The operator introduces the Fourth Quarter 2023 Universal Health Services Earnings Conference Call and hands it over to Steve Filton, Executive Vice President and Chief Financial Officer. Filton highlights the use of forward-looking statements and addresses the risks and uncertainties associated with them. He also mentions the company's net income per diluted share for the fourth quarter and Marc Miller discusses the strong demand for the company's services and increase in surgical volumes.

In the fourth quarter of 2023, net revenue per adjusted admission increased by 3.7%, while premium pay decreased from its peak earlier in the year. Expenses, especially physician subsidies, resulted in flat margins for the full year. Same facility revenues at behavioral health hospitals increased by 7.2%, driven by a 6.1% increase in revenue per adjusted patient day. The negative impact of Medicaid redeterminations on behavioral health volumes appears to have stabilized. Same-facility EBITDA for behavioral hospitals increased by approximately 9% for the full year. The company recorded $18 million in connection with the Mississippi Hospital Access Program in the fourth quarter. Cash generated from operating activities was higher in the fourth quarter and for the full year of 2023 compared to the same periods in 2022.

In 2023, the company spent $743 million on capital expenditures and acquired $525 million of their own shares. They also had $701 million of available borrowing capacity. The company's 2024 operating results forecast reflects pre-COVID trends, with moderate volumes in the acute segment but increases in acuity and pricing. Premium pay labor trends and costs are expected to remain stable, with physician expenses growing at the inflation rate. The forecast also includes an additional $149 million of Nevada supplemental revenues. The company expects continued demand for behavioral services and an increase in same-store adjusted patient day growth. This is due to their success in filling vacant positions.

The company acknowledges that workforce shortages in certain markets have hindered growth, but they are focusing on improving patient satisfaction and quality of care. In the fourth quarter, there was an improvement in revenue per adjusted admission in the acute business, which may be attributed to increasing acuity and stabilizing pressure from payers. The company also saw payers being more aggressive in 2023, which included denials and patient status changes, but this may have stabilized in the fourth quarter. The company is also considering potential benefits from changes in regulations and the health exchange market in their guidance.

The company did not change their billing practices during the quarter, but they are starting to see the effects of more aggressive behavior from payers in the fourth quarter. They are being conservative about volume but more aggressive about pricing, and believe there may be an opportunity for increased revenue from payers. Labor shortages are still impacting volume, with the acute segment being affected differently than the behavioral segment. The company has been able to fill positions but at a higher cost using temporary and traveling nurses, though those numbers have declined significantly.

The speaker discusses the company's growth in the behavioral segment, stating that they have been unable to fill positions in recent years which has limited their volume growth. They expect mid-single-digit growth in this segment next year, split evenly between price and volume. They also mention being more conservative about price and more aggressive about volume. They acknowledge that they could have higher volumes if they were able to fill all positions, but this is not currently a realistic outlook. In response to a question about the 2024 guide, the speaker notes that Nevada is expected to have a strong impact on growth, but without that, EBITDA growth is still expected to be in the 4% range. They do not mention any one-time factors that would affect the guidance.

Steve Filton responds to a question about the expected growth of EBITDA in the inpatient business. He argues that Medicaid reimbursement rates have not kept up with increased costs, and that the recent increase in rates in Nevada is simply bringing them back to adequate levels. However, he also acknowledges that the company has been cautious due to unpredictable expense increases in recent years, such as physician subsidies. He hopes to achieve better margins than what is currently projected in the company's guidance.

Justin Lake asks Steve Filton about the profitability growth in both businesses and the impact of DPP on the company's earnings. Filton acknowledges that DPP has been a significant source of growth, with estimated net benefits of $809 million in 2024, and credits this to the upward trajectory of Medicaid supplemental payments in certain states. He believes this trend will continue due to inadequate Medicaid reimbursement and rising expenses, particularly in labor.

The states are providing supplemental reimbursement to hospitals in order to ensure that necessary services are available to the population. Other states are considering adopting similar programs, but these conversations are not yet public. CMS has discussed limiting the growth of these programs, but it is unlikely that they will be cut or significantly reduced. The safety net hospitals that rely on these programs make it difficult for states or CMS to reverse them. There is an increase in activity in other states looking to implement similar programs.

The speaker, Steve Filton, responds to a question about the company's capital deployment strategy. He states that they invest in markets based on potential return, not just by segment. They have seen high returns in the behavioral health segment, but also prioritize protecting their market share in successful markets like Las Vegas. The company has also invested in share repurchases in the past.

The company is currently focusing on outpatient opportunities and is considering deploying more capital to this area. This could potentially be margin accretive and return accretive. They have recently opened a new hospital in Las Vegas and are expanding in other markets such as South Texas, Riverside County, and Palm Beach Gardens. The company is also adding beds and doing joint ventures with non-profit hospital partners in the behavioral health sector. The challenge for the company is to carefully choose where to invest in order to maintain their success.

The speaker, Joshua, asks a question about the company's competitors and their investments in different markets. The speaker responds by saying that they don't want to follow their competitors, but rather focus on their own successful franchise positions. Another question is asked about the acute business, and the speaker mentions that they believe the worst of inflation is behind them. They also discuss the size of the acute business and the potential for portfolio management and value creation.

The speaker explains that 18 months ago, hospitals had their physician contracts locked in, but due to changes in the operating environment and the No Surprise Billing Act, the businesses became less profitable. This led to bankruptcies and hospitals having to renegotiate contracts or employ physicians themselves. The increased costs from this process are now reflected in financial statements and should not increase dramatically in 2024. However, the volatility in this area has made hospitals more cautious in their overall guidance for 2024. The speaker then hands over to another speaker to discuss acute care development.

The company is interested in expanding its portfolio in both the acute care and behavioral markets, and is open to opportunities in both existing and new markets. They have also made significant changes to their behavioral portfolio in the past 5-10 years. The speaker also mentions that labor may still be a limiting factor in the behavioral business.

The speaker discusses the potential benefits of raising wages by a couple of percent to drive more volume back to the facilities. They mention that wage growth has moderated and they have made progress in reducing premium pay. They also mention that they are constantly looking for ways to increase capacity, such as adding beds and changing program offerings. However, they also mention that it is not always easy to attract the last 1% or 2% of the workforce through increased wages.

The speaker explains that temporary labor is used to avoid paying higher wages to employees, which could lead to an increase in wages for all employees. They acknowledge the desire to fill all positions, but also consider the implications of paying higher wages. The speaker also disagrees with the comparison of current volumes to 2019, as it does not take into account the impact of the Nevada supplemental and the lack of Medicaid increases in the state.

The speaker states that the company's growth in the acute division is not solely dependent on the supplemental payments and expects more recovery in the future. They also mention that their adjusted admissions grew by 5-6% in 2023, which is historically high. They then discuss the factors affecting growth in the behavioral division, including labor and portfolio rationalization efforts, and mention that they added around 250 new beds this year. They are also considering expansion at current facilities and potential M&A opportunities for the behavioral business.

The company plans to add more outpatient services next year and sees a lot of opportunity in that area. They are also expanding existing outpatient services, including addiction treatment, which is a higher returning and higher margin business. The company expects payer mix dynamics to trend positively in 2023, with a return of low acuity Medicare volumes. They have not seen a significant change in uninsured admissions, which make up about 5-6% of overall admissions.

The speaker discusses the moderating volumes in the healthcare industry and the impact on acuity and pricing dynamics. They also mention the decrease in premium pay throughout the year and the potential for further reduction in the future. The goal is to reach a premium pay number of $50-60 million per quarter, but this is dependent on volume levels. The speaker also mentions that premium pay may not return to pre-pandemic levels, but there should still be a significant decrease in 2024 compared to 2023.

The speaker discusses the potential financial impact of improved Medicaid reimbursement rates, estimated to be around $30-40 million. They also mention the $200 million increase in supplemental programs for 2024 and the minimal effect of Medicaid redeterminations on the acute business but a larger effect on the behavioral business, specifically in southern states.

The company has seen a decrease in their child and adolescent business in the last six months of 2023 due to redeterminations. However, they believe this impact will be limited as the redeterminations have already taken place and they are already seeing re-enrollments in other programs. In regards to behavioral pricing, the company has seen strong pricing in the past few years, but this has been driven by softness in residential patient days. They expect a step down in pricing in 2024, but the exact impact is unknown.

The speaker predicts that as the company recovers from regulatory challenges and capacity constraints, residential growth will outpace acute growth and lead to lower pricing. The company has been successful in negotiating higher rates with payers, but this may start to level off. For 2024, the company is being cautious and conservative in their projections, taking into account past pressures and unexpected expenses.

The speaker discusses the recent volatility in the market and how it has affected their approach to guidance. They also mention the difficulty in predicting margin expansion in a high inflationary environment. The speaker believes that if they can achieve their revenue targets, they will be able to bring out more efficiencies and higher margins. The questioner brings up the Medicaid supplemental payment disclosures and asks about any evidence of volume growth from states covering adults with substance use disorders through 1115 waivers. The speaker mentions that there have been some individual facilities and markets affected by these waivers.

The speaker states that overall, the impact of recent changes in the healthcare industry has not significantly affected their business. However, they do see opportunities for growth in outpatient services, particularly in the behavioral health sector. They mention the potential for Medicare reimbursement for these services and the increasing demand for behavioral care across all demographics. When asked about pricing, the speaker notes that their rate increases are slightly below the midpoint of the expected range, but this may vary depending on the type of product and market.

The speaker discusses the overall pricing assumption in their guidance, which is 2.5% to 3%. They mention that their commercial business is experiencing a higher increase of 5% to 6%. They also mention their technology investments in the behavioral segment, including implementing an electronic medical record and experimenting with tracking devices for patients. The speaker thanks everyone for their time and looks forward to speaking again in a few months.

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