inbound inquiries remains the same, the financial ability to pay has decreased. They also mention that the increase in business pressures is expected to moderate in the next year, and that contracts with physician providers have short-term outs. They also clarify that the low acuity pent-up demand will gradually decrease over time, and that inpatient denials from insurers have been an issue.

Steve Filton, speaking on behalf of the company, explains that it is difficult to determine if a procedure is a catch-up from the pandemic or not. However, they have seen an increase in elective procedures since the decline during the pandemic. This has resulted in a rise in acute care adjusted admissions, which has moderated in the second and third quarters. Filton admits that it is hard to predict how quickly this trend will continue and how much is left in the pipeline. The company will make an estimate based on current trends when giving their 2024 guidance.

The company expects to see a return to mid-single-digit acute care revenue growth, split between price and volume, in 2024. The main issue with denials in the acute business is patient classification between inpatient and observation status. The company has hired a group of nurses in Q2 and is working towards training them to take on a full patient load. The company also provided an update on the behavioral hospitals, which had some issues in Q2, and expects to see a return to normal admission trends.

In the article, the speaker discusses two issues that the company has been dealing with: challenges with certain treatment facilities and a high number of new nursing graduates. They believe that by the end of the year, these issues will be resolved. The first issue will be resolved quickly, while the second one will take longer. The company is constantly hiring and training new nurses, but they have seen some improvement in hiring rates and turnover. They expect to see a small increase in occupancy, which will have a positive impact on the company's earnings and margin growth. The speaker also provides the contract on premium labor as a percentage of total labor for nursing and acute care.

In the third quarter, the company saw a 10-15% increase in revenue, reaching $69 million. However, they are facing challenges with lack of labor and Medicaid redeterminations, which are temporarily limiting volume growth. The staffing issue is more prominent in the acute behavioral business. Additionally, professional fees have increased from 6% to 7.6% of revenue, but the company is working to negotiate better rates to match inflation.

The cost pressure from physician expenses is a one-time reset due to the passage of the No Surprise Billing Act. This has resulted in increased costs for third-party coverage and a shortage of doctors. It is expected to take about 3 years to recapture the 1.6% margin headwind, but there is nothing structurally different about this cost compared to others.

The speaker explains that the company's expenses rose significantly in 2023, mainly due to increases in physician expenses. They do not expect this trend to continue at the same rate, but anticipate some pressure on physician expenses in the future. The speaker also mentions that they do not foresee a decline in physician expenses anytime soon, and a 10-15% increase for 2024 is a reasonable estimate. When asked about strategic priorities for the behavioral health business, the speaker mentions their focus on labor and potential organizational changes, but does not provide specific details.

The speaker discusses the ongoing focus on staffing, recruitment, and retention in their behavioral business, as they believe it is the key to increasing occupancy and improving financial performance. They are also working on broadening their continuum of care and expanding their reach to different payer groups. All of these initiatives are aimed at increasing occupancy in the long term.

The speaker is discussing the company's guidance and potential for exceeding it. They mention potential upsides in increasing behavioral volumes and pushing pricing up. They also discuss the impact of physician staffing costs and potential issues with out-of-network billing.

The company has historically outsourced contract services, but has recently brought some in-house. This has affected hospital-based physicians, particularly in the areas of anesthesiology and ER. The No Surprise Billing Act has not had a significant impact on employed physicians. The company expects revenue growth to moderate in the future and return to more normal levels.

The speaker believes that in the behavioral sector, pricing will decrease slightly but volumes will increase, leading to moderate revenue growth. They also expect costs to decrease due to better control of expenses, which should help the company reach pre-pandemic margins. The conference call has ended and the speaker thanks everyone for their time.

This summary was generated with AI and may contain some inaccuracies.