The Universal Health Services First Quarter 2024 Earnings Conference Call began with Executive Vice President and Chief Financial Officer Steve Filton welcoming participants and introducing the company's results for the first quarter. He reminded listeners of the risks and uncertainties involved in forward-looking statements and highlighted the company's net income and adjusted net income for the quarter. Filton also mentioned the strong demand for the company's Acute Hospitals, with a 4.5% increase in adjusted admissions on a same-facility basis.

The article discusses the financial performance of a company in the first quarter of 2024, highlighting a 9.6% increase in net revenues in the Acute Care Services segment and a 10.4% increase in Behavioral Health Hospitals segment. The company also saw an increase in cash generated from operating activities and continued its share repurchase program. The CEO concludes that 2024 is expected to be a strong year for the company.

In the first quarter of 2024, both segments of the company saw an increase in operating margins compared to the same quarter in 2023. The Acute Care segment is expected to have moderate or strong volumes, while the Behavioral segment is expected to gradually improve over the year. Both segments have received increased Medicaid payments to compensate for inadequate reimbursement levels. The company is pleased with the results and is now taking questions. The first question is about Acute Care volumes, specifically the impact of the calendar on January, February, and March, and how April is looking. The second question is about the impact of Medicaid dollars in the Behavioral segment, specifically in states like Mississippi.

In the fourth paragraph of the article, Steve Filton discusses a variety of issues, including the softening of Acute Care and Behavioral volumes in March due to Easter/Spring Break timing. However, there has been a recovery in April and volumes are expected to be between the January/February and March levels. Filton also mentions that there were $10-15 million of out-of-period Behavioral dollars in the quarter. He also talks about the company's disclosure of Medicaid supplemental payments and their plans to update this in their upcoming 10-Q filing. In response to a question about beating consensus EPS and EBITDA, Filton reveals that their internal budget for the quarter was not far off from consensus. Additionally, inpatient growth was higher than outpatient, and Filton attributes some of this to the Two-Midnight rule.

The company had a successful quarter, with results exceeding expectations. They do not believe that the Two-Midnight rule has had a significant impact on inpatient activity. The company expects to see improvement in Behavioral patient day volume throughout the year. They also provided an update on a Jury Award received during the quarter and mentioned potential insurance protection.

Steve Filton discusses the growth of Behavioral patient days and how it has improved slightly from previous quarters. He believes that the underlying demand is there and that the volume will continue to grow throughout the year. He also mentions some factors that have impacted the volume, such as specific residential treatment facilities and Medicaid disenrollment. Filton then addresses a malpractice case in Illinois that the company disclosed in an 8-K, stating that the verdict was unprecedented and there is still uncertainty around how it will be adjudicated. As a result, there has been no measurable impact on the company's financial statements.

The company disclosed in their Qs and Ks that they had $250 million of commercial insurance coverage for a 2020 incident, with $225 million still available. The increase in other operating costs in the quarter was primarily driven by physician expenses, which are expected to increase by 5-6% for the year. The increase in claims for the Acute division was due to increased premiums for the insurance subsidiary. The company also received $10-15 million in supplemental payments from prior periods.

Steve Filton, the CFO of a company, was asked about the potential impact of new state payments on their Behavioral program in 2024 or 2025. Filton stated that in the past, supplemental payments have tended to increase over the course of the year as states implement new programs or refine existing ones. However, he could not disclose specific states or expectations until they go public or receive approvals. He also mentioned that they expect a number of states to implement new programs or expand existing ones by the end of the year, but will provide more details in their public filings. Another analyst asked about labor and wage trends, as well as pricing. Filton did not give specific details but stated that strong revenue gives them leverage down the income statement, and they have seen strong pricing in the quarter.

The speaker discusses the factors contributing to the decrease in labor costs on the Acute side, including lower premium pay, deceleration of wage rate inflation, and productivity adjustments. They also mention reasonable price increases in contractual rates, but note that there has been increased denial activity and patient status changes as managed care companies face margin pressure. The speaker also mentions an increase in patients moving from Medicaid to exchange coverage.

The speaker is discussing the impact of exchanges on Acute and Behavioral health coverage. They believe that exchanges tend to be a net positive for Acute coverage, as reimbursement is usually better than Medicaid. However, on the Behavioral side, it is a bit of a toss-up due to high co-pays and deductibles. This may contribute to slower growth in patient pay volumes. The speaker also mentions that the Illinois litigation is unprecedented and may affect their approach to the RTC business, but it is too early to determine any changes. They also note that the case is different from Acadia's and cannot comment on it in detail.

The speaker states that the recent verdict has not affected their business approach, and they are focused on challenging it. The company has seen margin improvement in both segments and believes there is still room for further improvement as acute care and behavioral volumes continue to grow.

The speaker believes that revenue performance will continue to be strong, and expenses are being better controlled. Wage inflation is becoming more manageable and Medicaid supplemental payments are a significant opportunity for margin improvement. The first quarter showed a significant improvement and they hope to recover more of the margin deterioration. A question was asked about local market competitors also benefiting from the supplemental payments.

The speaker is curious if there have been any changes in competitive behavior due to increased supplemental payments and also asks about the impact of the Illinois litigation on share repurchase and capital deployment. The speaker notes that there have not been any significant changes in competitive behavior and that it is too early to make any specific reactions until there is more clarity on the outcome of the case.

The speaker discusses the recent Medicaid rule on state-based programs, noting both positive and negative aspects. They mention the use of legal experts to challenge CMS' objections to hold harmless agreements and the encouraging fact that CMS will not enforce actions until 2028. The speaker also notes that about a third of their current supplemental payments are under these agreements, but two-thirds are not.

The CMS has given states enough time to restructure their arrangements if they believe the hold harmless agreements will not hold up under legal scrutiny. The opening of West Henderson later this year is still on schedule, but may result in some preopening costs and operating losses. However, the hospital is expected to have a successful opening due to population growth in the area.

The speaker explains that the $5 million increase in premium pay in the first quarter is due to strong acute care volumes. They have a goal of reaching $50 million per quarter in premium pay, but this may be difficult to achieve unless acute care volumes decrease. They are satisfied with the current levels of premium pay. The speaker also discusses CapEx spending and the opening of Las Vegas and West Henderson, noting that acute care volumes in Las Vegas may be running above the company average.

The speaker discusses the company's continued investments in both acute and behavioral services, including emergency room capacity, surgical services, and outpatient facilities. They mention the success of their freestanding emergency department initiative and plans to expand inpatient capacity and invest in telemedicine and addiction treatment. The speaker also explains that the company has a larger presence in slower-recovering geographies such as Nevada and California, compared to faster-recovering areas like Texas and Florida.

The speaker believes that the recovery trajectory in Nevada has accelerated in the last few quarters, and the business metrics have improved significantly. They exceeded their internal expectations for the first quarter and there is potential for further improvement in behavioral volumes and supplemental payments. They may revise their guidance at the end of the second quarter if these trends continue, and they will closely monitor acute care volumes and behavioral pricing.

In the paragraph, Steve Filton and Andrew Mok discuss the possibility of a guidance revision in the second quarter if metrics remain strong and steady. Filton also comments on the trends in the Behavioral segment and expects volumes to improve as the year goes on. The conference call concludes with closing remarks from Filton.

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